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How Medicare Premiums Affect Social Security Payments

how is social security payments calculated

Your Medicare Part B premiums won’t eliminate your Social Security boost in 2012.

Retirees will see a 3.6 percent increase in their Social Security checks in 2012, with the typical retiree getting about $43 more each month. For most people, only a small portion of that boost will be deducted from Social Security checks to pay for higher Medicare Part B premiums. Some people will even get more than 3.6 percent added to their Social Security checks next year because their Part B premiums will decrease. Here's how Medicare Part B premiums will affect your Social Security checks in 2012.

You signed up in 2009 or earlier. The standard Medicare Part B premium, which covers physician and outpatient hospital services, will be $99.90 in 2012, up $3.50 from 2011 for people who signed up for Medicare in 2009 or earlier. The Social Security cost-of-living adjustment should more than cover that amount. "Most retirees will see a more than $30 net increase in their take-home benefits," says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration. "The fear was that when we did get a [Social Security] cost-of-living adjustment that Part B premiums would shoot up and eat most of the Social Security benefit increases that seniors will receive, but it looks like that's not the case."

Medicare Part B premiums are prohibited by law from increasing faster than Social Security payments for existing beneficiaries. Most people who claimed in 2009 or earlier haven't experienced a Medicare premium increase or a Social Security boost since 2009. However, new Medicare beneficiaries, Medicaid recipients, and high-income retirees weren't protected by the law and paid higher premiums

than existing beneficiaries over the past two years.

You signed up in 2010 or 2011. If you first signed up for Medicare Part B in 2010 or 2011, you were probably charged the standard premium for new enrollees of $110.50 or $115.40, respectively. Many retirees who claimed Medicare benefits during these two years will actually see their premiums decline to $99.90 in 2012. If your premiums are deducted from your Social Security checks, this will result in a slightly bigger monthly payment. "For those who were paying the standard premium of $115.40, their benefits checks will only increase," according to the Centers for Medicare and Medicaid Services.

You have a high income. High-income Medicare beneficiaries whose modified adjusted gross income is greater than $85,000 for individuals or $170,000 for couples must pay Part B premiums that are higher than the standard rate. The extra amount due ranges from $40 per month for those earning between $85,001 and $107,000 ($170,000 and $214,000 for couples) to an extra $219.80 per month for people earning more than $214,000 per year ($428,000 for couples) in retirement.

However, high-income beneficiaries are likely to get slightly bigger Social Security checks next year because their Medicare premiums will fall. Individuals earning between $85,001 and $107,000 paid $161.50 monthly for Medicare Part B in 2011, which will fall to $139.90 in 2012. And even the highest earners bringing in more than $214,000 ($428,000 for couples) will see their Part B premiums decline from $369.10 per month in 2011 to $319.70 in 2012.

Medicare premiums aren't the only retiree medical insurance expense that will decline next near. The Part B deductible will be $140 in 2012, a decrease of $22 from 2011.

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