Joseph Antos
October 19, 2016 - AEI

Medicare premiums to soar - again

Congress fixed a Medicare problem last year, but it is back again.  If action is not taken during the “lame duck” session after the November election, 15 million Medicare beneficiaries will be hit with a staggering increase in their Medicare premiums.

Paradoxically, the culprit is low inflation.  The Social Security Administration announced on Tuesday that the annual cost of living adjustment for Social Security payments will be 0.3% in 2017.  That means the average retired worker will see an increase of about $4 in the monthly payment. But Medicare costs rise much faster than general inflation — about 3.1% per enrollee next year, according to the Medicare trustees—and that’s the problem.

Thanks to the “hold harmless” provision, most Medicare beneficiaries will pay a premium next year that increases no more than the dollar amount of their Social Security increase.That means most beneficiaries will pay $125 a month for Part B coverage. But some 15 million beneficiaries are not protected and will pay a much larger increase.

Anyone turning 65 in 2017 and enrolling in Medicare Part B for the first time will pay about $25 a month more than their 66-year-old friends for exactly the same Medicare coverage.

Anyone turning 65 in 2017 and enrolling in Medicare Part B for the first time will pay about $25 a month more than their 66-year-old friends for exactly the same Medicare coverage. The increase is even greater for seniors making more than $85,000 a year.  Higher-income seniors pay an income-related premium which is not protected by “hold harmless.” Those premiums are likely to jump by between $38 and $86 a month, topping out at about $475 a month for Medicare Part B.

This is no surprise. As I pointed out last October, legislation enacted last fall that reduced the 2016 premium spikes would not help this year unless the general price level remained perfectly flat.  The 0.3% Social Security COLA means that we are back where we were last year. Congress will undoubtedly try to make a similar fix this year.

Why did Congress fail to resolve this problem on a more permanent basis last year? Why did Congress wait 10 months, and counting, to address the problem this year? Will Congress be smarter this time?

Regrettably, we all know the answers to these questions.