2012 Changes in Social Security and Medicare

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.

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:

The benefits under Part B will be:

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.

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.