Once you’re enrolled in Medicare, the government picks up the vast majority of your medical bills. But not all. And the cost of a key part of Medicare coverage is expected to cost higher-income households significantly more in the coming years.
Medicare Part B means testing
Nearly all enrollees are required to pay a monthly premium for Medicare Part B coverage. Part B is the core insurance that pays for doctor visits, tests and treatment. (Low-income individuals are exempt from paying the premium.)
Up until 2007 there was one flat Part B premium: 25% of what Medicare expects the overall program will pay for services provided under Part B. The federal government picks up the other 75%.
But to help address revenue problems, the Medicare program started tacking on an additional premium charge for higher income households.
Higher income retirees pay between 35% and 85% of the program’s projected outlays for Part B services. This extra surcharge is the income related monthly adjusted amount (IRMAA).
Last year, about 5 million Medicare beneficiaries paid an IRMAA surcharge. And the official estimate from the Medicare program is that by 2029, more than 10 million beneficiaries will pay extra for Part B. And we’re not talking small potatoes. Medicare estimates that the extra monthly charges could add $90 or so at the low end, to more than $500 a month more for the very wealthy.
The lowest Part B premium
Part B premiums are set each year. The lowest Part B premium in 2021 is $148.50 per month.
In a byzantine system, current year premiums are based on the income reported on tax returns from two years prior. That is, 2021 premiums are based on 2019 modified adjusted gross income, or MAGI, (all your income + any income from municipal bonds). In 2022, premiums will be based on 2020 reported income.