Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.
The Ask Phil (e)mailbox has been overflowing of late. I will get to as many questions as I can here, but please accept my apologies that I am not able to answer everyone’s questions.
The Social Security Administration is heavily involved in Medicare. Among other things, the administration manages enrollments and late-enrollment fees in Parts A and B of Medicare, collects the payment of Part B and sometimes Part D Medicare premiums by taking them out of Social Security payments and oversees the collection of Medicare premium surcharges from higher-income beneficiaries.
I wasn’t fully aware of this last year when I co-authored “Get What’s Yours: The Secrets to Maxing Out Your Social Security” with economist and Ask Larry columnist Larry Kotlikoff and PBS NewsHour economics correspondent Paul Solman. After fielding your Medicare questions for the past 18 months, even my low-wattage bulb began to flicker with growing recognition for how closely connected the two programs are.
So when Larry, Paul and I decided to write an updated edition of “Get What’s Yours,” it seemed only natural that we add a chapter on the most important things people need to know about how Medicare and Social Security benefits can be affected by these connections.
The new edition has just been published. I know that most of the interest in it will be driven by the new Social Security rules that changed a lot of claiming options for people. These rules, which eliminated some popular claiming strategies as of the end of April, have created further confusion over how to use a benefit program that was already maddeningly confusing. No wonder our new book is nearly 50 pages longer than the first book!
Beyond these changes, however, there are important lessons about the interactions between Social Security and Medicare that are also spelled out in the revised edition. As an abbreviated primer, here are some of the major ones:
Medicare Part A
Your Social Security work history determines whether you qualify for free premiums for Medicare Part A hospital insurance. If you don’t, you could be asked to pay monthly premiums in excess of $400. In a little-known twist, people who must pay these premiums have the choice of getting their health insurance from one of the Affordable Care Act’s state exchanges and may not need to sign up for Medicare when they turn 65.
Medicare Part B
Medicare Part B premiums, as noted, must be subtracted from monthly Social Security payments. However, there is a Social Security rule that says your net monthly payments cannot decline from one year to the next. This “hold harmless” rule created a major problem last year for Medicare. Social Security said there would be no annual cost of living adjustment in 2016 for benefit payments. But Medicare said it expected substantial increases in Part B health expenses and, thus, needed to raise Part B premiums. By law, however, it couldn’t raise these premiums from the 70 percent of Social Security recipients who were held harmless. The agency’s only choice was to collect all of its projected premium increases from the other 30 percent. What a mess! Congress finally stepped in and authorized a big loan from the U.S. Treasury to help Medicare pay for higher Part B expenses this year.
This is the acronym for Social Security’s income-related monthly adjustment amount. Taxpayers with modified adjusted gross incomes exceeding $85,000 (or $170,000 for joint filers) must pay monthly premium surcharges for Parts B and D of Medicare. The surcharges can add more than $300 a month to Medicare premiums. And just to make the pain a little more tortured, IRMAA is based on your tax returns of two years’ ago. These surcharges already are scheduled to rise in future years, and even more taxpayers likely will experience the joy of an IRMAA moment.
Health Savings Accounts
Health savings accounts have grown in popularity in employer health insurance plans. They permit tax-deductible contributions, often include employer contributions and can be invested in like 401(k)s. Better yet, funds spent on eligible medical expenses are not taxed either. And HSA balances can be carried over from year to year. Amidst all this good news about HSAs is one major downer: People on Medicare can’t participate in HSAs, even if they continue to be covered by employer provided health insurance plans. And in a major surprise to many people, anyone who receives Social Security payments must, by law, be enrolled in Part A of Medicare. This invalidates their continued participation in an HSA.
65 doesn’t mean what it used to
Turning 65 used to be the logical time to sign up for both Social Security and Medicare. The full retirement age for Social Security, after all, used to be 65 — the same age that triggers eligibility for Medicare. Mandatory retirement at 65 also was common. Today, Social Security’s full retirement age is 66 and will be 67 for anyone born in 1960 or later. Social Security benefits don’t peak at 65, of course, but at 70. Further, nearly a third of people in their late 60s are still in the workforce, and many say they will continue working — out of financial necessity or choice — until age 70 or beyond. The delinking of enrollment ages for Social Security and Medicare creates a more complicated set of decisions for both programs. Medicare has no fewer than four enrollment periods. Getting them right is challenging. Making a mistake can be costly: lifetime late-enrollment penalties (administered by Social Security) and perhaps an extended period with no health coverage at all.