High-income surcharges will be
adjusted for inflation for the first time in a decade
The base premium
for Medicare Part B, which covers doctors' fees and outpatient services, will
increase to $144.60 per month in 2020, up from $135.50 this year, according to an
official announcement by the Centers for Medicare and Medicaid Services.
The premium hike of
$9.10 a month is slightly higher than previously forecast by the latest Medicare Trustees
report.
The annual
deductible for all Medicare Part B beneficiaries will also increase next year,
rising from $185 in 2019 to $198 in 2020.
CMS attributed the
increase in Medicare Part B premiums and deductibles to rising spending on
physician-administered drugs.
"The law
requires CMS to pay the average sales price for a drug and also pays physicians
a percentage of a drug's sales price," the press release noted. "This
incentivizes drug companies to set prices higher and for physicians to
prescribe more expensive drugs because that lead to a higher Medicare
payment." Lowering drug prices has been a priority of the Trump
administration.
Higher-income
Medicare beneficiaries will also pay more for Medicare Part B and Part D
prescription drug premiums plans in 2020 as a result of income-based
surcharges, officially known as income-related monthly adjustment amounts, or
IRMAA.
For the first time
in a decade, the income brackets used to determine those surcharges will be
indexed to inflation starting Jan. 1. As a result, some high-income retirees
may experience a reduction in their Medicare
costs in 2020 compared to this year. Medicare premium
surcharges for 2020 will be based on income reported on 2018 federal tax
returns.
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Currently, there
are six income tiers that determine high-income surcharges for both Part B and
Medicare D prescription drugs plans. The income thresholds that determine who
pays the Medicare surcharges have been fixed at their current levels since
2011.
Individuals with
modified adjusted gross income of $85,000 or less and married couples with
joint MAGI of $170,000 or less are not subject to IRMAA surcharges in 2019.
They pay the standard Medicare Part B premium of $135.50 per month. MAGI
includes adjusted gross income plus any tax-exempt interest from municipal
bonds.
In 2019,
individuals with incomes above $85,000 and married couples with joint income
above $170,000 pay combined Medicare premiums and surcharges ranging from
$189.60 per month to $460.50 per month per person.
The initial
thresholds for income brackets that will be used to determine surcharges will
increase in 2020 for the first time in a decade. The initial income thresholds
are higher than previously forecast by
private health care costs analysts.
Next year the
initial income threshold for IRMAA surcharges will increase to $87,000 for individuals,
up $2,000 from this year, and to $174,000 for married couples filing jointly,
up $4,000 from this year's level. High-income beneficiaries who are married and
lived with their spouse at any time during the taxable year but who file
separate tax returns are subject to IRMAA surcharges in 2020 when their
individual income exceeds $87,000.
Combined Medicare
Part B premiums and IRMAA surcharges will range from $220.40 per month to
$491.60 per month per person in 2020. High-income Medicare beneficiaries are
also subject to monthly surcharges for their Medicare Part D prescription drug
plans.
Income thresholds
will be indexed to inflation in future years starting in 2021, except for the
top-level income thresholds of $500,000 for individuals and $750,000 for
married couples filing jointly, which were added in 2019. Those top tiers will
be indexed to inflation starting in 2028.
"Medicare
means-testing can threaten the retirement plans of millions of affluent
Americans," said David McClellan, head of wealth management solutions at
Aivante, a firm that uses artificial intelligence to help financial advisers
plan for retirement medical expenses.
"Smart
financial planning can minimize the damage," Mr. McClellan said. His
new white paper details
how using health savings accounts, Roth contributions and conversions, and
locating assets in the appropriate accounts can minimize Medicare premiums over
a person's lifetime.
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