On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015, legislation that raises the federal debt limit and establishes the framework for a two-year budget deal.
The legislation, necessary to avoid an impending default on U.S. debt, also contains multiple unrelated provisions, including an elimination of two Social Security retirement benefit claiming strategies and a provision to prevent a significant increase in Medicare Part B premiums for some. Here are the highlights that affect Social Security and Medicare:
A Social Security claiming strategy used by married couples, commonly referred to as “file and suspend,” has received quite a bit of attention over the last several years. The strategy involves one spouse filing an application for retirement benefits when he or she reaches full retirement age and immediately requesting that benefits be suspended, allowing his or her eligible spouse to file for spousal benefits.
- The new legislation eliminates new “file and suspend” strategy effective in 6 months.
- Those who are both eligible and have implemented the file-and-suspend strategy before the six-month period ends will not be affected by the change.
Another Social Security strategy that has been used involves one spouse filing for spousal benefits first, then switching to his or her own (higher) retirement benefit later. If a spouse reaches full retirement age and is eligible for both a spousal benefit and a retirement benefit based on his or her own earnings record, he or she could choose to file a restricted application for spousal benefits only. Then they would delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits.
- Anyone applying for either a spousal or retirement benefit is deemed to have filed an application for the other type of benefit as well. Therefore, the person is required to take the higher of the two benefits. You can no longer choose between the two.
- This change affects individuals who attain age 62 after calendar year 2015. Individuals who reach age 62 on or before December 31, 2015, will continue to be able to file restricted applications for spousal benefits once they reach full retirement age.
Medicare Part B
For 2016, there will be no automatic increase in monthly Social Security benefits. The fact that Social Security benefits are not increasing also affects Medicare Part B premiums. A “hold harmless” provision in the Social Security Act protects about 70% of Social Security beneficiaries from increases in Medicare Part B premiums when there is no Social Security cost-of-living increase (the standard premium is currently $104.90). So, if you are a Social Security recipient, your Medicare premiums will not increase in 2016.
That means, however, that Medicare Part B premium increases have to be spread out over the roughly 30% of Medicare beneficiaries who are not protected by this provision. Premiums for some of these individuals were scheduled to increase by as much as 52%. These beneficiaries include:
- Those with higher incomes who are subject to income-adjusted Part B premiums
- Low-income beneficiaries whose Part B premiums are paid by Medicaid
- Those enrolled in Medicare but not yet receiving Social Security benefits
- New Medicare or Social Security enrollees
To prevent this outcome, the legislation sets a new 2016 Part B premium of $120.70/month for certain beneficiaries not protected by the “hold harmless” provision. Those paying higher income-adjusted Part B premiums will pay more. The provision will apply in 2017 as well if there is again no Social Security cost-of-living adjustment.
We are working diligently on your behalf to assess how this legislation might affect both your Medicare Part B premiums and your Social Security Benefit claiming strategy. If you have any questions about how this affects your financial plan, please let us know.