Social Security, Medicare and You

Jalene Hahn |

Although I don't think anyone expects a Social Security check alone to be enough to support their retirement, the income is certainly a welcome addition to those who have completely or partially stopped working. Most years, there's a cost of living increase to help reduce the sting of inflation and benefits have increased every year but two since 1975. Potential adjustments are based on a fairly narrow interpretation of inflation: the Consumer Price Index for Urban Wage Earners and Clerical Workers. The Bureau of Labor Statistics compiles the CPI-W and it showed no increase from 2009 to 2010 or 2010 to 2011. There was no increase again from 2014 to 2015 which means that 2016 will become the third year with no COL increase.


By now, everyone has noticed that gasoline is at its lowest price in years. This is at least partially due to the strength of the US dollar which has also played a part in reducing what we pay for most imported goods. As a whole, the total cost of the market basket measured by the CPI-W has not risen - thus no COL increase in January 2016.


Although the CPI-W is not increasing, health care costs play a much larger role in the lives of retirees than urban wage earners and it's clear that those costs are, indeed, rising. Unfortunately, these increased costs are affecting another government program: Medicare. Because the cost of health care has increased, so will the cost of insurance in the form of Medicare Part B. Medicare's actuaries estimate that the cost of Part B will rise from about $105 to about $159 per month for most participants in 2016. They also expect the annual deductible to increase from $147 to $223 next year, meaning that participants will pay more for coverage and will also have to spend a bit more out of pocket before their expenses begin to be covered. Retirees with higher incomes are already paying higher premiums and these are also going to increase proportionally. No doubt premiums for Medicare Part C & D and the various supplements will be going up as well. As costs rise, so must the cost of insuring against the worst of them.


Because over two-thirds of Medicare costs are covered by general tax revenues, the program is always the best deal available for retirees' health care. So, even though costs will be rising, we do not recommend a change to another sort of insurance. However, it may be worthwhile to review the other parts of Medicare which are provided by private companies (C - L) to be sure that drug and supplemental insurance coverage remains appropriate for next year.


Although those who are covered by Medicare but are notdrawing any Social Security income are going to be paying more for coverage, there's something of a loophole protecting the 70% of all Medicare beneficiaries who are already drawing SS income. Under federal law, Medicare premium increases cannot exceed any annual COL-based increase in benefits. This means that the bad news of no increase in income is also the good news of no increase in the cost of Medicare Part B premiums.


The election season is in full swing and candidates are taking stands to win votes, so I'm not optimistic about achieving a long-term solution to either SSA solvency or Medicare costs anytime soon. Allowing premiums to rise would annoy, not to say incense, a large group of reliable voters. Keeping premiums flat at the cost of increasing the share of expenses borne by general revenues would probably please most retirees but would also act to further unbalance the federal budget. Our highly dysfunctional Washington-based employees  could (and should) be working to resolve these issues but right now they lack the political will to do so. Perhaps some future congress will be able to act.


If you're not part of the SS/Medicare system you probably know someone who is and you might with to share this information with them. I'll provide updates as additional details emerge and, in the meantime, further information is available at the SSA's website if you'd like to take a look.