Tens of millions of Americans rely on Medicare for their primary healthcare coverage. For those 65 and older, Medicare's an essential part of their financial planning, and even though its coverage is reasonably affordable, coming up with the money to make premium payments is a challenge for many.
For most people, monthly premiums for Part B medical coverage are set at fixed levels each year, while the premiums for those who elect to get prescription drug coverage under Medicare Part D vary depending on the specific plan you choose. However, what many don't realize is that if your income goes above certain limits, then you'll end up having to pay more for Medicare -- and in some cases, it's a lot more.
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How Medicare coverage usually works
For most Medicare participants, paying for coverage works as follows:
- As long as you or a spouse had a long enough work history, then there's no monthly premium for hospital insurance coverage under Medicare Part A. Instead, there are deductibles and copayment amounts if you end up needing to use that coverage.
- Medicare Part B typically comes with monthly premiums. For 2019, the base amount that most people pay is $135.50 per month.
- Medicare Part D prescription drug coverage isn't mandatory, but if you participate, then you'll pay a monthly premium to your plan provider. The amount can vary widely and depends on the drugs covered and the amount of coverage you get.
What the extra premiums look like
However, lawmakers instituted premium surcharges for Part B and Part D premiums for those whose incomes were above certain levels. A summary of those extra charges is below.
|
Income Level for Individual Taxpayers* |
Income Level for Joint Filers |
Added Monthly Charge for Part B Premium |
Added Monthly Charge for Part D Premium |
|---|---|---|---|
|
$85,000 to $107,000 |
$170,000 to $214,000 |
$54.10 |
$12.40 |
|
$107,000 to $133,500 |
$214,000 to $267,000 |
$135.40 |
$31.90 |
|
$133,500 to $160,000 |
$267,000 to $320,000 |
$216.70 |
$51.40 |
|
$160,000 to $500,000 |
$320,000 to $750,000 |
$297.90 |
$70.90 |
|
More than $500,000 |
More than $750,000 |
$325 |
$77.40 |
Data source: Medicare.gov. *Excludes married persons filing separately if they lived together at any time during the year.
If you're married and file separate returns and you lived with your spouse at any point during the year, there are just two income ranges. Those making $85,000 to $415,000 pay the $297.90 and $70.90 surcharges for Parts B and D respectively, while those making more than $415,000 pay $325 and $77.40 extra each month.
The intent here is to have high-income Medicare participants pay more of the actual cost of their coverage. The additional premiums are intended to have high-income participants pay 35%, 50%, 65%, 80%, or 85% of the total cost of providing coverage, rather than the 25% baseline amount that the standard Part B premium represents.
When does Medicare look at income?
One tricky thing about these surcharges is that Medicare doesn't look at your income in real time. Instead, there's a lag between when your income goes above the limits and when you'll see surcharges. Currently, those paying a surcharge in 2019 do so based on their 2017 income level.
However, if your income has gone down or you've had a change in family status, then you can potentially get the surcharge reduced. You'll need to provide documentation that verifies what happened and the impact on your income.
Be smart about Medicare
Only a small number of Medicare participants have incomes that trigger these surcharges. But it's something to keep in mind if you're looking at options like a lump-sum pension payout or a large withdrawal from tax-favored retirement plans like IRAs or 401(k)s, because those moves can dramatically increase your taxable income in a way that could force you to pay these higher amounts for your Medicare coverage.
