Social Security COLA (cost-of-living adjustment)

By now you have likely heard that there will not be a COLA (cost of living adjustment) to Social Security benefits for 2016.  The COLA is determined each year based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year (source: SSA.gov).  Due to the drop in the price of oil this year, and the related drop in gasoline prices, the CPI-W at the end of September 2015 showed no increase.

Medicare premiums

Medicare has 4 parts:

·         Part A – Hospital

·         Part B – Medical (doctors, labs, outpatient, etc.)

·         Part D – Prescriptions

·         Part C – Medicare Advantage (HMO type coverage that covers hospitals, doctors, and prescriptions in 1 plan)

 Medicare Part A has no premium. Medicare Part D premiums range from $0 – $50/month depending on the plan you choose.  Medicare Part C premiums are based on the plan you choose.

 Medicare Part B premiums, which are based on a complex calculation over a 2 year period, can and will change regardless of whether Social Security benefits get a COLA.  However,  there is a provision in the Social Security law that prohibits the net amount of a Social Security check from decreasing due to increases in Medicare premiums. Often referred to as the “hold harmless” provision, it’s rarely an issue because there is a COLA in more years than not, and the increase in gross Social Security benefits is greater than the increase in Medicare premiums in most years.

 But there can be a problem in years when there will not be a COLA for Social Security but Medicare premiums need to increase due to expenditures. 2016 appears to be one of these years.

 The “hold harmless” provision will protect approximately 70% of Medicare beneficiaries (source: SSA.gov).  These beneficiaries will NOT see any increase in their Part B premiums in 2016.  To be in this group you must be:

1.       Currently receiving Social Security benefits as of November 2015, AND

2.       Having your Part B premiums deducted from your Social Security check, AND

3.       You do not exceed the first income threshold –  currently $170,000 (adjusted gross income + tax-exempt income) for couples and $85,000 for single.

 However several groups of Medicare beneficiaries will likely see higher premiums for Medicare Part B.  These groups are:

·         New Medicare Part B beneficiaries who enroll in Medicare in or after November 2015

·         Current Medicare Part B beneficiaries who do not have the premium withheld from their Social Security check.

·         Current Medicare Part B beneficiaries who exceed the first level of income thresholds – (see above)

 The 2015 Medicare Part B base premium is $104.95/month.  Estimates of the increase for 2016 are as high as 52% or approximately $159/month for the base premium.

 There are 5 income thresholds for Medicare Part B premiums. They use your Federal tax return from 2 years prior to determine the income threshold.

MAGI stands for Modified Adjusted Gross Income, which is your adjusted gross income from your tax return plus any tax-exempt interest your earned during 2014.

The chart below are estimated premiums for 2016.

2016 Medicare Part B premiums.JPG

 Please call me if you have any questions or want to discuss how this may impact you.  Feel free to share it with family, friends, and colleagues who may be affected.

 Sources:  SSA.gov; Social Security Solutions, Inc.

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

 

Health and other non-variable insurance products are not offered through WSFG.

 

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

 

 Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

 

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

 

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

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