Understanding the Basics: Medicare and Social Security in Retirement

Most retirees in the U.S. receive healthcare coverage through Medicare, which helps provide stability against the unknown costs of health insurance during retirement. Here’s how it breaks down:

• Part A covers hospital stays and is provided at no cost.

• Part B covers doctor visits and outpatient services, and while subsidized, it typically requires retirees to pay about 25% of the premium (the rest is covered by the government).

• Part D provides prescription drug coverage and comes with a separate premium, based on the plan selected.

Social Security benefits often have Part B premiums deducted before payments are issued. While both Medicare and Social Security are indexed for inflation, they don’t move in sync—Social Security adjusts based on the Consumer Price Index (CPI), while Medicare costs tend to rise based on healthcare inflation, which is typically higher.

Protecting Income: The “Hold Harmless” Rule and Its Impact

To help retirees maintain their income despite rising healthcare costs, Social Security includes two important protections:

1. Benefits can’t decrease due to deflation. Even if the CPI goes down, your Social Security check won’t.

2. The “Hold Harmless” provision ensures that rising Medicare Part B premiums can’t reduce your Social Security benefit. This applies to about 70–75% of Medicare enrollees.

For many, the worst-case scenario is simply not seeing a cost-of-living increase due to the offsetting rise in Medicare premiums. However, this protection only applies if you’re already receiving Social Security and have your Medicare premiums deducted from your check. If you’re deferring Social Security or have a higher income (above $85,000 for individuals or $170,000 for couples), you are not protected and could see full premium increases.

Real Numbers, Real Effects: What Retirees Can Expect

Let’s put some numbers to this:

• In 2016, the average Social Security benefit was $1,328. A 0.3% CPI increase in 2017 brought it to $1,331.

• Part B premiums rose from $104.90 to $134—a 27% jump!

• However, those protected by the hold harmless rule only saw premiums rise to $107.90, keeping their net Social Security benefit unchanged.

Consider a hypothetical situation: if the CPI rose 2% and Medicare premiums rose 10%, Social Security benefits would increase enough to cover the premium jump, rendering the hold harmless rule irrelevant—but that doesn’t happen often.

In years when inflation is low or zero (like in 2010), retirees covered by the rule saw no change in premiums. But those who weren’t protected—either due to income or deferring Social Security—took on the full cost increase. In 2010, premiums jumped from $96.40 to $110.50 for those not covered—a 14.6% spike.

Looking ahead to 2017, about 30% of Medicare recipients (those not covered by the rule) will see significant premium increases based on income. Here’s a quick look:

• $187.50/month – income over $85,000 up to $107,000

• $267.90/month – income over $107,000 up to $160,000

• $348.30/month – income over $160,000 up to $214,000

• $428.60/month – income over $214,000

(Double these thresholds for married couples filing jointly.)

These disparities won’t ease until inflation rates rise enough to distribute costs more evenly. If you’re unsure how this impacts you, reach out to your local Gainplanner—we’re here to help you navigate every step of your retirement journey.

This website commentary reflects the personal opinions and analyses of Gainplan LLC employees. It does not describe Gainplan LLC’s advisory services or client investment performance. Views in the commentary may change anytime without notice. Nothing here constitutes investment advice, performance data, or recommendations for specific securities, transactions, or strategies. Mentioning a security or its performance is not a buy or sell recommendation. Gainplan LLC uses various investment strategies, not all discussed here. Investing in securities carries risks, including loss. Past performance does not guarantee future results.

Gainplan LLC provides links to third-party websites for convenience. Clicking these links leaves our website. Gainplan LLC is not responsible for errors, omissions, or content on third-party sites and does not necessarily endorse their information. Users accessing these sites must follow their terms and assume all risks.