One major misconception about Medicare is that the program is free for enrollees, but that's just plain not true. While Part A, which covers hospital care, is generally free, Parts B and D, which cover outpatient care and prescription drugs, respectively, charge a monthly premium that can change from year to year.
In 2021, the standard monthly Part B premium will be $148.50. But Part D doesn't come with a standard premium. That's because there are a host of drug plans seniors can choose from, and so the cost of one could well exceed the cost of another for a number of reasons, including superior prescription coverage.
Now if you're currently on a Part D plan that you like, you'll need to check and see what premiums you'll be charged going into 2021, because it could be that they're increasing. But even if your premiums aren't going up, you could still end up paying more for Medicare Part D for one big reason.
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Higher earners pay more for Medicare
If you're an average-income senior (say, you get the bulk of your income from Social Security and a modest amount on the side from a pension or retirement plan withdrawals), then you'll probably pay the standard monthly premium of $148.50 for Part B next year and whatever base premium your Part D drug plan charges. But if you're a higher earner, you'll be subject to an income-related monthly adjustment amount, or IRMAA, that will make Parts B and D even more expensive for you.
IRMAAs are based on your modified adjusted gross income as reported on your tax return two years prior. As such, whether you'll face a surcharge for Part D next year will depend on what your income looked like in 2019. Furthermore, the higher that income, the more of a surcharge you can expect to pay. Here are the income brackets you'll need to be aware of:
|
2019 Income: Individual Tax Return |
2019 Income: Joint Tax Return |
2019 Income: Married With Separate Returns |
Monthly Part D Premium for 2021 |
|---|---|---|---|
|
$88,000 or less |
$176,000 or less |
$88,000 or less |
Your regular plan premium |
|
Above $88,000 up to $111,000 |
Above $176,000 up to $222,000 |
Not applicable |
$12.30 + your plan premium |
|
Above $111,000 up to $138,000 |
Above $222,000 up to $276,000 |
Not applicable |
$31.80 + your plan premium |
|
Above $138,000 up to $165,000 |
Above $276,000 up to $330,000 |
Not applicable |
$51.20 + your plan premium |
|
Above $165,000 and less than $500,000 |
Above $330,000 and less than $750,000 |
Above $88,000 and less than $412,000 |
$70.70 + your plan premium |
|
$500,000 or above |
$750,000 and above |
$412,000 and above |
$77.10 + your plan premium |
Data source: Medicare.gov.
As you can see, it doesn't necessarily take a massive annual income to be slapped with a Part D surcharge. For example, if you're a single tax filer and you earned $89,000 in 2019 (a nice income, but not exactly rolling in money), then that initial IRMAA threshold kicks in, leaving you to pay an extra $12.30 a month for Part D on top of your plan's regular cost.
It's for this reason that you'll need to budget carefully for your healthcare expenses, especially if you're new to Medicare and aren't familiar with how IRMAAs work. While being a higher earner as a senior is a good thing in theory, in practice it can hurt you, especially if your income is just high enough to leave you subject to IRMAAs but not so high that you're able to hop a flight to Europe at a moment's notice. Read up on what Medicare will cost you on the whole so there are no unpleasant surprises.
