There are some variables under clients’ control that they can use to bring down their total Medicare costs
Nov 7, 2016 @ 1:57 pm
First of all, people are asking me where Medicare costs, specifically Part B premiums and Part B and D high-income surcharges, are going in 2017. While the final numbers are not released, we know that Medicare costs have been going up dramatically. The June Medicare Trustees Report projected that a 22% increase in Medicare B premiums is needed to balance the Medicare Part B trust fund in 2017.
That translates into the Medicare Part B premium that is $122 per month increasing to $149 in 2017. I’ve estimated what the impact will be across all income levels. The following is an estimate of where 2017 Medicare B premiums and Parts B and D income-related monthly adjustment amounts (IRMAA) will go if the 22% increase applies to Medicare beneficiaries across all Medicare modified adjusted gross income (MAGI) brackets.
While these figures do add up to significant dollars, they will pertain only to 30% of Medicare beneficiaries including high-income individuals, those newly enrolled in Medicare and people who are on Medicare but not yet taking Social Security — to name a few. The reason is the Medicare “hold-harmless” provision comes into play in the face of the flat Social Security COLA of 0.3% for 2017. Medicare premium increases cannot exceed a rise in Social Security benefits. We expect 70% of Medicare beneficiaries to be held harmless in 2017.
In the face of the Medicare hold-harmless provision, all other Medicare recipients will, by law, have to absorb the majority of the Medicare Part B cost increase for 2017. We encountered the same issue in 2015. That year, Congress intervened to dampen the massive cost-shifting but at the same time created a “kick the can” problem that we are still facing.
A logical question is what my clients can do to stave off the impact of these impending Medicare cost increases? The answer is some variables are under their control that they can change to bring down the total Medicare costs.
|MEDICARE MAGI FILING SINGLE||INDIVIDUAL||MEDICARE MAGI FILING JOINTLY||COUPLE|
|≤ $107,000||$2,682||≤ $214,000||$5,364|
|≤ $160,000||$4,046||≤ $320,000||$8,093|
|≤ $213,000||$5,409||≤ $428,000||$10,819|
|> $213,000||$6,774||> $428,000||$13,548|
Notes: 2016 Medicare B premiums and B and D IRMAAs with 22% increase. MAGI = adjusted gross income + tax exempt interest in 2015. Source: Dr. Katy Votava
Have a Medicare checkup.
• Make sure that their Medicare coverages are the most cost-effective available. Your clients do not want to be part of the 90% to 95% of folks who overspend on Medicare and waste their hard-earned savings. Once the annual enrollment period window of opportunity closes on Dec. 7, most Medicare enrollees must wait until 2018 for new coverage.
Apply for reconsideration of 2017 Medicare Parts B and D high-income surcharges.
• It is critically important for people to review the Social Security IRMAA annual verification notice they will receive later in November that notifies them of their 2017 Medicare B premiums and Parts B and D IRMAA surcharges. It’s not uncommon for people to qualify for a decrease because their income drops to a lower bracket because of specific life-changing events. For example, if a person has stopped or reduced work resulting in a lower MAGI, they are eligible to apply for that lower-bracket premium.
• Since they are using a person’s tax return from 2015 to determine 2017 high-income surcharges, Social Security doesn’t know about life-changing events (unless the individual notifies the agency). Therefore, Therefore, If your clients have experienced a qualifying life-changing event that has created a MAGI reduction, they may be eligible to apply for an IRMAA decrease.
•The process to file for a modification is outlined in the Social Security Medicare IRMAA annual verification notice. Your clients can submit form SSA-44. In my experience, when people meet the criteria and pursue the matter on a timely basis, they will be successful in getting a reduction. A word to the wise is to keep a copy and get a dated stamped receipt of all materials filed at a Social Security Administration office.
Structure retirement income to maximize cash flow and minimize MAGI.
• Work with your customers to structure retirement income to maximize cash-flow sources that are not in future Medicare MAGI calculations. You may be able to blunt the impact of Medicare B and D IRMAA increases.
• I highly recommend that financial advisers incorporate Medicare costs in tax and retirement planning. A good place to start is to get a copy of your client’s tax return on an annual basis to get an idea of their MAGI.
• Examples of methods that are useful in maximizing retirement cash flow not included in Medicare’s MAGI calculation include health savings accounts, reverse mortgage proceeds, some cash-value life insurance and annuity proceeds.
Consequently, when you work with your clients on these strategies to reduce their Medicare cost burden, they may very well save more than projected Medicare B premiums and Part B and D IRMAAs in 2017 and beyond.