Means Testing Medicare Premiums

by Patricia Salber

First published 6/14/11 on The Doctor Weighs In

With all of the hullabaloo about health reform, the Ryan plan and other Medicare-related excitement, I somehow missed a major change in how Medicare is doing business – which is pretty funny since I have spent the last 5 years working for Medicare Advantage plans.  Since January 2011, Medicare has been means testing the Part B premium.  Even more amazing is that some of my most wonky policy wonk friends didn’t know about this – not mentioning any names.

Anyway, I found out in the rudest of ways – a letter from the Social Security Administration describing the impact of the new approach on my own premiums.  It was a shocker for someone used to paying nothing for health care.  (I know, no sympathy for me on that one.)

Here is how it works.  The Social Security Administration obtains information from our friends at the IRS on your “modified adjusted gross income,”  or MAGI, from your most recent income tax return.  The MAGI is the sum of your adjusted gross income plus certain amounts of income that are not taxable (line 8b of IRS Form-1040).  MAGI may include one-time only income, such as capital gains, the sale of property, withdrawals from an IRA or conversation from a traditional IRA to a Roth IRA.  The one-time income will affect your Medicare income related monthly adjustment for only one year.

By way of an example, prior to the income adjustment, my Part B premium would have been $153/month.  There would not be a premium for Part D (prescription drug coverage).  Here is what the adjustments look like:

If you filed as: With MAGI of: Part B adjustment is: Part D adjustment is:
Single, head of household of qualifying widow(er) $85,000.01-$107,000.00 $  46.10 $12.00
$107,000.01-$160,000.00 $115.30 $31.10
$160.000.01-$214,000.00 $184.50 $50.10
More than $214,000.00 $253.70 $69.10
Married, filing jointly $170,000.01-$214,000.00 $  46.10 $12.00
$214,000.01-$320,000.00 $115.30 $31.10
$320,000.01-$428,000.00 $184.50 $50.10
More than $428,000.00 $253.70 $69.10
Married, filing separately $85,000.01-$129,000.00 $184.50 $50.10
More than $129,000.00 $253.70 $69.10

These adjustments are added to the base Premium you would have paid prior to the Income Adjustment.  So someone lucky enough to be in the highest of income brackets would pay $322.80 plus the $153.00 for a total of $475.80/month.

Now there are some adjustments to the adjustment.  Your MAGI can go down at least one range in the table above if:

  • you marry, divorce, or become widowed or your marriage is annulled
  • you or your spouse stopped working or reduced work hours
  • you or your spouse lost income-producing property due to a disaster or other event beyond you or your spouse’s control
  • you or your spouse experience a scheduled cessation, termination, or reorganization of an employer’s pension plan, or
  • you or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

You can also get an adjustment if your most recent tax return was amended to a lower amount.

There are appeal rights, but by and large, you will have to show that something has changed in your circumstances so that you now qualify for a lower adjustment.

So, it is very interesting.  I believe means-testing Medicare and Social Security makes sense.  We can’t afford to continue running these programs as we have in the past or they simply won’t be there for future generations.  In fact, if you chat with anyone 40 or younger, they will tell you that they firmly believe there will not be a Medicare or Social Security program by the time they are ready to apply – a mere 25 or so years from now.

Still it is shocking when it happens to you.  I had to take a deep breath, adjust my attitude (in addition to my Premium), and write the check.  These programs were designed to be a safety net for folks with limited resources.  If you are paying the adjustment, it means you are fortunate enough to have a good income.

Patricia Salber MD, MBA is a health plan and ACO advisor, writing at The Doctor Weighs In.

One thought on “Means Testing Medicare Premiums

  1. Means testing for SS and Medicare will be the final attack on the American Middle Class. This idea that Bill Gates doesn’t need SS is a strawman arguement. The target for means testing is anyone with a taxable income of $60K or more.

    Think about it folks. Traditional retirement plans (fixed benefit) are gone. Whats left are 401Ks, IRAs, and Social Security (SS). If you save for your 401k and IRA you will loss your SS with the means testing. Do the math, you are taxed 6.2% for a guarrenteed benefit of Social Security. If you do the 401K you risk another 5% or more of income for a potential better gain. In most cases this gain is nominal and you will be penalized by your saving through means testing and loss of SS. If your in the middle class and the government starts means testing, stop 401K and IRA. Spend what you saved during your late 50’s and early 60’s before you take SS. Also, hide all liquid assets. Mine will get lost in Vegas. wink. wink.

    This income manipulation is done for more than SS but also protect your Medicare. One serious illness and your middle class estate is wiped out.

    The answer for SS is to raise the salary cap for contributions to SS to $250K and put a reasonable top level limit on SS payout at 70 yr old.

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