About Medicare

Medicare is a federal program overseen by the Center for Medicare and Medicaid Services (CMS). It is available to people at age 65, and those younger than 65 with either a qualifying disability and /or end stage renal disease.

There are two parts to "traditional Medicare" ( Part A and Part B) which are administered by CMS. In addition, private insurance companies offer Medicare Supplements (also called Medigap) and Medicare Advantage Plans that cover deductibles, co-pays and other specific needs not covered by traditional Medicare. In 2003, legislation was passed to create a Prescription Drug Plan. Base level features were defined and there are hundreds of plans now available from private insurance companies.

It is prudent to evaluate all of these coverages in the months prior to turning 65, even if you work past your 65th birthday and have health coverage through your employer.  If you do not enroll before specific target dates, you can be penalized with surcharges added to your premiums for the rest of your life.  It is also prudent to annually evaluate all private insurance plans because the marketplace for these products changes substantially every year.  Your plan and its pricing is likely to change every year. Even if your health remains the same, you may benefit by changing plans.  If your health and prescriptions change, it is especially important to reevaluate.

Medicare PART A covers hospitalizations, skilled nursing care, home health care, hospice and preventive care. For almost all Medicare beneficiaries, there is no charge for Medicare Part A benefits.  With Medicare Part A, there is an annual deductible of $1316 in 2017 as well as coinsurance and copays that apply in various circumstances.

Medicare PART B covers doctor and medical services, equipment, therapies, lab tests and x-rays. Part B has an annual deductible of $183 in 2017.  Medicare pays 80% of most of these charges. Medicare added many preventive procedures starting in 2011 that are mostly paid 100% by Medicare.  

Part B is an optional coverage that requires that you enroll and pay premiums. Most people choose this program when they turn 65.  If they continue working past age 65 and work for an employer with 20 or more employees who offers health insurance, most enroll in Part B when their employer health care coverage ceases. If the employer has less than 20 employees, most enroll in Part B at age 65 because the employer plan is secondary to Medicare.  Enrollment must occur according to strict time lines or you will be penalized in the form of a surcharge on premiums.

Part B premiums adjust annually. For most people (those with individual or married filing jointly income below, respectively, $85,000/yr or $170,000/yr) premiums are supposed to be set at a level equal to 25% of the estimated Part B spending in any given year, with the other 75% paid by the government.  However, most are now charged premiums below this level because they are protected by a “hold harmless” provision of federal law. This law prohibits the dollar increase in Medicare Part B premiums from exceeding the dollar increase in Social Security checks for those non-“high-income” beneficiaries who have had Medicare premiums deducted directly from their Social Security checks. For 2017, the average monthly Social Security check will rise by $5 so, for most, their 2017 Part B premium increase is also limited to $5. This does not cover the actual costs of Medicare so those not covered by this “hold harmless” provision pay higher premiums to offset this shortfall in Medicare funding. For 2017, those with “protected” premiums will only pay about $109/month while those who are new to Medicare or otherwise not protected will pay $134/month.

Starting in 2007, Part B premiums are "means tested."  This is a significant social policy change as, for the first time, Medicare premiums are not the same for everyone. 

Under the means-tested provision, the government subsidy for Medicare Part B premiums was reduced from 75% to 20% for those with the highest incomes. As a result, those with high incomes pay an additional Income Related Monthly Adjustment Amount (IRMAA) which substantially increases Medicare Part B premiums.  A similar adjustment is also added to Part D Prescription drug premiums.  See the chart below for 2017 Part B adjustment amounts.

Note that your Adjusted Gross Income from a prior tax return is used to determine your premium. For example, your tax return from 2015 is used to calculate your 2017 premiums. Under certain circumstances, such as divorce, death of a spouse or other loss/reduction of income, Form SSA-4 can be used to appeal and lower your IRMAA adjustment.

 

Chart for 2017 "Means Tested" Part B Premiums

 

Your 2015 Yearly Adjusted Gross Income

File Individual Tax Return  

File Joint
Tax Return

Your 2017 Monthly
Part B Premium 

$85,001 - $107,000

$170,001 - $214,000

$187.50

$107,001 - $160,000

$214,001 - $320,000

$267.90

$160,001 - $214,000

$320,001 - $428,000

$348.30

Above  $214,000

Above  $428,000

$428.60

 

Medicare Parts A and B coverages are not "all-inclusive" and have various deductibles and co-pays leading to significant out of pocket expenses.  To avoid these expenses, most people get a Medicare Supplement policy (also called Medigap) or a Medicare Advantage Plan.  Medicare Supplements are more expensive than Medicare Advantage. Largely due to this, those with lower incomes are twice as likely to use Medicare Advantage while those with higher incomes (over $40,000) are, roughly, twice as likely to use a Medicare Supplement plan.