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Medicare Part B premium hike will be smaller than expected

Seniors caught a break Thursday when the Obama Administration announced that Medicare Part B premiums won’t rise as much as expected in 2012.

The premium for Part B – which funds doctor and other outpatient services – will be $99.90 in 2012, up just 3 percent compared with this year. And the Medicare Part B deductible will be $140, a decrease of $22 from 2011.

The official government 2012 Part B premium forecast had been $106.60 – an increase that would have taken a significant bite out of Social Security’s cost-of-living adjustment (COLA). Although Social Security beneficiaries will receive a 3.6 percent raise next year, the average beneficiary’s increase would have been shaved to 2.95 percent if the larger Part B increase had been implemented. Part B premiums are deducted from most seniors’ Social Security benefits.

Today’s news means that seniors receiving the average monthly Social Security benefit ($1,177) will see a net 3.3 percent gain in payments – just under $39 per month.

In 2010, the Part B premium jumped to $110.50 from $96.40, and it rose to $115.40 in 2011. The rate is determined partly by healthcare inflation — but also the number of seniors who actually are subject to higher premiums. By law, the premium cannot rise in any given year by a greater amount than the Social Security COLA – a “hold harmless” provision aimed at preventing Social Security payments from ever falling. About 75 percent of beneficiaries were exempted in this way from Part B premium increases in 2010 and 2011 – years in which no Social Security COLA was made.

Medicare enrollees cover 25 percent of projected Part B program costs; in 2010 and 2011, that projected cost was borne by a much more narrow base of beneficiaries. This year’s Social Security COLA means that beneficiaries’ portion of Part B cost will be spread across a much broader pool of seniors, resulting in the more modest premium hike.

The new premium will mean a decrease for seniors who enrolled in Medicare for the first time this year, and have been paying the $115.40 rate. It should also lead to decreases for high-income seniors, who were subject to the higher base premium, along with additional income-related surcharges.

Retirement confidence falls, especially in Social Security: Poll

Talk about a race to the bottom: Which institution do you think is losing the trust of Americans to provide future retirement benefits most quickly – government, or private employers?

The winner is . . . private employers, but not by much. A new national poll on retirement sentiment by Sun Life Financial Inc. finds worker confidence in the future value of employer-provided benefits plunged 32 percent in the past year. Meanwhile, confidence in the government’s ability to provide Social Security and Medicare benefits fell 22 percent.

Sun Life’s fourth annual Unretirement Index points to a sharp deterioration in Americans’ overall confidence about their ability to retire. The survey’s overall retirement confidence index fell nearly 20 percent to an all-time low compared with a year ago. Like several other surveys this year, the poll underscores the national mood of deep worry about financial security, especially in old age.

Along with worries about workplace and government benefits, only 23 percent of working Americans said they are very confident that they will be able to meet basic living expenses in retirement — plunging from double that number (42 percent) last year. And one in five workers said they will never retire.

The falling confidence in employers to provide benefits such as defined benefit pensions or health insurance “reflects a sense people have that an employee benefit is discretionary,” said Wes Thompson, president of Sun Life Financial.

“But the broader underlying trend is a shifting of responsibility to the individual – whether it’s from government or employers. That starts with the shift in recent years from defined-benefit to defined contribution plans, and much greater dependence over the last 10 or 15 years on employees to contribute more for their health care. Now it’s spreading to other areas of employer-paid benefits, such as life insurance and disability benefits.”

Thompson thinks falling confidence in Social Security and Medicare stems from the “public policy debate in Washington.” Indeed, we’ve seen repeated calls this year for a higher Social Security retirement age, reduced cost-of-living adjustments and a higher eligibility age for Medicare.

Medicare will cut Social Security’s “raise” in 2012

After two years without an inflation adjustment, the Social Security Administration is expected to announce a 2012 cost-of-living adjustment (COLA) of more than 3 percent next week. That would be a sizable raise in this economy, and very welcome news to seniors hit hard by rising costs, slumping home equity and very low returns on fixed-income investments.

But the good COLA news will come with a nasty kicker. Many seniors will see a substantial part of the COLA consumed by a higher premium for Medicare Part B (doctor visits and outpatient services), which usually is deducted from Social Security payments. The situation sheds light on the complex interaction of Social Security COLAs and Medicare premiums — and it underscores the critical importance of the Super Committee deficit deliberations on possible cuts to future COLAs.

The annual Social Security COLA is determined by a formula that averages inflation for the third quarter, as reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). No COLA was awarded in 2010 or 2011 due to a quirky spike in the third quarter of 2008, which resulted in a whopping 5.8 percent COLA for 2009. By law subsequent Social Security payments couldn’t rise until the CPI-W exceeded the 2008 level.

This year, the third quarter CPI-W has been running high as a result of higher energy costs. September inflation numbers will be released on October 19th, and most analysts forecast a resulting 2012 COLA greater than 3 percent. Indeed, some expect a number close to 3.5 percent or more.

That’s the good news. Unfortunately, most seniors would see that COLA reduced substantially, due to the way that Social Security benefits and Medicare Part B premiums interact.

The Part B premium usually rises at a rate greater than general inflation — a reflection of medical inflation. However, by law, the premiums cannot rise in any given year by a greater amount than the Social Security COLA – a “hold harmless” provision aimed at preventing Social Security payments from ever falling.

About 75 percent of beneficiaries were exempted in this way from Part B premium increases in 2010 and 2011. Rate hikes were paid only by two groups of seniors: low-income beneficiaries whose premiums are paid by Medicaid (so-called “dual eligibles”) and high-income seniors who pay income-related surcharges.

Some Medicare plans drop prices: time to shop is now

If you’re a senior on Medicare – or if you help out aging parents with their money matters  – it’s time to get ready to shop. The annual enrollment period for Medicare prescription drug and Advantage managed care plans is about to begin, and it’s one of the best opportunities of the year for seniors to save money.

The new healthcare reform law is reshaping certain parts of the Medicare marketplace, for the most part in ways that benefit seniors. Although the law gradually reduced subsidies to Medicare Advantage — a change that critics derided as “slashing” Medicare– the Advantage and prescription drug markets are doing just fine. The number of plan offerings for 2012 are stable and average prices are steady or falling slightly.

Re-shopping your plan annually makes sense, especially Medicare Part D drug plans. Insurance companies often change their offerings year-to-year in ways that can increase drug costs by thousands of dollars, or make it more difficult to get certain drugs. At the same time, your drug needs may have changed since the last plan selection period in ways that make a plan less beneficial for you.

And this year, it’s important to get started on that process earlier than usual—because the enrollment period is earlier this year. The 2010 health reform law moved up the annual enrollment period by several weeks, starting this year. Enrollment will be open from Oct. 15 to Dec. 7—a sensible move intended to get this time-consuming chore away from the busy holiday season.

You’ve got two basic choices: traditional, fee-for-service Medicare alongside a stand-alone Part D prescription drug plan, or a privately managed Medicare Advantage all-in-one option (including hospitalization, outpatient services and prescription drugs).

You’re free to make as many changes as you want before Dec. 7; your changes take effect on Jan. 1. There’s also a so-called “dis-enrollment” period that runs from Jan. 1 to Feb. 14, that can be used by seniors who pick an Advantage plan but then change their minds. During that period, you can switch back to traditional Medicare but not to a different Advantage plan. And, if you do leave Advantage, you can add a stand-alone drug plan during that period.

Avalere Health, a health policy consulting firm, projects that average premiums for both prescription drug and Advantage plans will fall 4 percent for 2012. But the enhanced competition doesn’t mean prices are coming down across the board. Although some of the top 10 drug plans, which cover 77 percent of enrollees, are cutting premium prices, six are raising prices.

2012 Medicare choices come early: How not to overpay

Last year, Henry D’Aloisio needed to adjust his Medicare coverage to pay for doctor’s visits. He thought the changes would be simple, and that decades of administrative experience would have prepared him adequately for the paperwork and small print.

But it was much more time consuming and complex than he had been expecting — “the most daunting” task he’s faced in 50 years, he says.

Soon, many other Medicare beneficiaries will face similar challenges. The annual open enrollment period, during which people over 65 can sign up for Medicare or change details about their plans, begins on Oct. 15 and ends on Dec. 7. That’s roughly a month earlier than it’s been in previous years.

In D’Aloisio’s case, the 68-year-old retired teacher and administrator from Cranston, Rhode Island, had enrolled in Medicare Part A — the basic federal program that covers inpatient care in hospitals — when he was eligible for full retirement at 66. But during last year’s open enrollment period, he needed to add Part B benefits to cover doctors’ visits, outpatient care and other health services.

D’Aloisio says he felt overwhelmed by the switching process, which took three weeks, hours of phone calls and much time spent waiting for his email and voice messages to be answered. He says his eventual acceptance into Part B required a signed statement — a note — from a principal he had worked for in Rhode Island’s Department of Education, explaining how long he had worked there and that he was not covered by another state-sponsored healthcare program.

“When I first started looking into changing my plan, I figured, ‘This must be easy,’ ” D’Aloisio says, noting that he had worked as an administrator for decades before switching to teaching full time. Bureaucracies, in other words, didn’t faze him. “But for Medicare enrollment, I felt like I needed an attorney to get everything right.”

The confusion D’Aloisio experienced is common among Medicare enrollees and causes most of them to pay more than they have to, according to a recent study from PlanPrescriber, a company that provides free Medicare-related comparison tools and educational materials.

Should rich people pay more for Medicare?

Should affluent seniors pay more for Medicare than everyone else? How about Social Security? Should we cut benefits for wealthy Americans?

Ideas for “means testing” these critical retirement programs are front and center as deficit reduction talks move back into high gear in Washington. Many Republicans are arguing that Social Security benefits should be cut for wealthy Americans — an idea also backed by the bi-partisan Simpson-Bowles deficit report. Meanwhile, President Obama proposed higher Medicare premiums for high-income seniors this week as part of the deficit plan he submitted to the Congressional Super Committee.

But what does means testing really mean, and what does it mean to seniors on Social Security and Medicare? In this post, let’s consider means testing for Medicare; a follow-up post on implications for Social Security can be found here.

Traditionally, “means testing” has meant measuring financial adequacy to determine eligibility for welfare – that is, it tests for inadequacy, not abundance. Politicians tossing around the term now really mean reducing benefits or jacking up contributions for rich people. That may sound like a minor distinction, but it’s important if you consider that Social Security and Medicare aren’t welfare programs, but entitlements available to seniors up and down society’s spectrum of wealth.

Lacking the stigmatization welfare carries, both programs enjoy such broad public support. A survey released today shows that voters oppose cutting Social Security and Medicare to reduce the deficit by a 50 point margin, and that opposition to cuts is strong across party lines. The poll was sponsored by National Committee to Preserve Social Security & Medicare, an advocacy group — but conducted by a bi-partisan team of Democratic and Republican pollsters.

Medicare already features significant means testing for the wealthy. In fact, President Obama’s new proposal would only expand higher premiums for wealthy seniors first enacted under the Medicare Modernization Act of 2003. That law established higher Medicare Part B (doctor visits and outpatient services) premiums for individuals with $85,000 or more in annual income, and joint filers with income over $170,000.

Why entitlement is not a four-letter word

“It’s a beautiful thing, the destruction of words,” wrote George Orwell in 1984. And so it is with a mangled word that is central to the 2012 presidential race and the work of the Congressional deficit-cutting Super Committee: entitlement.

In the context of federal programs such as Social Security and Medicare, the word entitlement refers to a benefit you are granted by law. You are entitled to the benefit not because it is welfare, but because it is a program you have paid into over time. You can count on it because it is insurance that isn’t subject to the judgment of a case worker or the spending priorities of budgetmakers.

This original – and accurate – meaning has been under attack ever since the days of the Reagan Revolution. One of the first shots was fired by David Stockman, the Reagan Administration budget director who famously called Social Security closet socialism and a “coast-to-coast soup line.” Stockman’s comment preceded Ronald Reagan’s proposal to slash Social Security benefits in 1981, a political debacle that ultimately led to the compromise reforms of the bi-partisan Greenspan Commission in 1983.

But the word entitlement has been under sustained and successful assault ever since, with the result that most Americans now understand it as a four-letter pejorative term connoting welfare—handouts for people who don’t pull their own weight. It’s used that that way by all Republicans, many Democrats and nearly all Beltway media.

Do entitlements play a role in our national debt problem? Yes and no.

Social Security doesn’t contribute directly to the deficit. The Social Security Trust Fund (SSTF) runs an enormous surplus – and despite what you hear, the program is cash flow positive if you include interest on SSTF bonds and income taxes paid on benefits by high-income recipients. Social Security does face a long-term imbalance around the year 2035, when the SSTF will be exhausted, but that problem can be remedied easily by eliminating the cap on income subject to payroll taxes (See: Warren Buffett.)

Social Security adds pressure on the deficit only in the sense that the SSTF surplus is invested in a special form of Treasury note that is owed back to the fund. But that obligation is no different than any other Treasury debt.

8 ways the super committee is not super for retirement

Social Security and Medicare will be in the sights of the Congressional “super committee” that will be looking for $1.5 trillion in federal spending cuts under the terms of the debt ceiling agreement. That means the financial security of seniors and Boomers nearing retirement will be on the line, so let’s consider the outlook for these vital programs as the negotiations get underway.

If the super committee can’t reach agreement — or if Congress rejects its recommendations — automatic spending cuts would be triggered, with Social Security, Medicare and Medicaid exempted. So a stalemate would mean status quo for the “big three” entitlement programs. But if the committee reaches agreement on a deal with no tax hikes or new revenues, all three programs could would face dramatic cuts. The committee must wrap up its work by November 23, and Congress would have until December 23 to vote.

Democrats and Republicans must nominate the super committee’s 12 members by August 16, and the selections will offer the first solid indications on how retirement benefits might fare. Early indicators aren’t encouraging.

Republicans have already made clear that all its nominees will come from the ranks of tax hawks looking for spending cuts only. And the list of Democratic front-runners include several members of the Gang of Six, a bipartisan group of senators that offered a $3.75 trillion deficit reduction plan last month that included Social Security benefit cuts.

The super committee will need a simple majority to issue recommendations to Congress. So, unless the Democrats appoint six members strongly committed to protecting entitlements, a majority could very well support cuts to Social Security and Medicare. And the White House has already signaled its readiness to cut these benefits as part of a grand bargain during the debt ceiling negotiations.

Here are eight ways that the the super committee’s work could hurt retirement security:

1. By considering Social Security at all. Social Security shouldn’t be part of the deficit reduction debate. The Social Security Trust Fund (SSTF) runs a surplus and doesn’t contribute a dime to the deficit. Yes, the SSTF has a long-range problem in that it is projected to run out of money in 2035, at which time Social Security could fund only 76 percent of benefits. We need to fix that, but it’s not a deficit problem.

Long-term care funding wrapped up in deficit debate

The following is a guest post by Brad Allen. The opinions expressed are his own.

The debate over funding long-term care has gotten renewed energy – but no greater clarity – from the current deficit reduction discussions roiling Washington.

Seventy percent of Americans over the age of 65 will need some level of long-term care in their lifetime with 20 percent requiring two to five years of care, according to the U.S. Dept. of Health and Human Services. Annual costs can vary widely, but the national average in 2008 ranged between $18,000 for part-time in-home health aides to $68,000 for a semi-private room in a nursing home.

Some long-term care insurance premiums have shot up by as much as 40 percent in the past year. A few providers have stopped writing new policies, recognizing that they underestimated the cost of delivering care covered by policies written a decade ago.

AARP recently released a study estimating the economic value of unpaid help with daily activities provided by family caregivers totaled approximately $450 billion in 2009, up nearly 17 percent in two years. That was nearly four times the amount paid by Medicaid for long-term care and more than double the $203 billion paid by all sources, AARP says.

“We don’t have a long-term care system in this country. We have a great unfilled need and not lot of people planning to meet that need,” says David Certner, AARP legislative policy director. The non-medical portion of long-term care is covered by a combination of Medicaid – if the consumer meets financial eligibility – out-of-pocket savings, unpaid family caregivers and private insurance, which covers less than 10 percent of total cost.

The swelling demographic bubble of aging Baby Boomers will exacerbate budget challenges while consumers already face complex eligibility rules, confusing insurance options and fears of draining personal savings that would leave their surviving spouse destitute.

Social Security, Medicare dodge bullet, but cuts loom

Social Security and Medicare dodged a bullet in the debt ceiling battle, but beneficiaries still have plenty to fear from the next phase of the deficit reduction war.

The agreement to raise the debt ceiling means seniors will receive their August Social Security benefits – something many worried about after President Obama said last month that he “couldn’t guarantee” the payments if default occurred. Likewise, Social Security and Medicare benefits both were exempted from the $917 billion in first-phase cuts that paved the way for the debt ceiling deal.

But major benefit cuts seem likely to emerge from the second phase of this process. A 12-member Congressional committee must identify another $1.5 trillion in spending cuts, bringing the total deal to $2.4 trillion in cuts over 10 years. That group will have a November 23rd deadline to finish its work, which will then go to an up-or-down vote – no modifications allowed – by Dec. 23rd.

What’s more, if the committee cannot agree on at least $1.2 trillion in savings, or Congress rejects its findings, automatic spending cuts totaling that amount would kick in starting in 2013. Medicare would be subject to the automatic cuts, although Social Security and Medicaid would be exempt.

The enormous pressure to identify $2.4 trillion in cuts boosts the odds that Social Security benefit cuts will be proposed. Re-stating what I’ve said so many times: this would be unfair and unwise. Social Security doesn’t contribute to the deficit, and it will be a critical source of support for recession-ravaged seniors in the decades ahead.

The most likely cutting tactic is the chained CPI measure of cost-of-living adjustments (COLA). This is the only way to get near-term savings from Social Security, since it reduces benefits for current retirees. By contrast, a higher retirement age would have to be phased in over many years.

A chained CPI could be implemented as early as 2013. The chief actuary of the Social Security Administration estimates that the chained CPI will rise about 0.3 percentage points less per year than the inflation measure used now, the CPI-W. With compounding, that translates to a monthly benefit cut of 8.4 percent for a retiree at age 92 (calculated from age 62, the first year of eligibility), according to the National Academy of Social Insurance.