Your Medicare Premium is now Income-based

By Shane Flait © 2008

Slowly, the government is making Medicare coverage based on your income. The Medicare Prescription Drug, Improvement and Modernization Act of 2003[1] changed how Part B premiums are calculated for higher income users of Medicare.

The government has paid a substantial portion—75 percent—of the costs for the vast majority of Medicare beneficiaries while the beneficiary pays the remaining 25 percent – irrespective of the beneficiary’s income.  Now, the Act mandates that higher income beneficiaries pay an increasing part of the government’s portion. This started in 2007 with Medicare B premiums increasing with the beneficiary’s Modified Adjusted Income (MAGI).

Each year, higher premiums for Part B payments are scheduled for ‘higher income’ beneficiaries. The table[2] shows – for 2008 - the monthly and yearly premium B contributions versus income. 

Modified Adjusted Income (MAGI)-Based Medicare B Premiums
Single Filers MAGI	Joint Filers MAGI	Medicare Part B Monthly Premium/Person	Yearly Contribution: Single Filers	Yearly Contribution: Joint Filers
≤$82,000	≤$164,000	$96.40	$1,156.80	$2,313.60
>$82,000 to $102,000	>$164,000 to $204,000	$122.20	$1,466.40	$2,932.80
>$102,000 to $153,000	>$204,000 to $306,000	$160.90	$1,930.80	$3,861.60
>$153,000 to $205,000	>$306,000 to $410,000	$199.70	$2,396.40	$4,792.80
>$205,000	>$410,000	$238.40	$2,860.80	$5,721.60

 The Act uses the more obscure phrase ‘income-relating’ Medicare B premiums but it’s clearly a ‘means testing’ that charges higher income beneficiaries more for their Medicare B benefits.

You can opt out of Medicare B premiums and find other medical coverage.  But that’s difficult. since many of the "medigap" policies that you purchase to supplement Medicare are designed based on you using Part B – and paying its premiums.

You may not notice paying these increased premiums since they’re deducted from your Social Security Benefits.  Your Social Security ‘take-home’ will be somewhat smaller.

Realize too that, the amount deducted from you Social Security Benefits for you Medicare B Premiums in 2008 are based on your 2006 modified adjusted income (MAGI). This two year difference will be maintained in the future. Remember the MAGI is a social security based income definition that includes income from tax-free municipal bonds.

Lastly, under the of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, U.S. tax revenues available to fund Medicare are capped at 45% of total program cost. When that cap is exceeded, Medicare Part B premiums will increase proportionately for all seniors.  If that happens, Congress may reduce the premium B –based MAGI thresholds (as shown above) or other similar measures to keep the program solvent.

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com