Editor’s Note: Journalist Philip Moeller, who writes widely on aging and retirement, is here to provide the answers you need. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
The Social Security Administration just announced it would curtail sending paper statements to many people in order to save money. This is as bad an idea now as it was the last time the agency did this several years ago. After that move, public pressure caused it to reverse course. Let’s hope something similar happens this time around. I would like to believe the agency is smarter than this, and I’m cynical enough to even wonder if it might have planned this action to draw attention to its continued funding shortfall.
And that certainly is the bigger story here. Congress has continued to refuse to properly fund the agency, causing it to cut back on its services at just the time when record numbers of baby boomers are aging into the program and badly need all the information they can get.
The agency has far fewer employees to serve the public than it did a few years ago. And while online information services can be a great way to save money without compromising customer service, Social Security is too complex and too important to be trusted to a smartphone app.
Social Security statements are the primary status reports that consumers receive from the agency. They show a person’s official wage history, which is the basis for their retirement benefits. They also provide estimates of key Social Security benefits to which a person will be entitled at different claiming agencies. The Social Security Administration provides online versions of these statements, and these certainly are useful to many people. But the paper statement is better, and it’s relatively cheap to provide.
Here’s what the agency said earlier this week: “Paper statements will only be sent to people age 60 and over, who are not getting benefits and don’t have a my Social Security account. This will bring down the costs of processing and mailing paper statements by $11.3 million in FY 2017.”
This is not even a rounding error for an agency that forks over roughly $900 billion a year in benefits and covers more than 170 million workers in this country. Millions of those workers are not able to save nearly enough money to afford even barely adequate retirements. They will depend almost entirely on Social Security benefits for their retirement spending, and they need all the help they can get to understand these benefits and make informed decisions.
Before reading this week’s reader questions, please consider protesting this decision to your U.S. representative and senators.
Mark – Calif.: What was the rationale behind the Windfall Elimination Provision that reduces Social Security pension amounts if one is receiving other public pensions? I’m a school teacher, have worked for a railroad and have enough quarters for Social Security. I worked for all those pensions, yet my Social Security and the railroad pensions are being reduced. My teacher pension isn’t. The total of all these pensions amounts to about half of my full-time pay. I’m grateful I’m getting an income for retirement, yet I don’t believe I’m getting all the benefits that I have earned.
Phil Moeller: No one likes the Windfall Elimination Provision, or WEP. But there is a rationale for it. Here is an abbreviated explanation (a fuller take can be found in our Social Security book, “Get What’s Yours”).
Social Security is, in economic terms, a very progressive program. This means its benefits are skewed to be very generous to low-earning folks. They get a much higher percentage of their wages back in benefits than do people who make more money.
This form of income redistribution is a fundamental part of Social Security. It is accomplished by splitting up a person’s earnings record into three tiers. People get 90 percent of the first tier in their Social Security payment and smaller percentages of the second and third tiers. People with low earnings often don’t even make enough to reach the second or third tier.
The thinking was that a person with a public pension who has paid some Social Security taxes could be quite well positioned for retirement, but would be seen as a low-wage earner in terms of Social Security’s records. When they applied for Social Security, therefore, they’d get 90 percent of their earnings back in the form of Social Security payments. A person whose entire lifetime wages had been subject to Social Security payroll taxes might also be entitled to a private pension, but their Social Security payments would be fair and fully supported by the payroll taxes they had put into the system.
To deal with this, the WEP takes that 90 percent first-tier benefit calculation and reduces it to 40 percent for people with public pensions that are not tied to Social Security payroll taxes. This penalty begins disappearing when a person has been paying payroll taxes for 30 years and totally disappears at 40 years.
Whether you think it’s fair or foul, that’s the rationale.
Helen – Tex.: I’m so worried about Medicare Part B going up and how I’m going to manage every month. I’m 70. All I have to live on is my Social Security of $862 and a part-time job that brings in less than $400 a month. I’m still paying a mortgage, my vehicle is 10 years old, and I’m just barely able to make it each month after utilities and food. If I start my retirement, which I’m required to do now, how will that affect my Social Security and Medicare? If I quit the part-time job would that keep me from losing any of my Social Security? I don’t know what to do. I lie awake at night worrying about all this.
Phil Moeller: Millions of older Americans are struggling to get by just like you. I know this doesn’t make it any easier to pay the bills, but your problems help explain why these benefits are so important. Social Security and Medicare do protect seniors from poverty, but there often is not much extra to go around.
Medicare has programs to help lower-income people. You can get free Medicare counseling from the State Health Insurance Assistance Program. Call them, and see if they can help. They may ask you about your income and financial situation, so make sure you have those records with you when you call.
At your age, your Social Security will not be reduced or, most likely, affected at all by whether you are still working and earning wage income.
Tammy – Calif.: Can Republicans cut Social Security and medical benefits for the disabled? I have a severe condition which doesn’t allow me to ever work again, and I’ve been very stressed and concerned thinking my benefits are going to be cut or privatized. I have been reading online articles that Republicans want to “gut” Social Security and “end Medicare as we know it.” How realistic are these claims?
Phil Moeller: Yes, Congress can change these programs, and I have seen the same stories you have about Social Security, Medicare and Medicaid being on the cutting block, along with the Affordable Care Act.
I can’t tell you not to worry. I can tell you that proposals to change any of these programs will trigger a major congressional battle. The GOP majorities in the House and Senate have a lot of power, but Democrats have promised to resist changes to these programs, and enough Republican senators have voiced reservations to jeopardize the GOP’s 52-48 Senate majority. Further, it’s not yet clear where President-elect Trump actually will stand when rhetoric yields to action. So far, he has only said he supports Social Security and Medicare and doesn’t want to change the programs. He has, of course, promised to end Obamacare. And many of his key appointees support changes to these programs as well.
Once the new president, his appointees and the new Congress take office, we will see if these claims come to pass. I can understand that you are stressed, and you have every right to be. You also have the right to complain to your congressman and senators. People need to stand up and be heard on these matters.
GW – N.C.: I am a vet and have medical coverage, but pay for copays and medicine. Do I have to enroll in Medicare, or is there a different coverage for vets?
Phil Moeller: There is different coverage for vets, but you may still need to enroll in Medicare. I am not clear whether you’re still working or are already retired. You say you already have medical coverage. Do you know who is providing this coverage? If it’s from an employer, and you’re going to keep working, you probably don’t need to change coverage just because you’ve turned 65.
Once you’ve determined your eligibility for either or both of these programs, I suggest you speak with their representatives about what they cover and how they work with Medicare. Some vets find VA is fine, and some supplement it with Tricare, which includes a Medicare component. It depends on their health care needs and often on their financial situation.
After you’ve looked into this, please feel free to get back to me with detailed questions.
Kevin: I have read “cover to cover” “Get What’s Yours” and have browsed the internet and attended some seminars that offer cocktails, dinner or whatever to get you into a meeting with a financial adviser. We do have wealth managers helping with investments; they are good at the investing, but weak in knowledge of Social Security. I think we have formulated a plan using the “restricted application” filing. We originally wanted to use “file and suspend,” but that window was closed to us as of last May.
My birthdate is Jan. 27, 1951, and my wife was born April 6, 1952, so we meet the 1954 birthdate test. Our plan:
I will file and suspend Social Security in January 2017, allowing me to reach the maximum payout in January of 2021. My wife will wait until April 2018 and also file and suspend until she turns 69 in 2021 or 70 in 2022. We want her to claim spousal benefits during my wait for 2021. We believe they would total about half of what I would get at my full retirement age of 66. When I start taking my full benefit she can either take her age-69 benefit or wait another year to get the full benefit.
Does she need to wait until she is 66 to file for spousal benefits? She would still file and suspend at full retirement age. Could she get a spousal benefit when I file and suspend? Is this a solid plan? Do we understand correctly how this could work for us?
Phil Moeller: Your note correctly notes that “file and suspend” is no longer possible for you. But then you later say your plan includes both you and your wife filing and suspending. So I hope you can understand that I am confused about your plans!
The fact is that anyone who had not turned 66 before the end of last April can’t file and suspend.
Therefore, your options are limited. Both of you can wait until age 70 to each receive your respective maximum retirement benefits. Or, one of you can file before this time and thus make the other spouse eligible to file a spousal benefit. In that situation, the second spouse would be able to file a restricted application when they reach full retirement age at 66. They would receive only a spousal benefit and defer their own retirement benefit to age 70, earning four years of delayed retirement credits.
If a restricted filing made sense to you, it would normally be better for the lower-earning spouse to file for their retirement on or after reaching full retirement age. The higher-earning spouse then would file the restricted application, preserving their maximum benefit.
This can be especially important if the higher-earning spouse dies first. In this event, the lower-earning spouse would get a survivor benefit equal to the higher-earning spouse’s age-70 benefit.
Figuring out the best strategy often requires more computational power than I have. My co-author Larry Kotlikoff offers Maximize My Social Security software that will let you run all the scenarios and figure out your best option. You will need to know details of all relevant Social Security benefit projections to get the most from the software.
Jane – Mo.: Once you become eligible for Medicare, it covers 80 percent of the medical bill, and my existing employer plan drops to 20 percent coverage. Why wouldn’t they each pay half? This wouldn’t cost Medicare so much and would not let my private insurer off the hook for paying its fair share of claims. As a retired federal employee, my private insurer premiums didn’t go down when I retired, and now I have to pay Medicare premiums as well. Why are the insurance companies getting away with paying only 20 percent of covered claims?
Phil Moeller: I have heard complaints from other federal retirees who think their federal premium should decline when this insurance moves from being primary to secondary. There also are some federal insurance plans where the person does not have to get Medicare, but can stay fully on their federal plan. I assume this was not possible for your plan.
Part B of Medicare pays only 80 percent of covered expenses when it is the primary insurer. Because of this “hole” in coverage, many people get either a Medigap private insurance policy or a Medicare Advantage plan. These policies can plug that hole.
In cases such as yours, where Medicare becomes the primary insurer and the employer plan moves from being primary to secondary, it’s the employer plan that steps up to fill that 20 percent hole. I do not know if anyone at Medicare has ever considered or proposed a 50-50 split in such situations.
Christopher: Are Part B excess charges the same as balance billing charges, or are these separate phenomena?
Phil Moeller: These terms are related. They often are used interchangeably, but this can be misleading. According to Medicare experts at Aetna, balance billing refers to the amount by which charges by health care providers exceed Medicare-approved payment amounts.
Nearly all providers accept Medicare assignment, meaning they have agreed to accept Medicare-approved charges as payment in full. In this case, balance billing is prohibited by federal law.
However, health care providers who do not accept Medicare assignment but agree to treat Medicare enrollees may engage in balance billing. If they do, these amounts are called excess charges. Here is how Aetna describes them:
While non-participating providers are allowed to balance bill, there is a limit on how much they can balance bill. Federal law sets the limit (known as the ‘limiting charge’) on the amount that the provider may balance bill (some states prohibit or limit balance billing as well). The limiting charge is based upon a percentage of the Medicare approved charge. In most cases, non-participating providers may not charge or balance bill more than 115 percent of the Medicare approved charge.
These excess charges are not covered by basic Medicare, but are covered by two types of Medigap, or Medicare supplement plans: letter F or G plans.
I also have seen balance billing described as the practice of billing patients the difference between what an insurance company would pay for a health procedure and the “retail price” that an uninsured patient would pay for the procedure.