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2012 Changes in Social Security and Medicare

By Jacques Chambers, C.L.U.

Winter 2011

Congress passed statutes some years back that automatically provided for changes in costs and benefits to Social Security and Medicare beneficiaries, affecting everything from Cost of Living Adjustments (COLA) to setting the premiums and co-payment levels for the various parts of Medicare. The law automatically ties these changes to increases in the Consumer Price Index (CPI) which effectively takes political issues out of the rate setting process.

Because inflation has been so low over the past several years, there has been no increase in benefits and few changes elsewhere. This year, however, is different.

As most of you have probably heard, people receiving Social Security benefits, whether it is retirement, disability, survivors, or dependents, are receiving a 3.6% increase in their benefits. The change is effective December 1 so that the changes will be first seen in the payments sent out in January 2012. This will result in a monthly increase of $43 for the average retired worker, $39 for the average disability beneficiary, and $64 for the average disabled worker with a spouse and one or more children.

The adjustment will affect more than benefits. For example: the maximum earnings subject to FICA payroll taxes increases from $106,800 to $110,100; the amount of earnings needed to earn one Social Security credit (formerly called quarters) goes from $1,120 to $1,130; Substantial Gainful Activity (the amount a person on disability can earn without affecting his or her benefits) goes from $1,000 to $1,010 per year. Other changes can be found at www.ssa.gov.


Medicare Changes for 2012

In addition to changes caused by the 3.6% inflation adjustment, the implementation of provisions of the 2010 Affordable Care Act are affecting Medicare in 2012 as well.

First, the Medicare Advantage Change period formerly from January 1 through March 31 is now The Medicare Advantage Disenrollment Period. It only lasts from January 1 through February 14, and only permits people in a Medicare Advantage Plan to switch to original fee-for-service Medicare, and add Part D coverage if they had drug coverage prior.

The Medicare premiums, deductibles, and many co-pays will change January 1, 2012 as well.


Part A -- Hospital Coverage

Most Medicare beneficiaries paid into the Medicare system while working enough to receive Part A coverage without having to pay any premium. Others, however, who haven't worked the full 40 quarters/credits necessary for no premium, must pay all or a portion of the Part A premium. People who earned at least 30 quarters/credits will pay $248, and for those with less the Part A premium will be $451 per month.


ServiceYou Pay
BloodIn most cases, the hospital gets blood from a blood bank at no charge, and you won't have to pay for it or replace it. If the hospital has to buy blood for you, you must either pay the hospital costs for the first three units of blood you get in a calendar year or have the blood donated.
Home Health Care
  • $0 for home health care services
  • 20% of the Medicare-approved amount for durable medical equipment
Hospice Care
  • $0 for hospice care
  • A copayment of up to $5 per prescription for outpatient prescription drugs for pain and symptom management
  • 5% of the Medicare-approved amount for inpatient respite care (short-term care given by another caregiver, so the usual caregiver can rest)

Medicare doesn't cover room and board when you get hospice care in your home or another facility where you live (like a nursing home).

Hospital Inpatient Stay
  • $1,156 deductible per benefit period
  • $0 for the first 60 days of each benefit period
  • $289 per day for days 61-90 of each benefit period
  • $578 per "lifetime reserve day" after day 90 of each benefit period (up to a maximum of 60 days over your lifetime)
Skilled Nursing Facility Stay
  • $0 for the first 20 days each benefit period
  • $144.50 per day for days 21-100 each benefit period
  • All costs for each day after day 100 in a benefit period


Part B -- Medical Coverage

The monthly premium for Part B coverage varies according to the beneficiary's income. Also, those beneficiaries whose coverage started within the past few years may see their premiums reduce. The rate you pay will be based on your modified adjusted gross income as reported on your IRS tax return from two years ago:


If Your Yearly Income in 2010 was
File Individual Tax ReturnFile Joint Tax ReturnYou pay
$85,000 or less$170,000 or less$99.90
above $85,001 up to $107,000above $170,001 up to $214,000$139.90
above $107,001 up to $160,000above $214,001 up to $320,000$199.80
above $160,001 up to $214,000above $320,001 up to $428,000$259.70
above $214,000above $428,000$319.70


The benefits under Part B will be:


ServiceYou Pay
Deductible$140 per year.
BloodIn most cases, the provider gets blood from a blood bank at no charge, and you won't have to pay for it or replace it. However, you will pay a copayment for the blood processing and handling services for every unit of blood you get, and the Part B deductible applies. If the provider has to buy blood for you, you must either pay the provider costs for the first 3 units of blood you get in a calendar year or have the blood donated by you or someone else. You pay a copayment for additional units of blood you get as an outpatient (after the first 3), and the Part B deductible applies.
Clinical Laboratory Services$0 for Medicare-approved services.
Home Health Services$0 for Medicare-approved services. You pay 20% of the Medicareapproved amount for durable medical equipment.
Medical and Other Services20% of the Medicare-approved amount for most doctor services (including most doctor services while you're a hospital inpatient), outpatient therapy*, and durable medical equipment.
Mental Health Services40% of the Medicare -- Allowable Amount* for most outpatient mental health care.
Other Covered Servicescopayment or coinsurance amounts.
Outpatient Hospital Servicesa coinsurance (for doctor services) or a copayment amount for most outpatient hospital services. The copayment for a single service can't be more than the amount of the inpatient hospital deductible.

*Remember that if your physician accepts "Medicare Assignment" you are only liable for 20% of the Medicare-approved Amount regardless of what the doctor normally charges or bills you.

NOTE: All Medicare Advantage Plans must cover the services listed above. Costs vary by plan and may be either higher or lower than those noted above. Review the Evidence of Coverage from your plan.


Part D -- Prescription Medications

For the first time, people with higher incomes will pay higher premiums for Part D plans as they do for Part B. This may be confusing for people who pay directly without having the premium taken out of their Social Security payments. This is because the surcharge over and above the plan's "normal" premium, must make two payments each month, the normal premium to the insurance company and the surcharged cost to Social Security.


If Your Yearly Income in 2010 was
File Individual Tax ReturnFile Joint Tax ReturnYou pay
$85,000 or less$170,000 or lessYour Plan Premium
above $85,001 up to $107,000 above $170,001 up to $214,000$11.60 + Your Plan Premium
above $107,001 up to $160,000above $214,001 up to $320,000$29.90 + Your Plan Premium
above $160,001 up to $214,000above $320,001 up to $428,000$48.10 + Your Plan Premium
above $214,000above $428,000$66.40 + Your Plan Premium


Everyone who is covered under a standalone drug plan with original or fee-for-service Medicare should review their drug plan by comparing the drug plans based on the medications they are currently taking at www.medicare.gov to make sure the plan they are on is still the best program for them.

Jacques Chambers, C.L.U., is a Benefits Counselor in private practice with over 35 years experience in health, life and disability insurance and Social Security disability benefits. He can be reached by phone at 323.665.2595, by e-mail at jacques@helpwithbenefits.com, or through his Web site at www.helpwithbenefits.com.




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