Around October and November of each year, The Centers for Medicare and Medicaid Services (CMS) and The Social Security Administration (SSA) announce updates and changes for the upcoming calendar year. These standard adjustments to premiums, benefits, and other factors effective January 1, 2021 are summarized by HealthView Services below.
Medicare Part B premiums, which provide enrollees coverage for doctor visits and tests, will be $148.50 per month in 2021, an increase of $3.90 (about 2.7%) from the $144.60 premium that Americans paid in 2020. The actual 2021 premium comes as good news for Medicare beneficiaries, as the amount is noticeably lower than the $153.30 estimate from CMS in their previous Trustee Report.
The annual Part B deductible will rise modestly from $198 in 2020, to $203 in 2021.
While Part B premiums change, so too do the Income-Related Monthly Adjustment Amount (IRMAA) surcharges that affect what higher-earning recipients may pay Part B and Part D premiums. The IRMAA policy – sometimes referred to as Medicare Means Testing – applies increasing surcharges on Parts B and D based on an individual or couple’s modified adjusted gross income (MAGI) and may force Medicare recipients to pay over 200% more for their premiums.
Both the MAGI bracket ranges and the surcharge amounts have changed for 2021. Bracket placement is based on 2019 MAGI, per the “two-year lookback” rule.
Surcharges on Parts B and D premiums may result in added costs of up to 209% per year, resulting in tens or hundreds or thousands of dollars throughout one’s lifetime. When assuming a 20-year retirement, someone with an MAGI of $112,000 who is turning 65 next year will pay $71,496 (future dollars) in surcharges throughout their retirement.
Social Security benefits will also see some adjustments in 2021. In October, SSA announced the 2020 Cost-of-Living Adjustment (COLA) – which increases all benefits received beginning in January 2021 – at 1.3%. Thus, someone receiving $1,000 per month in 2020 will start seeing benefits of $1,013 next year. The 1.3% metric is nearly identical to the average annual COLA since 2009, but well below the 2.6% average since the introduction of the modern COLA calculation in 1975.
With these adjustments, SSA also announced other important metrics to consider during 2021:
- The maximum annual income that a worker can be taxed on by Social Security via Federal Insurance Contributions Act (FICA) will now be $142,800.
- Social Security beneficiaries who have not yet achieved Full Retirement Age (FRA) may earn up to $18,960 in work-related earnings if they reach FRA in 2022 or later. Once they cross that amount in earnings, per The Earnings Test, withholdings of benefits will begin, when $1 is deducted from benefits for every $2 earned beyond the limit.
- For Social Security recipients in the workforce who will reach FRA in 2021, the limit is $50,520 throughout the months prior to when FRA is achieved. For this year, $1 is deducted from benefits for every $3 earned beyond the limit.
- The maximum monthly benefit one can collect at FRA in 2021 will be $3,148, while the average of all retired workers will be $1,543.
These adjustments are impactful for those who will be retired – or planning their retirement – in 2021. The fortunate news for Americans is that the average increased monthly Social Security benefit will outpace the Part B increase, so the net impact on retirees (in terms of dollars) is positive. This, however, does not account for inflation on other non-discretionary goods and services. These ongoing changes underscore the importance of working with a financial professional who can help retirees and pre-retirees better prepare for Medicare and Social Security-related challenges in 2021, and beyond.
For further insights into 2021 projections, please see HealthView’s upcoming white paper: 2021 Retirement Healthcare Costs Data Report, to be released in December, 2020.