For those you who are on Medicare or who will be eligible for Medicare in 2017, the costs of Part B premiums may be substantially higher than they were in 2016. The issue, which also arose in 2015 and affected 2016 Medicare premiums has to do with what is called the Hold Harmless Rule. This rule stipulates that social security benefits cannot decrease as a result of increased Medicare Part B premiums. Therefore, Medicare premiums cannot increase more than the cost of living adjustment on social security benefits. In 2016, the social security cost of living adjustment was 0% and in 2017, it is expected to be 0.2%. As such, for those covered by the Hold Harmless Rule, the cost of Part B benefits did not increase in 2016 and will only be increased by a nominal amount in 2017.

Here’s the problem. As Baby Boomers have become eligible for Medicare, the costs have skyrocketed. If the premiums can’t be passed on to Medicare recipients (because of the Hold Harmless Rule), they need to be covered in some other manner. The burden falls on those NOT covered by the Hold Harmless Rule.

So, who is covered under the Hold Harmless Rule? To be covered, all three of the following criteria must be met:
You must currently be collecting social security benefits and you must have been collecting benefits in November and December of the prior year (in this case 2016).You must have your Medicare Part B premiums deducted from your social security payment. If you are paying your premiums separately, you are NOT covered by this provision.Your Adjusted Gross Income must be less than $85,000 for single taxpayers and $170,000 for joint filers. If your AGI is higher than these thresholds, you are NOT covered by this provision.[1]

Last year, it was estimated that approximately 30% of Medicare recipients were not covered by the Hold Harmless Provision and as a result, this 30% of people were slated to see a 52% increase in their Medicare Part B premium. That did not come to pass as this issue was addressed in the Bi-Partisan Budget Act of 2015 and premium increases were limited to approximately 16% (premiums went from $104.90 per month to $121.80).

Given the expectation for a nominal cost of living adjustment on social security benefits in 2017, we are faced with the same issue once again. It is has been reported in the press, that those not covered by the Hold Harmless provision could see premium increases in the 22% range from current levels ($121.80 per month to $149 per month in 2017) if these predictions come to pass and if no administrative action is taken. More clarity should be provided in late October which is when final social security cost of living adjustments are announced.

We will continue to monitor this issue and provide updates as they become available. In the meantime, for those of you who are not yet collecting social security benefits, this should not be of great concern to you. For those who are collecting, be sure that you are having the Medicare Part B premiums deducted from your check so that you are covered by the Hold Harmless Rule. For those of you who filed and suspended benefits and are not actually collecting any benefits at this time, it is not recommended that you make any changes. Despite the higher Part B premiums that you may be required to pay, the benefit of delaying collection of your social security payments (8% per year) is still greater than the higher costs you incur for Medicare premiums.

If you have any questions, please do not hesitate to call our offices at 561-491-0231.

[1] When determining cost of Medicare Part B for 2017, your AGI will be determined based on the tax return you filed in 2016 which covers 2015 income. In other words, there is a 2-year lag. The dollar thresholds are for 2016. There is a possibility they may be slightly increased for 2017.

Core Wealth Management is a fee-only wealth management firm located in Jupiter, FL.  Our CFP® professionals provide investment management, financial planning and advisory services, while always strictly abiding by the highest fiduciary standards.  For more information, contact us today at 561-491-0231.

Jackie Goldstick, CFP® is the Director of Financial Planning at Core Wealth Management.  She is a member of the National Association of Personal Financial Advisors (NAPFA) as well as the Financial Planning Association (FPA).

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