How the Budget Deal Blunts Medicare Cost Increases, & Tweaks Social Security

620-medicare-social-security-cards-wallet[1]The bipartisan budget agreement reached by the White House and congressional leaders wards off a spike next year inMedicarepremiums and deductibles for millions of older Americans as well as ensures full Social Security disability benefits to millions who had faced steep cuts. The accord went to President Barack Obama after being adopted by the House of Representatives Oct. 28 and by the Senate Oct. 30.

In a letter to Congress, AARP CEO Jo Ann Jenkins applauded the agreement: “Your efforts to reach across the aisle and together find sensible solutions to significant problems are appreciated and commended.”

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Here’s a look at measures in the deal that affect the pocketbooks of older Americans.

Limits Medicare premium deductible increases. With no Social Security cost-of-living adjustment (COLA) for 2016, 70 percent of Medicare beneficiaries will see no increase in their monthly Part B premiums next year, despite the program’s increased costs. But because of a wrinkle in federal rules, the burden of paying for the increased costs was to fall on the other 30 percent of Medicare beneficiaries through an increase in premiums from $104.90 to $159.30. The budget deal softens the blow to $120 a month.

The reduction is financed by a $7.5 billion loan that will begin to be repaid through an additional $3 monthly surcharge on many of these same beneficiaries and a surcharge of up to $12 a month on higher-income beneficiaries. In years when there is a Social Security COLA, all beneficiaries will be subject to the surcharge. The loan is expected to be repaid within five years.

Limits the deductible increase in traditional Medicare. The deductible for everybody with traditional Medicare, which had been projected to increase by more than 50 percent in 2016, from $147 to $223, will be held to $167.

Replenishes the Disability Trust Fund. The fund that pays Social Security disability benefits was expected to run out of reserves late next year without a fix. Eleven million Americans — 7 out of 10 of them age 50 or older — would have seen a nearly 20 percent decline in benefits.

The budget deal prevents this cut by diverting a larger share of payroll taxes over the next three years to the disability fund, allowing it to pay full benefits through 2022. Currently, workers and employers pay a total of 12.4 percent of wages in the Social Security tax, most of which goes to retirement benefits. But for the next three years, 2.37 percent of wages — an increase of .57 percentage points — will be allocated for disability benefits.

Congress has approved similar reallocation of the payroll tax in other years.

Eliminates certain Social Security claiming strategies.Some couples have taken advantage of a strategy that arose from changes to the law in 2000 and maximized their benefits through Social Security’s “file and suspend” option. Here’s an example of how it works: A husband files for Social Securityat full retirement age and then immediately suspends his benefit. This allows his benefit to continue growing at 8 percent for every year he keeps his benefit on hold until age 70. Meanwhile his wife, who may not have qualified for benefits on her own, can collect a spousal benefit — worth up to half of her husband’s benefit.


AARP Sent the Following Letter to Congress on Oct. 14th, 2015

AARP has deep concern that for only the third time in over 40 years, there will be no Social Securitycost-of-living adjustment for 2016. To make matters worse, as a result, 30 percent of Medicare beneficiaries will see their monthly Medicare Part B premium dramatically increase, and all Medicare beneficiaries will experience an increase in their Part B deductible.

Congress should protect the 16.5 million Medicare beneficiaries — which includes new enrollees, people not collecting Social Security, and beneficiaries dually eligible for Medicaid — from the harmful effects of dramatically increasing premiums, due to there being no Social Security cost-of-living adjustment (COLA) as well as protect all Medicare beneficiaries from the large increase in their deductible.

The Social Security Trustees announced Oct. 15 that there will be no Social Security COLA in 2016, due to unusually low energy prices. However, the impact of very low energy prices on Social Security recipients may be overstated in the current cost of living formula, and as a result, the need for a COLA may be understated in this week’s announcement. Continue reading “AARP Sent the Following Letter to Congress on Oct. 14th, 2015” »