Social Security Payments Could Shrink for Some

By Kimberly Lankford

July 2, 2009

Because Social Security won't provide a cost-of-living adjustment next year and Medicare Part B premiums likely will rise, some retirees will get smaller checks.

If there is no cost-of-living increase for Social Security benefits this year, could my Social Security payments actually decrease because of increasing Medicare premiums?

Yes, there is a chance that your Social Security payments could shrink next year -- and it's a big issue.

It looks like Social Security will not provide a cost-of-living adjustment to beneficiaries in 2010 (and the Congressional Budget Office projects that there may not be another Social Security cost-of-living increase until 2013). But health-care costs continue to rise, and Medicare Part B premiums -- which are designed to cover about 25% of the total costs of Part B -- are also expected to go up. Because Medicare Part B premiums are usually deducted from Social Security payments, some people will see those payments decrease next year.

About three-quarters of Medicare beneficiaries, however, will not have shrinking payments because they are protected by the "hold harmless" provision. This provision prohibits Part B premiums to rise in any one year more than that year's cost of living increase in benefits. If there's no bump up in benefits, then, Part B premiums are frozen. People who are covered by the hold-harmless provision will continue to pay Part B premiums of $96.40 per month in 2010, which is expected to be $20 or less than those who don't enjoy this protection.

But because that large group won't pay the higher premiums, the remaining 25% of Medicare beneficiaries -- who aren't covered by the hold-harmless provision -- are expected to pay more than they would otherwise over the next few years. If the Social Security cost-of-living adjustment does not rise until 2013, as predicted, the CBO estimates that the people who do pay the full Part B premium will owe $119 per month in 2010, $123 per month in 2011 and $128 in 2012, instead of payments of $103 in 2010 that gradually rise to $109 in 2012 if everyone were to pay the increases.

The hold-harmless provision applies to most people who already have their Part B premiums deducted from their Social Security payments. But this protection does not apply to new Medicare beneficiaries in the year they sign up for the program or to higher-income Medicare beneficiaries who have to pay an income-related surcharge. In 2009, the surcharge applied to individuals who had a modified adjusted gross income of more than $85,000 and to married couples with an MAGI of $170,000 or more. Those high-income beneficiaries - about 5% of Medicare beneficiaries -- will have to pay the income-based surcharge next year, in addition to the increased base premium.

Because of the big premium increases next year, contesting the income-based premium surcharge could be particularly valuable if your income has dropped since 2008 (the most recent tax return on file). You're allowed to contest the premium increase only if you've had a "life-changing event," which includes marriage, divorce, job loss, reduced work hours, loss of income from income-producing property or cuts in pension benefits. If you retired recently and your income has dropped significantly since 2008, for example, you may be able to get your premium lowered. For more information, see the Medicare Part B premiums fact sheet from the Social Security Administration.

You can't get your Medicare Part B premiums reconsidered, however, if you had unusually high income in 2008 but didn't experience one of the qualifying life changes- if, for example, you sold a house for a big profit, which happens to many retirees when they downsize. But those rules may change. A provision in the House of Representatives' health-care-reform bill would exempt income from a home sale from the Medicare Part B premium calculation, says Paul Precht, of the Medicare Rights Center.

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