Medicare Premiums Rise for High-Income Seniors

Next year you may start suffering a sharp pain, and it will be coming from somewhere close to your wallet. The diagnosis: For the first time in Medicare's history, beneficiaries with higher incomes will be paying more in monthly Part B premiums than other seniors. And in some cases, we're talking a lot more.The new means test, which is expected to hit two million beneficiaries starting in 2007, was inserted into the 2003 Medicare prescription-drug law with a delayed effective date. Under the provision, the size of the premium that a person pays will be calculated on a sliding scale based on adjusted gross income.

Currently, the Medicare Part B premium that everyone pays (except for the poorest beneficiaries) is $88.50 a month. In 2007, the premium is expected to rise to $99.50. The premiums the federal government collects help cover doctors' services and other outpatient care. Total premium collections pay for 25% of outpatient services, and the federal government picks up the rest.

Calculate Your Potential Charge
But with rising health-care costs and a growing budget deficit, Congress and the Bush administration sought to raise more money by reducing the federal subsidy for higher-income seniors. To see if you'll be affected, check your 2005 AGI. Then add in any tax-exempt interest, any Series EE savings bond interest used for educational expenses and any excluded foreign earned income. If you're single - or married but file separately - with an adjusted gross income of more than $80,000, or a married individual with a joint modified AGI of more than $160,000, you'll pay a surcharge. It's calculated as a percentage of the base premium.

Here's how it works: If you're single with a modified AGI between $80,000 and $100,000, your surcharge will be 13.3% of the base monthly premium of $99.50, which will add $13.20 to your monthly premium, for a total of $112.70. For those who are single with an income above $200,000, the surcharge will be 73.3% of $99.50, or $72.90 - for a total monthly premium of $172.40. See the table below for more examples.

But that's just the beginning. In 2008 and 2009, the surcharge will swell because the full bite is being phased in over three years. In 2008, for example, the 13.3% surcharge will double to 26.6% of the base Part B premium. (You'll use 2006 modified AGI to figure out whether you'll get snared.) In 2009, the minimum surcharge will reach 40%, and you'll use 2007 income to determine if you're hit and, if so, how hard. One small piece of good news is that the income levels will be indexed for inflation.

Also, note that the Part B premium increases every year, usually by more than 10%. But let's say it remains $99.50 in 2009, when the surcharge is fully phased in. If you are an individual with income of $250,000, the maximum surcharge will have risen to 220%. That will produce a monthly premium of $318 at the very least, which would be more than three times the standard Part B premium.

Affected Medicare beneficiaries should be notified by letter shortly after this November's election. They could contest the determinations if circumstances change because of a major event. Those include the death of a spouse, divorce, retirement or a significant cutback in working hours.

Means Testing Meets Medicare Part B Surcharges ranging from 13.3% to 73.3% will hit Part B premiums starting in 2007. Assuming the standard monthly premium rises to $99.50 next year, here's how the surcharge will drive up premiums in 2007 for beneficiaries who have high incomes.
	Modified AGI*	Monthly Premium**	Surcharge
Singles	$80,001-100,000
Marrieds	$160,001-$200,000	$112.70	13.3%
Singles	$100,001-$150,000
Marrieds	$200,001-$300,000	$132.60	33.3%
Singles	$150,001-$200,000
Marrieds	$300,001-$400,000	$152.50	53.3%
Singles	More than $200,000
Married	More than $400,000	$172.40	73.3%
*Adjusted gross income plus tax-exempt interest, Series EE savings bond interest used for educational expenses and any excluded foreign earned income. **Per person