Changes are afoot on the Social Security and Medicare fronts for 2016. Both programs are implementing measures that will have an impact on anyone who is currently retired or those making retirement plans over the next few years.
Let’s look at Medicare first. Medicare Part B, which covers services like outpatient doctor visits and preventative services, is required for all Medicare recipients not covered by a comparable employer health plan. In 2015, the premium for Medicare Part B was $104.90 for most folks. If you had a modified adjusted gross income over $85,000 for individuals and $170,000 for couples, you paid more.
That amount will go up in 2016 for the “high income” individuals mentioned above, plus anyone who signs up for Medicare Part B for the first time in 2016. It will also increase for anyone at lower income levels who doesn’t have their Medicare payment deducted directly from their Social Security check each month.
Hold Harmless Provision
The reason for the increase lies with a little-known Medicare rule call the “hold-harmless” provision. This rule ensures that Social Security checks will not decline from one year to the next because of increases in Medicare Part B premiums. It comes into play in 2016 because there will be no cost-of-living adjustment in SS payments. Normally, the COLA covers the cost of any increase that Medicare might institute, and sometimes there’s even a little left over.
2016 marks the third year in recent history in which no SS COLA will be applied. For those of you keeping score, 2009 and 2010 were the other no-COLA years. COLAs are set according to a formula that ties them to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS). A flat CPI means no COLA.
Now, hold harmless sounds good in theory, but it doesn’t take into account the fact that the Medicare Trustees have projected that costs for the program will increase in 2016. No surprise there, right? To cover the additional expense, new enrollees and those who don’t pay their premium through Social Security will pay about $120.70 plus a $3 surcharge each month. Higher income recipients will shell out about $169, or more if your income is above the $85/$170k level. I say “about” because the exact rates have not yet been announced by Medicare.
Social Security Changes
If this is all news to you, hold onto your hats. There are also changes coming to Social Security – ones that have to do with something other than COLAs. In a very quietly and quickly-handled deal, Congress and the President reached a compromise that sets federal spending limits for the next two years and lifts the ceiling on the federal debt limit. Sounds like business as usual in Washington, right?
But wait! Part of that deal contained some fine print that has big implications for anyone who is making retirement plans that include Social Security. If you’ve read one of the many articles that have been written in the last few years about a SS claiming strategy called “file and suspend” and liked the idea, or if you had considered filing for lower-payout, spousal-only benefits while you let your own benefits grow until age 70, prepare to be disappointed.
File and suspend will disappear after April 2016 for anyone not already enrolled by that date. And spousal-only benefits will only be an option for those who turn 62 before December 31, 2015. One bit of good news here is that spousal-only benefits will remain a choice for any widows or widowers who wish to claim on deceased spouse’s records. That goes for divorced survivors as well.
Congress and the President considered file and suspend and spousal-only claiming to be “loopholes” that have now effectively been closed. They have also characterized these as loopholes for the rich, and have defended getting rid of them as one way to preserve SS benefits for future enrollees. One could argue that these claiming strategies are actually fairly easy to come across for anyone who did their research. As I’ve said, there have been a number of articles written about them in the press in recent years. You didn’t necessarily need a financial advisor to tell you about them. And, in fact, many who call themselves financial advisors didn’t know much about them anyway.
What we can say for sure now is that the opportunity to earn approximately $35,000-$65,000 in additional SS benefits, depending on prior income, has been lost. Previously, if you were still working past full retirement age or if you had done a good job of saving for retirement so you could afford to live on the smaller spousal SS amount for a few years before collecting your higher, full benefit, you could take advantage of this added amount.
There will be more information available on both of these changes in the coming weeks. Online sites that specialize in retirement news, like Retirement. Revised (retirementrevised.com) and NextAvenue do a great job of keeping you updated on important changes to retiree benefit programs. It’s smart to add them to your weekly reading lists in order to be a more savvy retirement consumer!
Blog by Holly Deni