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Hot off the press: Social Security and Medicare updates for 2021

     
November 16, 2020

As both companies and employees look towards the future, retirement choices are an important part of the conversation. Employers are looking to help employees transition to the next phase of life by choice or are considering options for cost-containment. And, if you’re an employee, it’s important to have the right information to help you make the best decisions for your long-term financial security, healthcare coverage, and other retirement-related considerations.

Knowing what Social Security and Medicare provides in retirement and when to start benefits is key. Let’s start by examining some high-level changes related to cost-of-living, taxable earnings, full retirement age, and Medicare premiums and deductibles.

Trend spotlight: increases all over!

Cost-of-Living adjustments

On October 13, 2020, the Social Security Administration (SSA) announced all of their 2021 figures. As it turns out, Social Security beneficiaries will receive a 1.3% cost-of-living adjustment (COLA) for monthly benefits payable in 2021 — compared to a slightly larger 1.6% increase in 2020. The COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For the average retired worker, the increase is about $20 a month.

Taxable earnings base increase

The Social Security taxable earnings base will increase to $142,800 in 2021 from $137,700 in 2020. There are about 178 million working people paying this combined 7.65% payroll tax, matched by their employers, to support these programs.

Full retirement age limit

In 2021, the full retirement age (FRA, or the age at which a person may first become entitled to full or unreduced retirement benefits) will be 66 and 2 months for people born January 2, 1955, through January 1, 1956. However, keep in mind that, for Social Security and Medicare purposes, the FRA is established on the day before an individual’s birthday. So, for example, someone born on January 1 is considered to have been born in the previous year.

For more examples, reference the Social Security figures in the table below related to when different individuals reach FRA.

Medicare premiums and deductibles

On November 6, 2020, the Centers for Medicare and Medicaid Services (CMS), an agency under the U.S. Department of Health and Human Services (HHS), released the 2021 Medicare premiums and deductibles. Here are some highlights related to increases:

  • The standard Part B monthly premium will increase to $148.50 in 2021 for most current, new, and high-income Medicare beneficiaries, as well as for people whose Medicare premiums are paid by Medicaid.
  • Beneficiaries with high incomes will pay additional income-related Part B premiums in the upcoming year.
  • For Medicare Part D recipients, the standard prescription drug plan for 2021 is predicted to be $30.50 per month ($0.50 more than 2020). These premiums are adjusted every January, while drug plan enrollment is within three months of becoming eligible for Medicare. Individuals can change plans or enroll for the first time from October 15 to December 7, and coverage becomes effective on January 1. Also, note that high-income enrollees in Part D pay a premium surcharge that operates very much like the Part B program.

Summary table: 2020 vs. 2021 Social Security and Medicare data

The following table provides even more in-depth comparisons between 2020 and 2021 Social Security and Medicare figures, including both increases and decreases.

Social Security 2020 2021
Cost-of-living Adjustment (COLA) for December (payable in January). 1.6% (12/19) 1.3% (12/20)
Federal Insurance Contributions Act (FICA) tax rate:    
  • Social Security for employees.
6.20% 6.20%
  • Medicare (Hospital Insurance). An additional FICA tax of 0.9% applies to high-income beneficiaries with annual incomes above $200,000 ($250,000 for married couples filing jointly). The employer does not pay this additional percentage.
1.45% 1.45%
Maximum Social Security earnings for tax contributions and benefits. $137,700 $142,800
Medicare taxable earnings. no limit no limit
Earnings required to earn one credit (maximum of four credits per year). $1,410 $1,470
Retirement Earnings Test exempt amounts:    
  • Under full retirement age (FRA) throughout year.
$18,240 $18,960
  • Reaches FRA in year (period before the month FRA is attained).
$48,600 $50,520
  • FRA and over.
no limit no limit
Maximum monthly retirement benefit at FRA. $3,011 $3,148
Medicare Part A (Hospital Insurance) 2020 2021
Part A inpatient deductible per benefit period. $1,408 $1,484
Part A daily coinsurance 61st through 90th days. $352 $371
Part A daily coinsurance for up to 60 “lifetime reserve” days. $704 $742
Part A daily coinsurance 21st through 100th days in a skilled nursing facility. $176 $185.50
Part A voluntary monthly premium if not eligible for premium-free Part A. $458 $471
Part A reduced monthly premium for persons with 30 to 39 credits. $252 $259
Medicare Part B (Medical Insurance) 2020 2021
Part B annual deductible. $198 $203
Part B (Medical Insurance) standard monthly premium for most current, new, and high-income Medicare beneficiaries, and people whose Medicare premium is paid by Medicaid. $144.60 $148.50
Part B (Medical Insurance) standard monthly premium:*    
File an Individual Tax ReturnFile a Joint Tax Return    
0 to $88,000 annual income  0 to $176,000 annual income $144.60 $148.50
$88,001 to $111,000      $176,001 to $222,000 $202.40 $207.90
$111,001 to $138,000       $222,001 to $276,000 $289.20 $297.00
$138,001 to $165,000     $276,001 to $330,000 $376.00 $386.10
$165,001 to $500,000    $330,001 to $750,000 $462.70 $475.20
over $500,000**  over $750,000** $491.60 $504.90
*Income brackets for beneficiaries based on their 2018 federal income tax return filing status and adjusted gross income in 2020 (2017 returns for 2019).
**The Bipartisan Budget Act of 2018 set an additional Part B premium level starting in 2019 for high-income beneficiaries.
   
Medicare Part D (Prescription Drug Coverage) 2020 2021
Part D (Prescription Drug Coverage) monthly premium (estimate). $32.50 $30.50
Part D monthly premium adjustment for high-income beneficiaries (paid to Medicare):*    
File an Individual Tax Return File a Joint Tax Return    
0 to $88,000 annual income  0 to $176,000 annual income $0 $0
$88,001 to $111,000      $176,001 to $222,000 + $12.20 + $12.30
$111,001 to $138,000       $222,001 to $276,000 + $31.50 + $31.80
$138,001 to $165,000     $276,001 to $333,000 + $50.70 + $51.20
$165,001 to $500,000    $333,001 to $750,000 + $70.00 + $70.70
over $500,000**  over $750,000** $76.40 + $77.10
*Income brackets for beneficiaries based on their 2019 federal income tax return filing status and adjusted gross income in 2021 (2018 returns for 2020).
**The Bipartisan Budget Act of 2018 set an additional Part B premium level starting in 2019 for high-income beneficiaries.
   
2021 Figures Released April 6, 2020 2020 2021
Part D deductible. $435 $445
Part D initial benefit limit. $4,020 $4,130
Part D catastrophic threshold. $6,350 $6,550 
Part D minimum cost-sharing for catastrophic coverage. Generic/Preferred: $3.60 $3.70
Other: $8.95 $9,20

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Meanwhile, Mercer’s Medicare Booklet explains exactly what you need to know about Medicare in simple, practical terms. For more information or to order either booklet, please visit www.imercer.com/retirement.

This data is designed to help you or your employees properly prepare for a well-deserved retirement. After all, there’s nothing better than peace of mind when it comes to your employees’ financial security and healthcare coverage.