Medicare is the federal health insurance program for people aged 65 and older. It is also available to certain younger people with disabilities and those with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant). Medicare consists of 4 parts:
• Part A – Hospital Insurance
• Part B – Medical Insurance
• Part C – Medicare Advantage Plans
• Part D – Prescription Drug Coverage.
For the vast majority of Americans, you are automatically signed up for Medicare Part A and Part B starting the first day of the month you turn 65 (or the first day of the month prior if your birthday is on the 1st.)
Medicare premiums are calculated using your modified adjusted gross income. For Medicare purposes, your modified adjusted gross income is determined by adding your adjusted gross income and any tax-exempt interest. On your IRS Form 1040, these are lines 8b and 37, respectively. Medicare beneficiaries with incomes exceeding certain thresholds will get an increase in their monthly premiums for Part B (Medical Insurance) and Part D (Drug Coverage). These are referred to as income related monthly adjustment amounts, or IRMAA . For single tax filers and those who are married filing separately, the income threshold is $85,000. For married couples filing jointly, the income threshold is $170,000. These thresholds affect less than 5% of current Medicare beneficiaries.
The Social Security office uses your most recent federal tax return to determine your modified adjusted gross income. This means that the premiums you pay for Medicare generally reflect your income from two years ago. Your 2017 premiums will reflect your 2015 income because that is what you filed to the IRS in 2016. Your premiums are reevaluated annually. Typically, if your income does not exceed the threshold in a subsequent year, you will no longer owe the surcharge. For example, if your 2016 income does not exceed the threshold, you will not have an income related monthly adjustment to your 2018 premiums. There are several special circumstances that the government acknowledges where the increased premium for the current year can be reversed.
Your Medicare Part B premium is usually deducted from your monthly Social Security check. If you are not currently taking Social Security, you generally write a check to the government every quarter for Part B coverage. For higher-income beneficiaries with Part D coverage, this surcharge is taken directly from their Social Security check, regardless of how you pay your premium. If you are not yet taking Social Security, you will get a separate bill for your Part D coverage. For 2017, the standard rate for Part B coverage ranges from $109 to $134 per month, depending on when you joined Medicare. For those whose income surpasses the threshold, the Social Security Administration will use a sliding scale, based on your modified adjusted gross income, to adjust your Part B premium upward.
As always, if you have any questions regarding your specific circumstances, please do not hesitate to contact us.