Are you paying more for Medicare than your neighbor? You could be.

By Bill Gordon, AIF®

As you near retirement age, there are many variables that you need to consider when calculating your expenses.  Will you still have a mortgage, will travel expenses go up, etc.  One of the biggest wildcards is Medicare and how the premiums will affect your wallet.  Medicare is a very specialized topic, so before we start let’s get the disclaimer out there.  Seek professional advice from a trusted professional!

Medicare has different parts to be aware of, but for this topic we are specifically talking about Part B (medical insurance) and Part D (prescription drug insurance).  If you have a higher income, the law requires you to pay higher premiums for Part B and prescription drug coverage.  Normally, the government pays about 75% of your Part B premium and you pay about 25%.  If you fall under the definition of a higher income beneficiary, you will have to pay a larger percentage of your Part B premium.  Depending on what you report to the IRA it could be up to 85% of the total cost. Typically, with prescription drug coverage the government pays a major portion of the total cost.  If you are a higher income beneficiary, you’ll have to pay an additional amount.  Side note on the Drug Coverage premium; this additional amount is deducted from your Social Security benefit.  If you aren’t receiving social security or the premium is greater than your social security benefit, you will receive a separate bill.

How do you know if you should expect this additional expense in retirement?  You’ll want to use your modified adjusted gross income (MAGI) from your tax return two years prior.  For 2020, the standard monthly premium for Part B is $144.60 (up from $135.50 in 2019). 

So, if you file “married, filing jointly” and your MAGI is greater than $174,000 in 2018 you’ll pay higher premiums in 2020.  If you file differently than that and your MAGI is over $87,000 in 2018, you’ll pay higher premiums in 2020.  Check the tables below that we have copied directly from the medicare.gov website to see where you fall.  The first table is Part B and the second is Part D (prescription drug coverage).  When looking at the tables, remember that the amounts referenced are monthly. Bottom line, as mentioned earlier, Medicare can be a very confusing subject.  Make sure to take the time to understand your specific situation and reach out for professional advice.

If your yearly income in 2018 (for what you pay in 2020) was

File individual tax return File joint tax return File married & separate tax return You pay each month (in 2020)
$87,000 or less $174,000 or less $87,000 or less $144.60
above $87,000 up to $109,000 above $174,000 up to $218,000 Not applicable $202.40
above $109,000 up to $136,000 above $218,000 up to $272,000 Not applicable $289.20
above $136,000 up to $163,000 above $272,000 up to $326,000 Not applicable $376.00
above $163,000 and less than $500,000 above $326,000 and less than $750,000 above $87,000 and less than $413,000 $462.70
$500,000 or above $750,000 and above $413,000 and above $491.60

*PART B – from medicare.gov

If your filing status and yearly income in 2018 was

File individual tax return File joint tax return File married & separate tax return You pay each month (in 2020)
$87,000 or less $174,000 or less $87,000 or less your plan premium
above $87,000 up to $109,000 above $174,000 up to $218,000 not applicable $12.20 + your plan premium
above $109,000 up to $136,000 above $218,000 up to $272,000 not applicable $31.50 + your plan premium
above $136,000 up to $163,000 above $272,000 up to $326,000 not applicable $50.70 + your plan premium
above $163,000 and less than $500,000 above $326,000 and less than $750,000 above $87,000 and less than $413,000 $70.00 + your plan premium
$500,000 or above $750,000 and above $413,000 and above $76.40 + your plan premium

*PART D – from medicare.gov