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Few Options for Seniors Facing a Jump in Medicare Premiums

One-third of Medicare recipients could see a 52% hike in Part B premiums in 2016

THE WALL STREET JOURNAL
By Anne Tergesen
Updated Oct. 15, 2015 10:43 a.m. ET

Unless Congress or the Obama administration intervenes, nearly one-third of Medicare beneficiaries may see a 52% increase in 2016 premiums for Part B, which covers doctor visits and other types of outpatient care.

There are steps some affected individuals may be able to take to sidestep the increase, but there can be significant trade-offs. As a result, those affected individuals “have very little maneuverability� to avoid the added costs, says Tricia Neuman, director of the Henry J. Kaiser Family Foundation's program on Medicare policy.

Under the “hold harmless� provision in the Social Security Act, Medicare can't pass along to most Social Security recipients a Medicare premium increase that exceeds any additional dollars they would receive through a Social Security cost-of-living adjustment. On Thursday, the Social Security Administration announced that it will pay no cost-of-living increase in 2016, which means no Part B premium increase for most Medicare beneficiaries.

But not everybody qualifies for the hold-harmless treatment. Those who don't include new Medicare beneficiaries, those with high incomes, Medicare recipients who don't receive Social Security and lower-income beneficiaries whose premiums are paid by state Medicaid programs—altogether, some 30% of Medicare's 52 million Part B recipients.

With premiums frozen for 70% of beneficiaries, Medicare must spread the expected increase in its costs for 2016 across that remaining 30%. For them, the standard Part B premium—currently $104.90 a month—is projected to rise to $159.30 a month in 2016, according to a July report by Medicare's trustees. Single 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 this year to $223 in 2016. For those earning more than $214,000 (or $428,000 for couples), the projected increase is to $509.80 a month, from $335.70 in 2015.

Individual premiums are based on the most recent federal tax returns available—and for 2016, that is 2014 tax returns.

If your income has subsequently dropped to a level that would allow you to pay a lower Medicare premium, you can ask the Social Security Administration—which administers the income calculations—to re-run the numbers. To qualify, you must prove that your income fell because of reasons that include divorce, the death of a spouse, retirement or a reduction in work hours. (For more detail, see “Medicare Premiums: Rules for Higher-Income Beneficiaries� at socialsecurity.gov.)

If your income is no more than 135% of the federal poverty guidelines—a cap that this year is below $22,000 for a family of two in most of the U.S.—you may be eligible for a Part B premium subsidy from your state, says Joe Baker, president of the Medicare Rights Center. (For free help, visit your State Health Insurance Assistance Program at shiptacenter.org.)

Individuals with incomes of $85,000 or less (and couples with $170,000 or less) who have deferred claiming Social Security can escape higher Medicare premiums if they start receiving benefits—and have their Medicare premiums deducted from those benefits—by November.

But that might not be a smart long-term move. Because those who defer claiming Social Security increase their benefits by approximately 6% to 8% for each year they wait, “the amount of Social Security you would gain over the course of your expected lifetime by deferring could be much larger than what you would save next year in Part B premiums,� says Juliette Cubanski, an associate director of the Kaiser Family Foundation's program on Medicare policy.

Another way to potentially offset some of the expected premium increase is available to Medicare recipients who have never tried Medicare Advantage, a program that typically offers medical and prescription-drug coverage in managed-care plans. Medicare allows each beneficiary a one-time trial of up to 12 months in Medicare Advantage, and those who face higher Part B premiums may be able to save money by using that option in 2016.

Medicare Advantage enrollees must still pay the full Part B premium. But these plans tend to charge lower premiums than what many in traditional Medicare pay for the prescription-drug and “Medigap� plans that supplement their Part B coverage, says Aaron Tidball, a Medicare expert at Allsup Inc., a Belleville, Ill., provider of Medicare plan-selection services.

Those who switch to Medicare Advantage can switch back to traditional Medicare within 12 months and return to the Medigap policy they had before without “worrying about being rejected or charged more due to health,� says Mr. Tidball. The downside: Medicare Advantage plans typically have more restricted provider networks.

Note that the big jump in 2016 Medicare premiums for some beneficiaries could be followed by a significant drop the following year. Assuming Social Security recipients receive a cost-of-living adjustment in 2017, the hold-harmless provision will affect a smaller portion of Medicare recipients—and so Medicare costs will be shared more equally. Indeed, the Medicare trustees are projecting that the base Medicare Part B premium will reset for everyone at $120.70 a month in 2017.