Many Americans rely on Medicare to get essential healthcare coverage after they turn 65. With Medicare open enrollment starting this weekend, it's important to know what you're likely to pay under various coverage options in 2018 in order to make the best choice for your personal situation. Next year is likely to be an unusual one for Medicare because current projections suggest that costs could actually come down for some participants. However, as you'll see below, a lot depends on which type of Medicare coverage you have and what your current premium is.
Medicare Part B premiums will rise -- for some
Medicare offers coverage for medical costs like doctor visits and outpatient care through Medicare Part B. Participants pay a monthly premium for their Part B coverage, with a base amount applying for most participants and surcharges for those with relatively high income levels.
This base amount was $134 per month in 2017, and the Trustees of the Medicare program project that the figure for 2018 will remain the same. That's good news for those who have been paying the base amount.
However, there are millions of Americans who are paying less than $134 currently for their Part B premiums, and they can expect 2018 premiums to be higher than what they're paying now. The reason for the disparity is the Medicare law's hold harmless provision, which prevents rises in Medicare premiums from outpacing the dollar-amount increase in Social Security cost-of-living adjustments. Social Security received no cost-of-living adjustment at the beginning of 2016, and that locked in many Medicare participants to the premiums that then prevailed, which was $104.90 per month.
For 2017, Social Security recipients got a small COLA of 0.3%. That allowed Medicare premiums for those protected by the hold harmless rule to rise slightly, but not to the full base amount. The average premium under the hold harmless provision this year was $109 per month.
Social Security anticipates a much larger cost-of-living increase of between 1.5% and 2% to take effect in 2018. If that turns out to be the case, then many Medicare participants will have to pay the full $134 per month, resulting in a substantial increase.
High-income surcharges will rise
For some of those who pay surcharges for Part B coverage because of their income, premiums will rise in 2018. The current rules call for a surcharge of between $53.50 and $294.60 per month on single filers making $85,000 or more or joint filers making $170,000 or more. However, recent legislation shifted the income brackets at which certain increases take hold. The net result is that if you make more than $133,500 as a single filer or $267,000 as a joint filer, then your surcharge could go up by about $80 per month.
Medicare Advantage and prescription drug plan participants could see premium declines
The discussion above applies to those who participate in traditional Medicare. However, Medicare Advantage Plans offer an alternative, and they've become increasingly popular. One reason is that their premiums have avoided the upward trend in overall medical costs. Medicare officials project that average monthly premium will fall by nearly $2 to $30 per month in 2018.
One thing to look at closely is whether a Medicare Advantage plan pays for the standard Part B premium or whether you have to cover that cost. If you have to pay, then the total you'll pay for premiums could still be a net increase depending on your situation.
More good news is that the typical prescription drug plan under Medicare Part D is expected to cut its premium by more than $1 to about $33.50 per month. That would be the first decline in five years.
Keep costs in mind
The final thing to remember is that what you pay for premiums is only one piece of your healthcare financial plan. You also need to evaluate out-of-pocket costs. Sometimes, paying a higher premium makes sense if it covers enough of your costs to offset the larger premium payments.
Medicare premiums will go up for some people in 2018, while others won't see any changes, and a few might actually see decreases. With Medicare open enrollment starting soon, knowing the basics about premium changes for next year will help you pick the right coverage and prepare for what you'll have to pay.