(The writer is a Reuters columnist. The opinions expressed are his own. For more from Mark Miller, see link.reuters.com/qyk97s)
By Mark Miller
CHICAGO, November 16 (Reuters) - The rising cost of Medicare premiums will take a bigger bite out of seniors’ wallets next year - but the amount will be smaller than was predicted by a federal government forecast earlier this year.
The monthly premium for Medicare Part B (outpatient services) will jump 5 percent in 2013 to $104.90, the Centers for Medicare & Medicaid Services announced on Friday. The increase — which amounts to $5 instead of the $9 that had been predicted by the trustees of the Medicare program — will consume part of the already-small Social Security cost-of-living adjustment next year for middle class recipients.
CMS also said the annual Part B deductible will rise $7 to $147, and that the Part A (hospitalization) deductible will be $1,184, a $28 increase.
High-income seniors, who already pay steep surcharges on top of the standard premium, will see additional hikes ranging from $42 to $230.80 per month.
A $5 increase in premiums may not sound like a big deal. But it comes at a time when Washington is gearing up for “fiscal cliff” negotiations that could lead to further squeezes on seniors in the form of more Medicare cost-shifting or smaller Social Security COLAs.
For less-wealthy recipients, the changes will be felt in the form of a smaller-than expected Social Security benefit increase. The Social Security COLA next year is 1.7 percent. After the Part B premium is deducted, a senior with a $1,000 monthly benefit will receive a net increase of $12, or 1.2 percent. For someone with a $2,000 monthly benefit, the net increase will be $29, or 1.45 percent.
The lower-than-expected Part B premium hike means that the vast majority of retirees (those with monthly benefits over $300) will receive at least some COLA next year.
Social Security Administration data shows that fewer than 3 percent have benefits below that level. Those in that category are protected by a “hold harmless” provision of federal law that prevents benefits from falling from year to year for anyone whose premium is auto-deducted from benefits. That means their Medicare premium cannot rise by a greater amount than the COLA.
That provision does not apply to high-earning recipients or to people who are signing up for Medicare for the first time in 2013. Seniors who earn so little and have so little that they qualify for Medicaid (and Medicare) are not affected, because their premiums are paid by their state programs.
Seniors with annual ordinary income over $85,000 (single filers) or $170,000 (joint filers) pay the full 5 percent Part B increase, plus surcharges that go up as income rises. Their total Part B monthly premiums will range from $146.90 to a whopping $335.70 per month for the wealthiest seniors. High-income seniors also pay surcharges on their Part D prescription drug plans.
Very few seniors have enough income to trigger the surcharges - after all, most of them are retired. But their numbers are increasing as more older Americans keep working past the traditional retirement age - and with growing talk about “means testing” Medicare, it’s worth keeping in mind that wealthy seniors already are paying substantially more.
The Social Security Administration determines who pays the premium surcharge using recent tax returns. Eligibility is determined on the basis of a measure called “modified adjusted gross income,” or MAGI. That is the total of adjusted gross income (typically including a portion of Social Security benefits) and tax-exempt interest income. If your MAGI is higher than the income threshold, you’ll get a letter from the SSA telling you what your premium will be, including the surcharge.
You can challenge the surcharge determination if your financial circumstances have changed since the 2011 tax return was filed. Examples include an income decline, or a change in marital status. More information on challenging the surcharge is available at the Social Security Administration website (here).
For the long term, recipients can consider tax strategies to help keep them underneath the surcharge trigger. One option is to take withdrawals from a Roth individual retirement account. They are not counted in Social Security’s definition of taxable income. You can also alternate withdrawals from taxable accounts and non-taxable accounts so that you don’t have to pay the surcharge every year.
Senior advocates expressed relief that Medicare premiums did not rise more - but noted that the long-range trend has been painful.
"It's good to hear that Part B premiums didn't increase as much as initially forecast," said Mary Johnson, policy analyst for The Senior Citizens League. "Still, the Part B premium has increased 130 percent since 2000 - that's almost as fast as the growth in gasoline prices." (Follow us @ReutersMoney or here. Editing by Linda Stern and Dan Grebler)