The Medicare Screw Job of 2016

  • Old enough for Medicare but not yet collecting Social Security? You’re screwed!
  • Congress won’t fix the problem… but you can still take three steps to boost your income
  • Three possible outcomes: Jim Rickards handicaps the next Fed meeting
  • Weed for me, but not for thee: A pot business for insiders only
  • Living with a lousy 401(k) plan… the blood moon, revisited… a video that might alter your retirement forever… and more!

Whaddya know? Social Security’s “flat COLA” turns out to be even worse than we wrote about three months ago.
Then, we noted Social Security recipients are unlikely to get any cost-of-living adjustment, or COLA, next year. Not enough inflation, as the government defines it. (Yeah, we know. It’s why whenever we report the official inflation numbers, we say any resemblance to your own cost of living is purely coincidental.)
What’s more, if you have Medicare premiums taken out of Social Security and your premiums rise, your Social Security check might well be smaller next year.
Now it turns out some people on Medicare face an average 52% increase in their Part B premiums come 2016 — all because of the flat COLA.
Blame it on a law dating back to 1987, explains columnist Kathleen Pender at the San Francisco Chronicle: If there’s no COLA in a given year, “about 70% of people enrolled in Medicare Part B don’t have to pay the usual premium increase; they are said to be ‘held harmless.’
“But the 30% who are not held harmless have to shoulder the entire Medicare cost increase that normally would have been shouldered by all participants. As a result, their premiums skyrocket.”
That’s what happened in both 2010 and 2011, when there was no Social Security COLA. The premium increases were steep but manageable — about 16%. But for 2016, it works out to 52%, according to government figures crunched by the Center for Retirement Research at Boston College.
OK, who are the unlucky 30% facing this huge increase? They fall into four categories…

  • People with higher incomes: We’re talking people with an adjusted gross income plus tax-exempt interest of $170,000 or higher ($85,000 single)
  • People who didn’t pay into the Social Security system, mostly teachers and other government workers. They pay their Medicare premiums directly instead of having them withheld from a Social Security check
  • People old enough for Medicare but who haven’t started collecting Social Security. Maybe they just turned 65 and their full retirement age is 66. Or maybe they’re waiting to file until age 70 so they can collect a higher monthly benefit. Either way, they also get hosed, because they pay their Medicare premiums directly
  • People with lower incomes on both Medicare and Medicaid. For these folks, it’s state Medicaid programs that will foot the higher bill.

From the Boston College report: “Under the intermediate economic assumptions, the estimated monthly premium in 2016 for these other beneficiaries is $159.30,” the authors write. “That means that, unless the administration figures out some workaround, the base Part B premium would rise from $104.90 to $159.30 — a 52% increase.”
Don’t expect a fix from the White House or Congress.
“Clearly, political pressure will build for some kind of work-around,” says the Boston College report.
We’re not nearly as sure. For one thing, all the rumblings we hear from Washington point to another “partial government shutdown” come Oct. 1 — just like two years ago. So all the other budget issues that are prompting the politicos to grandstand have to be resolved before they tackle this Medicare mess.
For another thing, think about who’s going to be affected. Poor people on both Medicare and Medicaid? As mentioned earlier, they won’t know the difference because it’s not coming out of their pockets.
Higher-income people? C’mon, there’s no sympathy for them.
That leaves the people who pay their Medicare premiums directly instead of having them withheld from their Social Security payment.
They make up only about 8% of all enrollees. And some of them are probably better off, too — especially if they’ve reached full retirement age but they’re waiting till age 70 to start collecting Social Security.
Sorry, there’s just not a constituency large or vocal enough to stave off this 52% Medicare premium increase. That means a smaller Social Security check come next year if you fall into one of these unlucky groups.
What can you do?
This year, we keep coming back to the benefits that come from “piggybacking” Canada’s version of Social Security — professionally managed, running a surplus and growing its reserves. Do it right and you can collect monthly checks as high as $4,700.
And as we said back in June, there’s no flat COLA to worry about. A typical “piggyback” play delivers an annual COLA of 7%.
Want to see how someone just like you is “piggybacking” Canada’s Social Security, collecting $4,891 in extra income last year? Just follow this link.
Major U.S. stock indexes ripped higher on the open — only to tumble as lunchtime approached.
The Dow Jones industrials, S&P 500 and Nasdaq are up only fractionally as we write. Earlier, the Dow was up 200, on top of the nearly 400 it added yesterday.

Meanwhile, other asset classes are selling off. The 10-year Treasury yield sits at 2.23%. Gold is off more than $12, to $1,109.
The greenback is rallying, relative to other developed-world currencies. The dollar index is up nearly half a percent, at 96.3.
With eight days to go before the Federal Reserve makes its next decision on interest rates, the chorus urging the Fed to hold off is growing louder.
This morning, it’s the turn of the World Bank, whose chief economist warns of “panic and turmoil” in emerging markets if the Fed raises the fed funds rate a week from tomorrow.
Just as our own Jim Rickards has been warning all summer.
“My expectation is the Fed will stand pat and not raise rates in September,” says Jim, “but this is admittedly a closer call than it has been all year.”
With that in mind, Jim handicaps three possible outcomes…

Outcome No. 1: The Fed raises the rate from the near-zero level where it’s been held since December 2008.
“This would be a policy blunder given the weak global and U.S. growth environment,” says Jim, “but it could happen. The result would be a strong dollar, capital flight from around the world to U.S. markets, collapsing emerging-market currencies and stocks, bankruptcies of dollar-denominated foreign corporate borrowers and possible contagion and global panic.”
Outcome No. 2: The Fed leaves the rate alone but continues to “talk tough” about raising it soon.
In other words, “more of the same,” says Jim. “Markets would see the same volatility they have seen since early August, without the benefit of actually having the decision behind us.
“Wall Street has been moving the goal posts all year. Late in 2014, Wall Street said the Fed would raise rates in March 2015. Then June. Then September. If the Fed does not raise rates in September, the talk will immediately turn to the December meeting.”
And there’s also the possibility of an increase at the Fed meeting in late October, Jim says; nothing’s written in stone that these decisions must come at three-month intervals.
Outcome No. 3: Not only does the Fed leave the rate alone, but it hints at some sort of easing.
“Even at the zero bound, the Fed is not out of bullets,” Jim explains. “They could start QE4, issue forward guidance, go to negative interest rates, re-enter the currency wars or issue helicopter money to finance larger deficits.”
That’s the least likely option, Jim reckons. “Balancing the risks, the Fed is most likely either to tighten or threaten to tighten sooner than later (I expect the latter). Coming in a weak growth environment, this can only encourage deflation in the U.S. and foreign capital flight to U.S. markets.
“The biggest beneficiary of both trends is U.S. government securities,” Jim concludes. Got Treasuries?
Jim remains fond of the Wasatch-Hoisington U.S. Treasury Fund (WHOSX). However, users of Jim’s IMPACT system got a more aggressive recommendation just yesterday. It’s not too late to act.
To the Buckeye state — where an unholy marriage of legal marijuana and crony capitalism might take place this fall, officiated by a creepy mascot.
Voters in Ohio decide in November whether to become the fifth state to legalize recreational weed. But many people you might expect to support the referendum in fact oppose it.
“That’s because it specifies just 10 locations in the state where growing pot would be allowed,” explains NPR. “And 10 groups of investors already have dibs on those sites.
“The investors are a notable group: It includes former NBA star Oscar Robertson, NFL player Frostee Rucker, Nick Lachey from the boy band 98 Degrees and two Cincinnati-based relatives of the late President William H. Taft.”
The investors have backed a group called ResponsibleOhio with $20 million to buy TV spots and to sponsor a “Green Rush Bus Tour” of college campuses featuring a mascot named Buddie.

Dabbin Dad Tweet.png

With our usual apologies to Dave Barry, we swear we’re not making this up.
Legal marijuana advocates — the ones not bankrolling Buddie, the “grass” roots, as it were — hope to put their own referendum on the ballot next year, creating a free market for growers.
To be continued…
“In regard to 401(k) plans,” a reader weighs in on a recent topic, “there are many types of plans, and I am sure that some companies have really well-structured plans, such as Lockheed Martin.
“Alas for our small company, we have a poorly developed plan that is basically worthless, complex to use and, as far as I am concerned, a disservice to all the employees who participate. I am one of them. The only reason I stay in it is because I receive a 50% match up to a 6% contribution.
“My plan re-balances every quarter. I was messing around with the allocations a few months ago, considering going all cash. I entered the figures but backed out and thought I canceled the planned change.
“Lo and behold, my account re-balanced today. I am 100% cash. A bit surprised, but then looked at my total return for the year: negative 0.06%. And this was the return in the allocation and distributions suggested by the provider based on my personal so-called profile.
“All future contributions are to cash. I considered re-balancing, but heck, I think I will wait until the first of the year and see what happens.
“I could write volumes about what a disservice most of these providers furnish the typical employee, and that doesn’t even touch on the government’s current and future theft of these funds.
“Sometime, I don’t know when, some brilliant group of politicians will determine that they can confiscate all the trillions of dollars in these funds to sustain and extend their future programs with another promise to pay. I wouldn’t be surprised to see the future of 40-100-year bonds.”
The 5: Sometime, yes, but not soon. Your editor researched this aspect of the “401(k) confiscation” idea for the gone-but-not-forgotten Apogee Advisory. I might revisit it in a future issue of Laissez Faire Letter. Suffice it to say we’re nowhere near there right now.
“About your recent discussion of the upcoming fall blood moon on Sep. 27, 2015, just an interesting data point,” a reader writes: “Have you considered the prior fall blood moon? (Oct. 8, 2014)”
The 5: Heck, we wrote about it that very day. And that day did mark the start of a short and sharp drop. But it was over in a week, and the S&P 500 fell all of 6%.
Curiously, the S&P re-tested that low on Monday, Aug. 25 — the day the Dow tumbled nearly 1,100 points on the open.
All very interesting, but we doubt it has any predictive value. We know this much, though: If the world really does end with the blood moon on the night of Sept. 27, we’ll be spared a bunch of gasbag speeches the next day by Obama and other “global leaders” at the United Nations.
Never let it be said we fail to look on the bright side…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. At the risk of beating the proverbial dead horse… you really should see the interview with the woman mentioned here earlier.
It might change the way you think about investing… and how to fund your retirement.
You can watch the full interview — which is about five minutes long — by clicking here.

Mohana Video

And if you’d like, you can hear even more stories after the interview.
From what we’ve seen, it looks as if most Americans are eligible to collect anywhere from $400-4,700 each month.
Click here to check it out now.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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