Lost among presidential politics and the potential impact of President Elect Trump’s legislative agenda was news of more immediate impact to millions of America’s seniors: a large increase in Medicare costs.
While not unexpected, the magnitude of these increases is noteworthy, as is the fact that they will not be shared equally. Rising premiums and the cost sharing formula found in Original Medicare (the fee-for-service programs offered through the federal government consisting of Medicare Part A and Medicare Part B) will fall most heavily on new enrollees and higher income seniors. The final impact of these increases will depend on a variety of additional factors including geographic location, health care utilization, prescription drug regime, and whether you collect Social Security benefits.
Summary of Medicare cost increases
Medicare Part A: provides inpatient hospital, skilled nursing, hospice and home health services. Part A is offered premium free if you or your spouse paid Medicare taxes while working. For those not eligible to receive Part A without premiums, a monthly premium is assessed. That premium will increase from $411 to $413 per month in 2017, with inpatient deductibles increasing from $1,288 to $1,316. Rising coinsurance costs could hit those without a Medicare supplement or Medicare Advantage plan especially hard.
Medicare Part B: covers medical services, such as doctor’s visits, lab tests and medically necessary supplies. New enrollees will see the base monthly premium increase from $121.80 to $134.00. Premiums are based on income, so higher-income participants will pay even more. The chart below provides a comparison of premiums by income.
|Individual Tax Filer||Married Filing Jointly||Income Related Monthly Adjustment 2017||Total Monthly Premium 2017||Total Monthly Premium 2016|
|Income up to $85,000||Income up to $170,000||$0||$134.00||$121.80|
|Income greater than $85,000 up to $107,000||Income greater than $170,000 up to $214,0000||$53.30||$187.50||$170.50|
|Income greater than $107,000 up to $160,000||Income greater than $214,000 up to $320,000||$133.90||$267.90||$243.60|
|Income greater than $160,000 up to $214,000||Income greater than $320,000 up to $428,000||$214.30||$348.30||$316.70|
|Income greater than $214,000||Income greater than $428,000||$294.60||$428.60||$389.80|
Here is where it gets interesting: because premiums are increased in line with Medicare Part B medical expenditures, the base monthly premium for 2017 would be $134.00 for all participants, absent a “hold harmless” provision that is contained in Medicare law. This provision limits the increase in Medicare Part B premiums to the increase in Social Security benefits- 0.3% in 2017. As this provision applies to roughly 70% of Medicare participants, the remaining 30% will see their premiums increase enough to offset premiums that are foregone due to the provision. Those impacted by the provision include new enrollees, those not collecting Social Security benefits and those with higher incomes that are subject to the Medicare income-related premium adjustment. For these enrollees the base Part B monthly premium will increase from $121.80 to $134.00. It is unclear whether addressing this provision will be a legislative priority for the new Congress.
Medicare Part C: Medicare Advantage plans, the Medicare-approved private health insurance plans for those enrolled in Original Medicare. Advantage plans provide the same services as Original Medicare and may cover prescription drugs and additional services such as dental and vision care. Coverage and prices will vary by region and the type of plan selected, so comparison shopping is critical. Participants must pay premiums for Original Medicare in addition to the Advantage plan premium. In a rare bright spot, the Centers for Medicare and Medicaid Services estimates that the average Medicare Advantage premium will DECREASE slightly in 2017 to an average of $31.40 per month.
Medicare Part D: the final letter in the Medicare alphabet refers to prescription drug plans (PDP). The average monthly PDP premium will increase by about 9% in 2017 to $42.17. Plan deductibles are set to increase from $360 to $400 per year, with the annual out-of-pocket threshold increasing from $4,850 to $4,950 for 2017.
What about Medigap plans?
A final consideration relates to premium increases in Medicare Supplement (commonly known as Medigap) plans, which are used in lieu of Medicare Advantage plans to offset the deductibles and copayments in Original Medicare. Plans are sold by private insurers and categorized by alphabetic letters (A-G, K, L, M, N), with each plan type offering identical benefits. Despite offering a standard set of benefits, premiums may vary widely from plan to plan. Premiums in most plans are expected to increase for the coming year in line with health care inflation- with premiums for more robust plans such as Plan F, and Plan G disproportionately impacted.
Seniors have until December 7th, 2016 to change their plan for the upcoming year and can compare choices by using the Medicare Plan Finder tool, and may find our prior blog article to be a helpful refresher.
John Male, CFP®, RICP®
The Gassman Financial Group
9 East 40th Street, 5th Floor
New York, NY 10016
Tel: (212) 221-7067
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