How does Social Security’s cost of living adjustment affect Medicare?

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.

As predicted, people are understandably confused about how Social Security’s meager 0.3 percent 2017 cost of living adjustment, or COLA, is affecting their Part B premiums for Medicare. Today’s mailbag thus leads off with a couple of relevant questions that I hope will help address broader reader concerns.

Bob: I paid directly to Medicare from 2013 until mid-year 2016, because up to this point, I was not getting Social Security. Since I wasn’t getting Social Security at the start of 2016, I wasn’t “held harmless” and therefore had to pay $121.80 per month for Medicare Part B’s premium.

Halfway through 2016, I started getting Social Security. The Medicare monthly expense deducted, however, didn’t change from $121.80 to $104.90 per month, even though I was now “held harmless.” Furthermore, my increase in the Part B premium for 2017 was based on a starting point of $121.80 and is now $132. Is this correct, or should I apply for a refund starting when I took Social Security in 2016? And should the premium for 2017 be based on the increase from $104.90?

We contacted Medicare and they referred us to Social Security. Our attempts to get clarification from Social Security both on the phone and in their offices have not been fruitful.

Phil Moeller: Unfortunately, being held harmless does not mean that you qualify for the $104.90 monthly Part B premium. That’s what people held harmless had to pay last year. But when you joined the hold harmless club, for lack of a better term, it meant that the $121.80 premium you were paying last year would be the benchmark for the hold harmless rules taking effect in 2017.

If you also had not been held harmless in 2017, your Part B premium would have risen to $134. You say your premium will be $132. Premiums can rise this year even for people held harmless. That’s because the annual Social Security cost of living adjustment for this year is not zero, as it was last year, but 0.3 percent. This increase is small — about $4 more in benefits a month for the average beneficiary. The rise in Medicare premiums, by contrast, is much larger.

Being held harmless means that the Social Security benefits you receive this year cannot be smaller than what you got last year. For most people, this means that all of their 0.3 percent benefit increase will be used to pay higher Part B premiums. In your case, apparently, 0.3 percent of your benefit would have to equal the difference between $132 and $121.80 to make sense of you being charging $132 in Part B premiums this year.

As I wrote to a reader earlier this year:

In order for your premiums to actually decline, future increases in Social Security’s annual cost of living adjustment would have to be large enough for the program to raise premiums on the people who were held harmless in 2016 and 2017. As their premiums go up again, yours might go down. I say “might” because Medicare costs will continue to increase, requiring the agency to raise premiums. So, it’s possible any downward adjustments to which you’re entitled could be exceeded by annual premium increases. Is your head spinning yet?

Program rules envision everyone (except high-income beneficiaries) eventually paying the same Medicare premiums. But no one knows whether this will happen in one year or take several years. It all depends on future rates of inflation.

And, of course, Congress could step in and change these rules. No one is very happy with the unforeseen consequences of the hold harmless rule. I wouldn’t be surprised if changes were proposed, although opening up either Medicare or Social Security to even a modest rule change risks a much broader debate that defenders of both programs aren’t eager to have at this time.

Tom: My wife has been enrolled in Medicare Part B since 2015. She began to receive Social Security benefits in December 2016. Social Security has told us that her monthly premium for 2017 is $134. She paid $121.80 per month in 2016. From everything I’ve seen, I expected her premium to be about $109 under the “hold harmless” provision now that she is a Social Security recipient. Social Security told me that she had to be enrolled in Social Security no later than last November to qualify for a lower premium. Do you know if that’s the case? I can’t find a regulation or reference that cites the November date. If she does qualify for a lower premium, would they add any increase for 2017 to the $121.80 figure or add the increase to a smaller projected base premium and end up with something in the $109 range?

Phil Moeller: Unfortunately, the agency is correct, although I certainly wish it would explain these rules more clearly.

Medicare premiums don’t begin being taken out of Social Security payments until the month after Social Security begins. The agency is thus correct that your wife would have needed to enroll in Social Security no later than November of last year to have been held harmless in 2017.

READ MORE: My employer health insurance is unaffordable. Should I get Medicare?

Also, being held harmless does not mean her premiums would be reduced to $109. It just means her premiums going forward cannot increase by more than the amount of any annual cost of living adjustment in her Social Security.

Even if she had been held harmless for 2017, her Part B premium still would have increased. It would have been $121.80 plus 0.3 percent of her Social Security benefit (that’s the amount of this year’s COLA).

If and when future COLAs are large enough, these Part B premiums will be equalized, and everyone will pay the same amount, except for people hit with high-income surcharges. For this to happen, the COLA would have to be big enough to pay for any Part B premium increases and still have higher net Social Security payments. Inflation rates have been so low, however, that it’s not clear to me that this will happen soon.

John – Illinois: I get that I have to get on the Part D train. My question is when? What is the trigger that sets the 1 percent monthly penalty ticking? In other words, is it when I sign up for Part A or when I sign up for Part B or a Medigap plan, etc.? Every article I read says signing up for Part A is free. But if it starts the Part D train, it isn’t free, but can be very costly.

Phil Moeller: Part A usually does not start the Part D “train” or “clock.” It’s getting Part B that does this. If you need to get Medicare when you turn 65, you would have until three months after your 65th birthday to get Part B. If you continue to work and have employer health coverage, you wouldn’t need to sign up for Part B until you retire, and this enrollment period lasts for eight months following your retirement.

The main issue with maximizing the time until you get Part B or Part D, I want to emphasize, is that you risk not having any health insurance for a period that could last quite some time following the end of employer health insurance.

There is an exception that you at least need to be aware of. When a person turns 65 and continues to work, they do not need to sign up for Medicare unless their employer drug coverage is so bad that it’s not deemed “credible” — which means it’s not as good as a Part D plan. Most employer drug plans are credible. Employers are required to certify this, although you may need to ask.

READ MORE: My meds are cheap. Do I really need a Medicare Part D drug plan?

If an employer drug plan is not credible, then the employee needs to get a Part D plan. However, in this limited case, he does not need to sign up for Part B first. Getting only premium-free Part A will qualify him to get a Part D plan.

I hope this helps clarify matters at least a bit.

Paul – Michigan: My wife and I both will turn 67 later this year. My wife has low lifetime earnings. It is our understanding that since my wife’s benefit is (and will be) less than half my benefit at age 70 (even at our age now, for that matter), she has nothing to lose by filing for her own retirement now and then filing for a larger spousal benefit at age 70.

Am I correct in assuming that the best strategy, given the above information, would be for my wife to take her full retirement age benefit now, for me to take a spousal benefit based on her earnings, for me to file for my own benefit when I turn 70, and then for my wife to replace her own benefit with half of mine then as a spousal benefit?

Also, as an aside, do you know if both of us stand to get retroactive benefits, and if so, when would they be paid?

Phil Moeller: Your strategy makes sense to me. A couple of clarifications: You would file what’s called a restricted application for just your spousal benefit. After you file for your own retirement benefit, your wife will not replace her own benefit, but will receive what’s called an excess spousal benefit — an increased payment equal to the amount by which her spousal benefit exceeds her own retirement benefit. And her spousal benefit will be half of your full retirement age entitlement, not half of what you actually collect at age 70.

As to retroactive benefits, you are both entitled to up to six months of retroactive benefits if you wind up filing for either benefit by up to six months after reaching your full retirement ages. Retroactive benefits are not paid for any claiming period prior to full retirement age.

When you file for your own retirement benefit, make sure you don’t unintentionally seek any retroactive benefits. Doing so would wind up costing you delayed retirement credits. For example, if you filed for retirement at age 70 and claimed six months of retroactive benefits, Social Security would consider your filing date to be at age 69 and a half. You thus would lose six months of delayed retirement credits, and your monthly retirement benefit would be 4 percent lower for the rest of your life.

Bill – California: Last July, I paid in advance and in full $1,131 for chiropractic services to be rendered over the next 12 weeks — a dumb move on my part, but I didn’t know any better at the time. Is the doctor, a California-licensed chiropractor who told me he accepts Medicare, even allowed to collect the full payment for 29 session in advance of rendering services?

I finished these treatments and am no longer under this doctor’s care, but I still haven’t been repaid by Medicare for these sessions. I called the agency and was shocked to learn that no claim on my behalf has been received! I then spoke with the doctor. He told me that a claim was attempted three times with various glitches and that he would submit it again in one or two weeks. He also told me in an unprofessional huff that he has a year to file my claim. What’s my recourse? Or have I been scammed?

Phil Moeller: Experts at the Medicare Rights Center say that doctors who accept assignment from Medicare should not be billing patients in advance for the entire sequence of their services. Assignment means the health care provider agrees to accept Medicare-approved charges as payment in full for their services.

READ MORE: Column: Why aren’t my chiropractic appointments covered by Medicare?

Most doctors who accept Medicare also accept assignment, but it’s possible for a doctor to accept Medicare patients without agreeing to assignment. Such “non-participating” doctors can bill you more than the Medicare-approved amount for their services, although Medicare rules do limit such overcharges. These doctors also can bill you the entire charge for their service.

It sounds like your chiropractor is a non-participating provider. You should confirm this, and it’s hardly being pushy to do so. If he does accept assignment, you have the right to squawk to Medicare about being required to pay for all his services up front. Whether you do so or not may depend on whether you want to continue using him. After all, as you note, you’ve already paid him.

He also is correct that he has a year to file your claim and reimburse you. The Medicare Rights Center suggests that you closely track the quarterly Medicare Summary Notices you should be receiving from Medicare to see if the claim has been filed. If you haven’t done so already, you also can set up an online Medicare account and get your Medicare Summary Notices electronically. And if the claim has not been processed, you can either ask your doctor again to file it, or if the year deadline is approaching, you can file the claim yourself using Form CMS-1490S.

Nikki: I sold property in December 2015 that gave me huge income for one year. I will turn 65 this October. If I wait until January 2018 to sign up for Medicare, will they use my 2016 tax return to calculate my surcharges under IRMAA (income-related monthly adjustment amount)? Can I get the coverage to start that January?

Phil Moeller: The rules say that the Social Security Administration is supposed to use 2016 tax returns to calculate 2018 IRMAA surcharges. So, on paper, you’re good. However, they sometimes have to go back three years if the two-year-old return isn’t yet available. Because you want to file so early in 2018, I’m worried this might happen to you. If it does, you should appeal and seek to have your 2016 return used as the basis for 2018 IRMAA calculations.

In terms of when you sign up for Medicare, it will depend on when your enrollment period begins. If you turn 65 and do not have health insurance from a job where you’re still working, you will have a seven-month initial enrollment period for Medicare that begins three months before your 65th birthday. If you are working and older than 65, your Medicare enrollment period would last eight months, beginning when you stop working and no longer have employer health insurance. In either case, I would urge you to sign up for Medicare early during the enrollment period, so you don’t have a break in your insurance coverage.

If you are late in enrolling, you face lifetime penalties via higher Part B and Part D premiums. They equal 10 percent for each full year you are late enrolling in Part B and 1 percent a month for Part D. They are cumulative and do not go away.

So, even if you can wait to get coverage in early 2018, you may not want to.

Mary – New Hampshire: I will soon turn 65. I retired at 62 and already receive Social Security. My health insurance has been paid for largely by federal assistance, but I just received a letter from Social Security informing me that I will have $134 a month deducted from my Social Security to pay for Medicare. Can I tell Social Security not to deduct these funds and instead use the federal assistance to pay for my insurance? Social Security is my only source of income, so this is critical to me.

READ MORE: Should we raise the retirement age for Social Security and Medicare?

Phil Moeller: Medicare does not work exactly like Obamacare, but if you receive low-income assistance now, you should continue to do so under one or more Medicare Savings Programs. In this event, it’s possible that some or all of the money being deducted from your Social Security payments would be restored to you. To find out the details of how this would work for you, I suggest you call a Medicare counselor in New Hampshire who works with the free counseling services provided by the State Health Insurance Assistance Program.

That $134 Medicare premium in the letter from Social Security is only for Part B of Medicare, which covers doctors, outpatient and medical equipment expenses. You are entitled to premium-free Part A as well, which covers hospital expenses. But you also will need to have a Part D prescription drug plan. Medicare’s Extra Help program provides financial assistance to lower-income enrollees.