Since Medicare’s inception in 1966, the Part B premium had risen an average of 7.7 percent per year. But in 2017, it increased nearly 28 percent for certain Medicare recipients. It turns out there is a way for you to limit those cost increases. The question is, should you?
Let’s start with a quick review of Medicare. Part A, hospital insurance, covers in-patient hospital stays, surgeries and post-hospital skilled nursing care. If you have contributed to Social Security for 40 quarters or more, you are entitled to Medicare Part A coverage once you reach age 65 at no cost. You also may be entitled to Part A coverage without having to pay a premium through your spouse or based on other extenuating circumstances.
Part B, outpatient services, covers eligible medical costs such as doctor and clinic visits, select pharmaceutical equipment, supplies, lab tests and medications administered on an outpatient basis. Unlike Part A, Part B requires a monthly premium, which is means-tested. That is, higher-income individuals are required to pay a surcharge on top of the standard premium.
Part D covers prescribed medications that are not administered in a doctor’s office. As with Part B, there are monthly premiums, again higher for higher-income individuals.
Newer additions to Medicare include Medigap plans, which cover some or all of the Part B out-of-pocket costs, and Medicare Advantage plans, designed for health maintenance organizations like Kaiser. Such plans can reduce your total medical costs as well as cost uncertainty from year to year.
From 2016 to 2017, the Part B monthly premium rose from $105 to $134 for retirees on Medicare who had not yet signed up for Social Security. Why so much? Because the Social Security Administration – which manages both programs – provides a break for people who are signed up for both and consequently have their Medicare premiums automatically deducted from their monthly Social Security payments.
The provision, known as “hold harmless,” is designed to protect Social Security recipients from declining paychecks due to rising Medicare costs. More specifically, it limits the increase in Part B costs each year to no more than that year’s Social Security cost-of-living adjustment.
In 2017, the hold-harmless provision resulted in a Part B increase of only $4 per month for combined Medicare/Social Security participants. Unfortunately, that meant the other 30 percent of Medicare recipients – those not yet signed up for Social Security – were forced to absorb the remainder of the actual Part B cost increases for the year. Hence the 28 percent increase in their monthly premiums.
Do the math
There is a way for you to take advantage of the hold-harmless provision, and that is to sign up for Social Security as soon as you sign up for Medicare (that is, at age 65). But there are consequences to such an action. It would mean giving up the 8 percent per year increase in Social Security benefits you’d get by delaying it until age 70.
What’s the best strategy? The math makes it pretty clear. Because the Part B premium is still small relative to a typical retiree’s Social Security income, it probably wouldn’t make sense for most retirees to trade off a reduction in Social Security income for an improvement in the much smaller Part B premiums. The value of delaying Social Security until age 70, with its concomitant future higher payouts, more than makes up for the higher Medicare premiums.
So my advice is just to live with the higher premiums. Unless, of course, politicians decide to make things worse.