Ignore the Hype About Medicare Premiums Increasing: Here Are the Facts

The cost of medical expenses is rising and thus users across the board (not just 30% of them) could see their premiums rise by some amount.

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Articles have been circulating recently telling retirees their Medicare Part B premiums may be increasing by 50% in 2016. The premium increase is expected to affect about 30% of Medicare users. Medicare is required by law to recover 25% of expenses for covered doctor, outpatient and medical equipment costs through the premium it collects from users. The cost of these expenses is rising and thus users across the board (not just 30% of them) could see their premiums rise by some amount.

Fortunately (or unfortunately) inflation has been relatively benign this past year mainly due to falling oil prices. It is unlikely Social Security recipients will see much of an increase in benefits in 2016 from the annual cost of living adjustment (COLA). However, the “hold harmless rule” ensures that Social Security checks will not decline from one year to the next because of increases in Medicare Part B premiums. Even without a COLA adjustment to Social Security checks, most Medicare user’s premiums will remain unchanged.

The hold harmless rule applies to most, but not all, Social Security recipients. A relatively small number of retirees with incomes above $85,000 for single people and $170,000 for married couples are required to pay higher premiums for Medicare Part B and Part D. Retirees in this income range are expected to pay from 35% to 80% of program costs, depending on their income. The income levels for paying higher premiums were originally reset annually for inflation. The Affordable Care Act changed the law and has fixed the income threshold at the current level since 2011. Over the past four years the number and share of Medicare users paying higher Part B and Part D premiums has increased. In 2016, 2.9 million retirees are expected to be paying the higher premiums. So if your Medicare premiums increase in 2016 it is most likely because your income exceeded the threshold in 2014.


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