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26 Feb Off
Medicare is a government-run health insurance system for Americans over 65 years old or disabled. The system is funded through employee and employer payroll contributions and provides coverage for portions of certain health care costs, depending on level of coverage selected.
While Medicare Part B premiums are unchanged from 2017, and Part D premiums have been lowered from 2017, changes under the Medicare Access and CHIP Reauthorization Act of 2015 has meaningfully lowered the income brackets determining Medicare Part B and Part D premiums in 2018. These changes can result in potentially higher Medicare Part B and Part D premiums for single enrollees with income above $107,000 and those married filing jointly with income above $214,000. For example, while income had to reach $214,000 (individual) and $428,000 (married filing jointly) to trigger the highest premium levels in 2017, those numbers are reduced to $160,000 (individual) and $320,000 (married filing jointly in 2018).
Medicare coverage is split into four Parts:
Part A (Hospital Insurance)Covers inpatient hospital care, skilled nursing facility, hospice,
*Most individuals over age 65 receive Part A free (“premium-free Part A”) as a result of paying Medicare taxes while working. For those who have not sufficiently paid Medicare taxes (rare), you can buy Medicare Part A and pay a premium of $422 per month. Part B (Medical Insurance)Doctor and other health care providers’ services, home & outpatient
*Most people pay less than this amount if premiums are paid out of monthly Social Security benefits. This is due to the 2017 Part B premium increasing more than the 2017 Social Security cost-of-living adjustment (COLA) and Social Security’s “Hold Harmless” provision that prevents a decline in Social Security benefits for most people. **Medicare uses the modified adjusted gross income reported on your Parts A & B do not cover long-term care (aka, custodial care) as well Medigap Policies
Medicare Enrollment & Election Periods*
|
Part D (Prescription Standard Benefit
|
| Monthly Premium*: | Based on prescription drug plan selected | |
|---|---|---|
| Initial deductible: | $405 maximum (deductibles vary between plans) | |
| Copayment or coinsurance on next | $3,750 | |
| Coverage gap (“donut hole”)** | $3,750 - $5,000 | |
| Copayment or coinsurance amounts above | $5,000 | |
| Premium Rates Based on Income | If your 2016 income was | |
| Single: | Married Filing Jointly: | |
| Plan premium | $85,000 or less | $170,000 or less |
| $13.30 + plan premium | $85,001 - $107,000 | $170,001 - $214,000 |
| $33.60 + plan premium | $107,001 - $133,500 | $214,001 - $267,000 |
| $54.20 + plan premium | $133,501 - $160,000 | $267,001 - $320,000 |
| $74.80 + plan premium | Above $160,000 | Above $320,000 |
*Each prescription drug plan has its own list of covered drugs (referred
to as a “formulary”), with drugs assigned to different “tiers”. The drugs in
lower tiers will generally cost less than drugs in higher tiers.
**The coverage gap begins after you and your plan spend $3,750 in 2018
(amount can change each year). Then you pay discounted drug prices
out-of-pocket, for the plan’s covered drugs, until you reach the out-of-pocket
(OOP) threshold, which is $5,000 in 2018. For the remainder of
the year, “Catastrophic coverage” then begins for any covered drugs.
Medicare Advantage / “Part C”
Part A & B coverage but through private companies instead of through
Medicare. Some companies may offer additional benefits such as
prescription drugs, vision, and/or Dental
| Part C plans are Medicare approved but administered through private insurance companies. |
|---|
| Monthly premium amounts vary by plan. |
| Plans, not Medicare, establish the amounts they charge for premiums, deductibles, and services. Amounts can only change once per year, on January 1st. |
Planning Considerations
and the Need to Prepare:
| Health costs are the 4th largest expense for individuals between 65 - 74 years old after housing, transportation, and food. They are the second largest expense for those over 75, after housing. | |
|---|---|
| Traditional Medicare covers only about 60% of medical costs in retirement, with the rest being covered by out-of-pocket spending and private insurance. | |
| Estimated retirement health care costs for a couple (Medicare Part B & Part D premiums, Medigap premiums, & out-of-pocket drug expenses) starting at age 65 in 2016.* | |
| Median Prescription Drug Expenses Throughout Retirement* |
|
| 50% Chance of Personal Savings Meeting Total Expenses | $165,000 |
| 90% Chance of Personal Savings Meeting Total Expenses | $265,000 |
| *Covering expenses at the 90th percentile would require $221,000 and $349,000, respectively. |
Source: Employee Benefit Research Institute
The Tax Cuts and Jobs Act of 2017 did not have a direct impact
on the Medicare system. However, as previously discussed, the
Medicare Access and CHIP Reauthorization Act of 2015 may result
in higher premiums for some enrollees.
It’s important to consider other factors when planning such as
increasing life expectancies, personal health variables, and the
impact of inflation. Also, Part D, Medicare Advantage Plans, and
Medigap policies can vary widely based on state, so it’s important
to contact a specialist in your area if you have questions.
| For more information about Medicare, you can go to medicare.gov or call 800-633-4227 (800-MEDICARE). |
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