Your retired clients’ Medicare Part B premiums have remained at the same level in 2015 as they were in 2014, but absent some political moves in Washington, that will change in 2016.
According to an August paper from the Center for Retirement Research at Boston College, Part B premiums for higher-income Americans are scheduled to rise significantly in 2016. That’s because it appears there will be no cost-of-living adjustment for Social Security recipients in 2016—for only the third time in the past 40 years.
Lower inflation and no 2016 COLA for Social Security recipients will cause a “flap in the Medicare program” next year, point out CRR authors Alicia Munnell and Anqi Chen, because by law, the cost of higher Medicare Part B premiums cannot be passed on to most beneficiaries — about 70%, they say, who are considered “held harmless” on premiums — when they do not get a raise in their overall Social Security benefits.
To begin, why won’t there be a COLA for Social Security recipients next year? Any adjustment in Social Security benefits as of Jan. 1 of each year is based on comparing CPI-W in the third quarter of the preceding year (2015 in this case) with the CPI in the prior year’s (2014 in this case) third quarter. The CPI in 2015’s third quarter is, so far, below 2014’s third-quarter inflation, and thus no COLA.
(CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers, is used by the Social Security Administration to adjust benefits for both Social Security and Supplemental Security Income (SSI) recipients.)
Parts B of Medicare, funded by Social Security’s Supplementary Medical Insurance Trust Fund, covers physician and outpatient hospital services (Part B) and Part D pays for prescription drugs (Part A is funded by a separate Hospital Insurance Trust Fund and pays for inpatient hospital services, home health and hospice care and “skilled nursing facilities,” i.e., nursing homes).
The paper points out that 75% of the costs of Parts B and D are paid from the government’s general revenues; the remaining 25% comes from monthly premiums paid by beneficiaries out of their Social Security benefits before those benefits are sent.