Higher-income Americans are paying higher premiums again this year for “Part B” Medicare, which covers doctors and outpatient care. But the increase is not nearly as much as initially expected. And going forward, all increases will be capped based on a specific formula.
If you’re on Medicare and higher-income, here’s what you should know.
First of all, higher-income people on Medicare (65 or older) have for a long time paid higher premiums for Part B coverage. Who’s considered higher-income? That’s determined from tax filings from two years back. For 2016, higher income starts at $85,000 in adjusted gross income for singles, $170,000 for marrieds (based on 2014 tax filings). The problem is that for higher-income people (about 6% of Medicare Part B beneficiaries) and some others, annual premium increases prior to 2016 had been rather unpredictable. That’s because of the tie-in between Medicare premiums and Social Security payments.
Here’s how that works: Medicare premiums are usually deducted from Social Security payments. By law, an increase in Medicare premiums cannot cause a decrease in someone’s monthly Social Security check. This is known as the “hold harmless” rule. However, “hold harmless” does not apply IF you’re in any one of these categories: (1) You’re higher-income; (2) You’re on Medicare but not drawing Social Security (including opting to file-and-suspend Social Security); or (3) You’re a new enrollee in Part B during the year. For 2016, the Part B premium increase for these groups was projected to be a stiff 52%, as they were to be charged for Medicare Part B’s entire cost increase.
The good news is that going forward we have some clarity and relief. The 2015 Bi-Partisan Budget Act (passed Nov. 2015) caps the premium increases for the above groups to the annual percentage increase in Part B program costs, which was 13% in 2016, plus a flat fee ranging from $3 to $9.60. What does this look like for 2016? See the chart below: