The Lowdown on the 52 Percent Medicare Premium Increase

You probably heard that there’ll be no Social Security cost-of-living increase for beneficiaries in 2016. But what you may not know is that a ripple effect of this, for millions who’ll be covered by Medicare next year, could be a 52 percent boost in their monthly Medicare Part B premiums (Part B is the part of Medicare that pays for doctor visits and other outpatient care).

Here’s why, what might prevent the steep Medicare hike from happening and what Medicare beneficiaries affected can do if it will occur:

The 50 million Social Security recipients won’t see a cost-of-living adjustment (COLA) in their checks — the first time since 2011 and only the third time in 40 years — because the government’s inflation measure was virtually flat during the 12 months ended September 30. In normal years, an inflation-adjusted boost in Social Security helps beneficiaries pay for the higher Medicare Part B premiums that reflect rising medical costs.

The law protects most beneficiaries when they don’t get a Social Security cost-of-living increase. Generally, if your Social Security payment doesn’t rise, neither does your Part B premium. The premium is typically $104.50 a month this year and, for most Medicare beneficiaries, will stay the same for 2016.

But 30 percent of Medicare beneficiaries — 7 million people — will be socked with a much higher monthly Part B premium ($159.30 in most cases) next year, unless Congress and/or the Obama administration come to the rescue. That would be the biggest single yearly hike in Medicare history.

The four primary types of people who will be affected by the planned Part B premium increase:

• Anyone enrolling in Medicare for the first time next year
• Medicare beneficiaries with incomes over $85,000; $170,000 for married couples They already pay higher premiums than other Medicare beneficiaries, but individuals earning between $85,001 and $107,000 and couples earning from $170,001 to $214,000 would see their 2016 monthly premiums rise from $146.90 a person to $223 and those earning more than $214,000 ($428,000 for couples) would see a projected increase from $335.70 a month to $509.80
• Low-income income people whose Medicare premiums are paid by state Medicaid programs
• Medicare recipients who don’t receive Social Security, such as state government workers and federal retirees who only participated in the older Civil Service Retirement System

Some advocates for older Americans are calling on President Obama and Congress to prevent or at least reduce the planned Medicare premium hike, using taxpayer revenues to pay for it rather than putting the burden wholly on Medicare beneficiaries. Protecting all Medicare beneficiaries from the increase could cost between $10 billion and $12 billion, though.

“AARP urges you to reduce and mitigate the impact of the sudden, sharp increases in the Part B premium and deductible as soon as possible,” Nancy LeaMond, AARP executive vice president and chief advocacy officer, said in a letter sent to all members of Congress. “Ideally, all Medicare beneficiaries should be held-harmless in the face of no Social Security COLA adjustment,” she said in the letter.

But the outlook for any agreement seems uncertain as the White House and Congress struggle over budgetary issues, a fight that could result in a government shutdown.

Although there is a fund controlled by the U.S. Department of Health and Human Services (HHS) that could be used, it’s unclear how much of it could be tapped to reduce the impact of a Part B hike and how much authority the agency has to deploy the money before Jan. 1. HHS Secretary Sylvia Mathews Burwell has said, however, that her agency would look for ways to reduce the planned premium increase.

And White House spokeswoman Katie Hill has said: “We share the goal of keeping Medicare’s premiums affordable, are exploring all options and appreciate the interest and ideas of members of Congress.”

Where might Congress get the money?

“We don’t know, but we want to be sure this doesn’t land on the backs of people with Medicare,” said Joe Baker, president of the Medicare Rights Center, a nonprofit consumer service organization that works to ensure access to affordable health care.

One possible temporary fix, if Congressional leaders can’t agree on a Medicare-based solution, might be including a freeze on the premium increases in an overall year-end budget deal.

Meanwhile, if you’ll be among the 30 percent of Medicare beneficiaries pegged to owe the big Part D premium increase, what can you do to ease the pain?

For most affected beneficiaries, not much. Some advisers have suggested a few tricky moves, but they're generally more trouble than they're worth.

However, if your income is below 135 percent of the federal poverty line — about $22,000 for a family of two — you may qualify for a Part B premium subsidy from your state. You can find information about State Health Insurance Assistance Programs at the SHIP National Technical Assistance website.

The financial problem for 2016 “could happen over and over again,” said Benjamin Veghte, vice president for policy at the National Academy of Social Insurance, a nonpartisan think tank dealing with policy issues involving Social Security and Medicare.

“The core problem,” said Veghte, “is that the inflation measure we have is a measure for the market basket for the average worker rather than for seniors. It does not measure the expenses for seniors and what they actually spend out of pocket for health care.”

One reason there’s no Social Security cost of living increase is the 30 percent drop in gasoline prices since last year, which tamped down inflation. But many people on Medicare don’t work full-time, so they don’t benefit much from cheaper gas. By contrast, medical care costs have risen by 2.4 percent since last year, according to The Fiscal Times.

And as health care spending keeps rising faster than the general rate of inflation, it will consume a rising share of Social Security retirement checks, threatening to push more recipients into poverty, according to advocates for an expansion of Social Security benefits such as Nancy Altman, co-director of Social Security Works. Altman says that about two-thirds of Social Security enrollees get at least half their income from the program.

The government has had an alternative consumer price index for people over 62, known as the CPI-E, since 1987. It computes inflation based on what these older Americans spend money on and how much. The Senior Citizens League, which favors switching to the CPI-E, told Moneywatch.com: “We estimate that a senior who retired with average benefits in 1984 would have received nearly $14,000 more through 2014 if the CPI-E had been used.”

But since the government considers the CPI-E “experimental” (that’s what the E stands for), this index isn’t used to calculate Social Security cost-of-living increases.

And no Congress or President wants to, since that index might boost spending for Social Security and other federal programs linked to annual inflation adjustments.