Medicare Premiums: High Income Retirees

By Greer Gibson Bacon, CFP®

In August, Fidelity released its annual study of retiree health care costs.  It estimates a 65-year old couple retiring today will need $275,000 to pay basic health care expenses if they live to life expectancy[1].  These expenses include Medicare premiums, copays and deductibles; and out-of-pocket prescription drug costs, but not Medicare Advantage or Medigap premium costs.  But, if you’re part of a high income household, you’ll pay more.

Very simply, Medicare Part B and D premiums are subject to “means testing”.  So, while all beneficiaries pay a premium for their Part B and D coverage, some pay an Income-Related Monthly Adjustment Amount (IRMAA) based on their modified adjusted gross income (MAGI).  The 2017 income brackets and surcharges are shown below.

2017 Cliff Brackets:  Medicare Parts B and D

 

2015 MAGI

 

Monthly Premium / Part B Coverage

 

Monthly Premium / Part D Coverage

Individual:  $85,000 or less

Married couples:  $170,000 or less

 

Standard Premium

 

Plan Premium

Individual:  $85,001 - $107,000

Married couples:  $170,00 - $214,000

 

Standard Premium + $53.50

 

Plan Premium + $13.30

Individual:  $107,001 - $160,000

Married couples:  $214,001 – $320,000

 

Standard Premium + $133.90

 

Plan Premium + $34.20

Individual:  $160,001 - $214,000

Married couples:  $320,001 - $428,000

 

Standard Premium + $214.30

 

Plan Premium + $55.20

Individual:  $214,001 or more

Married couples:  $428,001 or more

 

Standard Premium + $294.60

 

Plan Premium + $76.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In determining if your household will pay surcharges and how much, it’s important to know there’s a 2-year look-back period.  For example, if you’re an individual and your 2015 MAGI was $200,000, your 2017 Part B monthly premium will be $348.30 … the $134.00 standard premium plus the $214.30 surcharge.  

In 2018 and beyond, more high income households will pay more.  This is because the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 compresses the top three income brackets (see Table below).  For example, if you’re an individual and your 2016 MAGI was $200,000, your 2018 Part B monthly premium will be $428.60 … the $134.00 standard premium plus a $294.60 surcharge.  This represents a 23% increase over the prior year

2018 Cliff Brackets:  Medicare Parts B and D

 

2016 MAGI

 

Monthly Premium / Part B Coverage

 

Monthly Premium / Part D Coverage

Individual:  $85,000 or less

Married couples:  $170,000 or less

 

Standard Premium

 

Plan Premium

Individual:  $85,001 - $107,000

Married couples:  $170,00 - $214,000

 

Standard Premium + $53.50

 

Plan Premium + $13.30

Individual:  $107,001 - $133,500

Married couples:  $214,001 – $267,000

 

Standard Premium + $133.90

 

Plan Premium + $34.20

Individual:  $133,501 – $160,000

Married couples:  $267,001 – $320,000

 

Standard Premium + $214.30

 

Plan Premium + $55.20

Individual:  $160,001 or more

Married couples:  $320,001 or more

 

Standard Premium + $294.60

 

Plan Premium + $76.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A high income household may appeal these surcharges if it experiences a life-changing event and its MAGI drops as a result.  The list of life-changing events is well-defined.  The most common events are marriage, divorce or becoming widowed; as well as stopping work or working fewer hours.  Less common events are defined in Form SSA-44. 

Today, average retirees “spend about 32% of their annual budget on health care and 34% on housing, food and transportation”[2].  So, health care is a big expense and developing a comprehensive plan to manage them must be a fundamental component of every retirement plan.

 

2018 Social Security Update

High income workers will pay combined Social Security and Medicare taxes of 7.65% on their first $128,700 of earnings (up from $127,200).  Thereafter, they will pay the 1.45% Medicare tax on all earnings plus the 0.90% Medicare surtax if their earnings exceed certain thresholds … $200,000 for single taxpayers and $250,000 for married taxpayers. 

Retirees will get a 2.0% cost-of-living adjustment.  But, 70% will see little in their monthly benefit as their Medicare premiums will increase from the $109 hold harmless amount to the current $134.

 

 

 

 

 

 

 

[1]The Social Security Life Expectancy calculator estimates the average 65-year old man and woman will life to age 84½ years and 86½ years, respectively.

[2]Jarvis, Gayle Marks, Budgeting for retirement? Plan on spending an eye-popping amount on health costs. Chicago Tribune, June 18, 2017.

 

This article first appeared in the October 2017 Spokane County Medical Society Magazine. The information referenced in the article is current as of date of publication.

 

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