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Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. 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 annual trustee reports on Social Security and Medicare were released earlier today and showed little change from last year. With both programs facing longer-term deficits, these annual report cards have become a doomsday clock for senior benefits.
The top line of today’s reports is that the estimated insolvency date of Social Security’s big trust fund is 2034 — unchanged from last year. The other big fund is Medicare’s hospital trust fund. Last year, it was projected to run out of funds in 2028, or 12 years. That date was rolled forward a year — to 2029 — in this year’s report.
Both funds are paid for by wage earners out of their Social Security payroll taxes. What the insolvency dates mean is that payroll taxes will be the only source of benefit payments once the trust fund reserves are gone. In the case of Social Security, payroll taxes in 2034 will be able to pay an estimated 77 percent of projected benefits. For Part A of Medicare, which covers hospital and nursing home expenses, payroll taxes in 2029 will pay an estimated 88 percent of the program’s projected expenses.
The Social Security report also projected that the program’s 2018 cost of living adjustment, or COLA, would be 2.2 percent, the largest in several years. The COLA sets annual increases in Social Security benefits and also helps determine the level of consumer payments each year for Medicare Part B premiums.
READ MORE: Column: For older Americans, the GOP health bills would be nothing short of devastating
The trustees also estimated that the payroll tax ceiling would rise to $130,500 next year from $127,200 this year. Individuals pay 7.65 percent of their wages in payroll taxes, with 6.2 percentage points to the Social Security trust funds and 1.45 percent to the Medicare trust fund. Employers pay the same amount. The Medicare component of the tax has no wage ceiling.
People on Medicare and Social Security have Part B premiums deducted from their monthly Social Security benefit payments. Under Social Security’s “hold harmless” rule, the Part B premiums can’t increase each year by more than the amount of any COLA-related boost in Social Security payments.
In recent years, Part B expenses have risen at rates much larger than COLA increases. People held harmless have been shielded from the full impact of this Part B inflation. Some people today pay only about $107 a month for Part B premiums, while others who were not held harmless this year are paying $134 a month.
The trustees estimated that the monthly premium for Medicare Part B coverage will remain at $134 a month next year and in 2019. Part B’s annual deductible is also expected to remain at $183 through 2019.
The trustees also kept unchanged their estimates of the expected high-income surcharges for Part B premiums of wealthier Medicare enrollees through 2019. They will range from $187.50 to a maximum of $428.60 a month. However, surcharges for Part D premiums are estimated to increase next year, from a range of $13.30 to $76.20 a month this year, to a range of $14 to $80.60 a month in 2018.
Estimates for key elements of Part A hospital insurance payments were increased by 2.7 percent between 2017 and 2018, with the annual deductible for Part A hospital insurance estimated to rise to $1,352 next year from $1,316. Hospital and nursing home co-insurance payments also would rise 2.7 percent.
Part D drug premiums were projected to rise from a monthly base of $35.63 this year to $37.54 in 2018. Medicare earlier had announced that the maximum annual deductible for a Part D plan will rise to $405 in 2018 from $400 this year.
READ MORE: How does Social Security’s cost of living adjustment affect Medicare?
Under terms of the Affordable Care Act, the so-called “donut hole,” or coverage gap in Part D plans, will close completely by 2020. At that time, people will pay 25 percent of the costs of their drugs when they are in the coverage gap of their Part D plan.
Next year, they will pay 35 percent of the price for brand-name drugs and 44 percent of the price for generic drugs. The gap will begin next year after drug costs hit $3,750, up from $3,700 this year. Once expenses hit $5,000, up from $4,950 this year, people will be in the catastrophic coverage phase and will pay no more than 5 percent of the cost of their drugs.
The outlook could have been worse for Medicare. Its finances have been supported by high-income Medicare payroll and investment taxes that were imposed by the Affordable Care Act.
These taxes were removed in earlier versions of Republican bills designed to overturn the Affordable Care Act. These cuts were restored in the revised Senate bill that was released earlier today, although it was not immediately clear if Medicare would directly benefit from these taxes to the extent is has under terms of the Affordable Care Act.
Another Affordable Care Act provision related to Medicare would have triggered mandatory Medicare savings had the rate of health care inflation substantially exceeded overall inflation rates. Such a finding would activate an Independent Payment Advisory Board, or IPAB, which some Affordable Care Act critics have described as a death panel. However, the trustee report said health care inflation rates were not large enough to trigger the IPAB process.
Unlike Social Security, payroll taxes do not cover all or even most Medicare spending. Taxpayers foot the bills for most spending on Parts B and D of Medicare. Part B covers doctor, outpatient and durable medical equipment expenses. Part D is the Medicare prescription drug program. While consumer spending on both programs is substantial, they nonetheless run up hundreds of billions in annual deficits that are paid for out of general federal revenues.
Phil Moeller is the author of “Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs” and the co-author of the updated edition of The New York Times bestseller “How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. On Twitter @PhilMoeller or via e-mail: email@example.com.
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