Social Security’s role in Medicare

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Medicare Part A

Your Social Security work history determines whether you qualify for free premiums for Medicare Part A hospital insurance. If you don’t, you could be asked to pay monthly premiums in excess of $400. In a little-known twist, people who must pay these premiums have the choice of getting their health insurance from one of the Affordable Care Act’s state exchanges and may not need to sign up for Medicare when they turn 65.

Medicare Part B

Medicare Part B premiums, as noted, must be subtracted from monthly Social Security payments. However, there is a Social Security rule that says your net monthly payments cannot decline from one year to the next. This “hold harmless” rule is triggered whenever Part B premium increases exceed Social Security’s annual cost of living adjustment (COLA).

IRMAA

This is the acronym for Social Security’s income-related monthly adjustment amount. About 7 percent of Medicare beneficiaries make enough money to trigger monthly premium surcharges for Parts B and D of Medicare. And just to make the pain a little more tortured, IRMAA is based on your tax returns of two years’ ago. These surcharges already are scheduled to rise in future years, and even more taxpayers likely will experience the joy of an IRMAA moment.

Health Savings Accounts

Health savings accounts have grown in popularity in employer health insurance plans. They permit tax-deductible contributions, often include employer contributions and can be invested in like 401(k)s. Better yet, funds spent on eligible medical expenses are not taxed either. And HSA balances can be carried over from year to year. Amidst all this good news about HSAs is one major downer: People on Medicare can’t participate in HSAs, even if they continue to be covered by employer provided health insurance plans. And in a major surprise to many people, anyone who receives Social Security payments must, by law, be enrolled in Part A of Medicare. This invalidates their continued participation in an HSA.

65 Doesn’t Mean What it Used To

Making a mistake can be costly: lifetime late-enrollment penalties and perhaps an extended period with no health coverage at all.

Turning 65 used to be the logical time to sign up for both Social Security and Medicare. The full retirement age for Social Security, after all, used to be 65 — the same age that triggers eligibility for Medicare. Mandatory retirement at 65 also was common. Today, Social Security’s full retirement age is 66 and will be 67 for anyone born in 1960 or later. Social Security benefits don’t peak at 65, of course, but at 70. Further, nearly a third of people in their late 60s are still in the workforce, and many say they will continue working — out of financial necessity or choice — until age 70 or beyond. The delinking of enrollment ages for Social Security and Medicare creates a more complicated set of decisions for both programs. Medicare has no fewer than four enrollment periods. Getting them right is challenging. Making a mistake can be costly: lifetime late-enrollment penalties (administered by Social Security) and perhaps an extended period with no health coverage at all.