We continue our Medicare Planning series of blogs with additional information on the costs of Part B & D plans.
Below is the breakdown of costs for Part B coverage in 2014 (and the additional cost for Part D) based upon your Modified Adjusted Gross Income each year. We recommend looking at your tax return (and current year income assumptions) to see how close you may be to the higher or lower end of one of these bands to determine if there is any year end tax planning that could be done to help you remain in a lower premium bracket. We are not suggesting you let the tax tail wag the dog, however, if you are right on the cusp it could be worth some minor tax planning to save hundreds of dollars a year in premiums.
*Currently, there is a proposal on the table that will lower the income brackets (beginning in 2016) that the premium increases kick in at, and also increase the additional premiums to be paid. This could have a dramatic impact on future Medicare costs for those in the higher tax brackets.
Because your premium is based upon income, often times we see people who are retiring right at age 65 have their Medicare premium for year one be based on a higher bracket than their actual income will be going forward. This is because they were working in the previous year, and their income was much higher. If this is the case, you should let the social security office know and they can base your premium on your “projected” income for that first year, saving you the increased costs.
An issue we see quite a bit is a one-year jump in income for clients affecting their Medicare premiums. This could occur due to any number of circumstances such as: the sale of assets generating capital gains (possibly the sale of a house), or additional income earned through consulting during retirement.
As Medicare gets this information directly from the IRS (via your tax returns) there is often a 1-2 year delay in the implementation of the increased premium. During that time, your income may have normalized, putting you back into one of the lower brackets. If this is the case it is important to be proactive and reach out to the social security office to let them know that this increased premium should only apply for one year. If you get ahead of it, you won’t need to wait the 1-2 years for them to catch up to you and avoid paying the higher premiums immediately.
Medicare Part D, the prescription drug coverage, comes with a “donut hole,” which is a gap in coverage. After clients satisfy their deductibles, they then pay a percentage of their prescription drug costs up to $2,850 a year. After that point, they must cover all these costs until they hit $4,550, after which point the insurance kicks in again. While in the “donut hole,” clients receive full credit for the cost of the medication but the actual cost is reduced by 28% for generics and 52.5% for name brands. Under the Affordable Care Act, however, that donut hole is shrinking. By 2020, it is expected to be closed.
For MA residents there is some great information on Part D plans at http://www.massresources.org/medicare-drug-plans.html
Also, medicare.gov has a fantastic resource where you can enter in all of your prescription drugs and it will analyze your expected all in costs for the various Part D plans available in your area. We strongly recommend taking advantage of this each year during open enrollment (especially if your prescriptions have changed during the past year).