Unraveling the Mysteries of Medicare
At age 65, Medicare, the U.S government’s healthcare system for seniors, is likely to appear at the top of your to-do list. You’re probably asking yourself questions, like:
- What should I do about Medicare?
- When is the best time to enroll in Medicare?
- Should I choose traditional Medicare or Medicare Advantage?
- If I choose traditional Medicare, do I need Medicare Supplement (MedSupp) or Medigap policy?
- Which Medicare Supplement plan is right for me?
With certain exceptions, we are all required to enroll in Medicare within a seven-month period that centers around your 65th birthday. The enrollment period begins three months prior to the month of your 65th birthday. Failure to enroll when required can lead to penalties that increase Medicare premiums for life.
There are four parts to Medicare: A, B, C and D. And, Medicare Supplement policies. Medicare A and B are provided by the government, Medicare C and D and Medicare Supplement insurance are sold by private insurance companies.
With Traditional Medicare, A, B and D are required, while the Medicare Supplement Policy is optional. Medicare Supplement policies pay expenses, such as deductibles, co-pays and co-insurance, that are not paid by Medicare A and B. Medicare C, also known as Medicare Advantage, includes comprehensive coverage that can replace Medicare A and B, as well as Medicare Supplement. Some Medicare C policies can also replace Medicare D. One significant drawback to Medicare C, for some clients, is that the network of providers tends to be more limited and less flexible than with traditional Medicare.
Means Testing for Medicare B and D
Medicare B and D premiums may include an addition to the base premium that depends on income, with higher incomes equating to higher premiums. This is referred to as means testing. Means testing for Medicare is based on Modified Adjusted Gross Income (MAGI).
MAGI = AGI* + Tax-Exempt Interest
* AGI, or Adjusted Gross Income, can be found online 37 of Page 1 of Form 1040 in your 2017 tax return.
The MAGI of two years prior determines Medicare premiums in the current year. For example, the applicable MAGI to determine your Medicare premiums for 2019 would be determined from your tax return for 2017. Depending on your income, your monthly Medicare B premium for 2019 can range from $134.00 to $428.60. This includes the means testing penalty, which at its highest, is $294.60 per month. See https://www.medicare.gov/your-medicare-costs for more information.
Medicare D premiums vary widely depending on the insurance company and drugs offered ($14.60 to $181.00 per month). Included in that range is a means testing penalty of up to $77.40 per month depending on your MAGI.
Taxpayers enroll in Medicare as individuals, whether they file tax returns as Individual, Married Filing Jointly (MFJ), or Married Filing Separately (MFS). Means testing income brackets for persons who file as MFJ are doubled compared to the brackets for Individual filers. This structure ensures a comparable cost per person. However, Married Filing Single income brackets are compressed. As a result, MFS filers reach maximum premium levels at a lower MAGI.
Medicare policies have several limitations compared to standard insurance coverage. Medicare does NOT cover vision, dental, hearing aids, routine podiatry and long-term care. Importantly, Medicare does not have limits on annual or lifetime liability. Liability is unlimited. Medicare does include deductibles, co-pays and co-insurance.
Medicare Supplement Insurance
Limitations of the traditional Medicare programs A and B left many seniors exposed to financial risk. In response, the government designed Medicare Supplement Insurance (MedSupp, also referred to as Medigap) plans that are sold by insurance companies. Medicare Supplement plans cover some or potentially all of the deductibles, co-pays and co-insurance related to Medicare A and B, as well as the out-of-pocket expenses of unlimited liability.
*We strongly recommend the purchase of a MedSupp policy for clients choosing traditional Medicare A, B and D.
The various Medicare Supplement policies are identified by letters: A, B, C, D, F, G, K, L, M, N. One of the most comprehensive Medicare Supplement policies is Plan “F”, which is frequently selected by our clients. It covers most Medicare deductibles, co-pays, and co-insurance. At age 65, it currently (2019) costs approximately $120 per month for females and $125 per month for males. Discounts of 5% to 12% may be available for spouses purchasing plans from the same insurance company. The plan premium and discount depend on the carrier and plan selected. We suggest you speak with a professional to evaluate which Supplement policy best suits your individual situation.
The tables below highlight Medicare premiums for various MAGI income brackets for the three primary filing methods: Individual, Married Filing Jointly and Married Filing Separately.
Use the tables and your previous tax return from two years ago to estimate your 2019 traditional Medicare premiums for Medicare A (no cost*) and Medicare B, then add the cost of your Medicare D and Medicare Supplement policy. This should be a rough estimate for your premium expenses associated with Medicare.
* Medicare Part A has no cost for individuals who qualify for Medicare1
Medicare B Premiums in 2019*
Medicare D Premiums in 2019*
Please note that there are other Medicare complexities that are beyond the scope of this article. If you have questions about Medicare or need help enrolling, please contact your SignatureFD relationship manager. We can help answer questions and take the mystery out of the enrollment process. For additional resources, including the Medicare Eligibility & Premium Calculator, visit www.medicare.gov.
1 This includes most Americans under the Social Security System. (Generally, anyone who worked for 10 years or more plus their spouses.)
2 Income brackets are based on Modified Adjusted Gross Income (AGI + tax-exempt interest) and determined from the last tax return provided to the Social Security office by the IRS. (e.g. 2017 tax return, filed in 2018, used for 2019 Medicare premiums.
3 Base plan premium depends on carrier and plan selected.
*Chart information from www.medicare.gov.