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Part B Premiums Will Cost
Affluent Beneficiaries More |
If you are a Medicare Plan B participant, you (or a family member or friend) may be in for a rude awakening. Beginning next year, you may have to start paying a surcharge on your monthly premiums, depending on your
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Answers to Social Security Questions Q. Is there more than one possible Social Security benefit amount, depending on your marital status?
A. Yes. Suppose a person's estimated benefit is considerably lower than his or her spouse's. That person is entitled to receive payments based on his or her own record, or 50 percent of the spouse's benefit, whichever is higher. Assuming your monthly amount is $1600 and your spouse's is $700, he or she is entitled to draw benefits equal to half of your amount, or $800. Even if your spouse has never worked, at full retirement age, he or she can collect an amount equal to half your benefit.
Q. Will my retirement pension from a job reduce the amount of my Social Security benefit?
A. If your pension is from work where you also paid Social Security taxes, it will not affect your Social Security benefit. However, pensions based on work that is not covered by Social Security (for example, the federal civil service and some state, local, or foreign government systems) probably will reduce the amount of your Social Security benefit. For more information, click here.
Q. Suppose you are divorced and have remarried. At retirement, who can collect benefits based on your record ... your current or former spouse?
A. The answer might be both. Your divorced spouse can receive benefits based on your record if he or she: was married to you for at least 10 years; is unmarried and at least 62 years old; and is entitled to his or her own retirement or disability benefit.
To qualify, a former spouse must meet the above requirements, must not have applied for benefits on his or her own record, and must be divorced for at least two years. The maximum a former spouse can receive is 50 percent of the amount you would receive at full retirement age. Benefits are only payable as long as he or she is unmarried. | income. This change has actually been on the books for years, but it’s finally being triggered in 2007.
As you are probably aware, there are no extra charges for hospitalization coverage under Medicare Part A. However, participation in Part B covering physician expenses, outpatient hospital care, equipment and tests is voluntary and requires additional payment. The extra cost, which is adjusted annually, is currently $88.50 per month (or $1,062 for the year) regardless of income.
Change in the Works
Under the controversial Medicare law passed back in 2003 — the Medicare Prescription Drug, Improvement, and Modernization Act — certain high-income individuals will be required to pay a surcharge. The federal government estimates that 4 percent of current Part B enrollees are expected to be subject to the higher premium amounts. For those beneficiaries, premiums will increase by as much as 83 percent.
This surcharge is based on a complex calculation that takes your modified adjusted gross income (MAGI) into account.
The starting point for the calculation is your regular adjusted gross income (AGI). (The 2007 surcharge is based on your 2005 AGI because under the law, MAGI is determined by "using income from two taxable years prior to the year involved.") Next, tax-exempt interest payments, Series EE Savings Bond interest used for education, and excluded foreign income are added to this figure.
Under the calculation, a married couple in the highest income category will have to pay an extra $73.60 a month ($162.10 minus $88.50) — or $883.20 more for the year ($73.60 times 12 months).
You can refer to the chart below with figures from the Department of Health and Human Resources for the increases from 2006 to 2007.
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MAGI for single filers |
MAGI for joint filers |
2006 monthly premium |
2007 monthly premium |
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Under $80,000 |
Under $160,000 |
$88.50 |
$93.50 |
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$80,000-$100,000 |
$160,000-$200,000 |
$88.50 |
$106.00 |
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$100,000-$150,000 |
$200,000-$300,000 |
$88.50 |
$124.70 |
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$150,000-$200,000 |
$300,000-$400,000 |
$88.50 |
$143.40 |
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Above $200,000 |
Above $400,000 |
$88.50 |
$162.10 |
Furthermore, these rates will continue rising for a period of five years. For example, for individuals with incomes of more than $200,000, today's $88.50 monthly premium is expected to quadruple by 2009. One saving grace: The income bracket levels will be indexed for inflation in the future.
Unfortunately, there’s not much you can do about the Medicare Part B increases. There is a provision for contesting the use of your MAGI from the prior year if you have experienced a major change in your circumstances (for example, death of a spouse).
As the premiums increase, it might be worthwhile for affluent beneficiaries to rely on private individual insurance or a group policy instead.
Outlook: The increase in Medicare Part B premiums is beginning to raise some protest. However, it remains to be seen whether public pressure will be able to overturn or ease the burden of the provision.
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