Congress just passed a law that made some changes to Medicare so I wanted to give you a quick summary of those changes and how they might affect your retirement plans.
Positives
Doctor Pay. The law repeals the physicians payment cut that had many doctors seriously considering whether they should stop accepting Medicare patients altogether. The law also institutes annual payment increases to doctors for certain Medicare services. This is good for Medicare patients because it will increase the likelihood that they will continue to have access to their doctor of choice.
Health Care Quality. The law also instituted new quality measures for doctors and hospitals which reward them for providing high quality care. This is obviously another plus for those on Medicare.
Identity Theft. If you’re currently on Medicare, you probably raised an eyebrow when you first got your Medicare card and saw your Social Security number printed on it. This obviously opens the door to identity theft if your card is lost or stolen. The new law stipulates that all new cards must come without Social Security numbers printed on them by April 16, 2019 and existing cards must be reissued within four years after that.
Potential Negatives
Means Testing. As the financial difficulties of Medicare and Social Security become more acute, one of the first “fixes” that Congress will likely reach for will be some form of means testing. This is already starting to happen in Medicare. For example, the law increases the amount that high-income beneficiaries will pay for Part B (doctor’s insurance) and Part D (prescription drug coverage).
To understand how premiums will increase, we need to understand how the premiums are calculated. Basically, the government calculates an overall premium based on the cost of the program and then they pay part of that premium and individuals pay the other part. Your income level will determine how much of the premium you will be required to pay.
Most people currently pay a premium of $104.90 per month for Medicare Part B, which equates to about 25% of the premium cost. High earners, however, pay an Income Related Monthly Adjustment Amount (IRMAA). The higher your income, the more you pay. This has been the case for many years now, but the new law reduces the income limits, thereby subjecting many more people to higher premiums.
Here’s what people are paying currently:
| Income | Premium Percentage | Current Premium |
| Less than $85,000 | 25% | $105 |
| $85,001 to $107,000 | 35% | $147 |
| $107,001 to $160,000 | 50% | $210 |
| $160,001 to $214,000 | 65% | $273 |
| More than $214,000 | 80% | $336 |
And here is how the income limits will adjust:
| Income | Premium Percentage |
| Less than $85,000 | 25% |
| $85,001 to $107,000 | 35% |
| $107,001 to $133,500 | 50% |
| $133,501 to $160,000 | 65% |
| More than $160,000 | 80% |
Notice that many more people fall into the “high income” category and will thus be responsible for a larger percentage of the premiums. It’s difficult to put a specific dollar value on these increases, because we don’t yet know what the premium costs will be in 2018, but here are two things we do know: 1) the premiums will be higher than they are now, and 2) those with higher incomes will be required to pay a larger percentage of the premium. I have seen some estimates that a person in Tier 4 or 5 might pay around $3,500 more per year ($7,000 per couple) than they would if they were in Tier 1 or 2.
Are there ways to avoid these increases? Yes! The increases won’t happen until 2018, but they will be based on your Modified Adjusted Gross Income in 2016 and beyond. Those who are retired (or close to it), should keep that in mind. Your adjusted gross income is made up of things like wages, taxable interest, dividends and distributions from IRAs. During retirement, you can control several of those things. When deciding which accounts to pull from first, how much to pull from your IRAs or whether or not to work part time, consider how those decisions will affect your income and whether or not that income is enough to bump you up into a higher Medicare bracket. If so, it might be wise to forgo part-time work or delay distributions from IRAs until the following tax year.
I know Medicare discussions can be a little dry, so I’ll leave you with a fun photo from over on our Facebook Page:
Have a great day!
~ Joe