Health Care Costs in Retirement

Greetings! I trust that this finds you well and enjoying life. The weathers’ fantastic isn’t it. I want to encourage you to get outside and enjoy it.

I want to touch on health care cost in retirement. Not a highly appealing topic but a highly necessary one to consider. I’ve seen various estimates on the cost of health care in retirement and they all come in around $240,000 in total cost for a couple over their life times, to $12,000 for a couple per year. Regardless we know that it’s going to be a lot of money so we have to plan. The health car cost I’m referring to are Medicare premiums and out of pocket cost such as deductibles, copays, dental, vision and long term care.

By now you’ve probably read that it’s unlikely social security recipients will receive a cost of living adjustment next year. This will be only the third time in forty years that no COLA has been made to benefits. You may also have read that Medicare premiums are likely to increase for some enrollees next year. Persons likely to experience an increase are high income persons, persons who chose to suspend their benefits and new Medicare enrollees in 2016.

The decision to not increase Social Security benefits is a result of low inflation we experienced this year. No Social Security COLA means no Medicare premium hike for most beneficiaries. Reason being Social Security contains a “hold harmless” provision that protects the vast majority of Social Security beneficiaries, from paying a larger increase in Medicare Part B premiums than they receive in Social Security COLA increase, in order to avoid a reduction in their net Social Security benefit. Normally Medicare Part B premiums are deducted from Social Security benefits.

But the hold harmless provision does not apply to Medicare beneficiaries who are subject to premium surcharges because their modified adjusted gross income tops $85,000 for individuals or $170,000 for couples. The hold harmless protection also does not apply to Medicare beneficiaries who are not yet collecting Social Security, including those who chose to suspend benefits and to new Medicare enrollees in 2016.

There are five Medicare premium brackets. In 2015 the surcharges range from $42 to $230.80 per month on top of the standard $104.90 per month premium per person. Anyone who is subject to premium surcharges is not protected from future Medicare increases.

The recently released 2015 Social Security and Medicare Trustees report projected a 52% increase in Medicare Part B premiums for 2016. This means that higher income retirees could see substantial premium hikes as much as $404.90 per person per month.

Income Thresholds Determining 2016 Medicare Premiums (based on 2014 MAGI)

Single <$85K $85K-$107K $107K-$160K $160k-$214K >$214K

Married <$170K $170k-$214K $214k-$320K $320K-$428K >$428K

2016 Projections

Held harmless $104.90

Not Held Harmless $159.30 223.00 318.60 414.20 509.80

Health care cost particularly Medicare premiums are major cost in retirement and should be taken seriously. In the coming weeks I’ll address strategies you can consider to help reduce them.

If you have questions about the above or any anything related to retirement give me a call and we’ll get to the bottom of it.

Best regards,

Jeff Christian CFP, CRPC

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