With each passing day there seems to be more and more talk about Health Care and the impending costs that come with it while in retirement and now with some changes to Medicare premiums the costs could become extremely high.

For those individuals who are about to be enrolled in Medicare and who make less than $ 85,000 a year the changes will have no effect (the income limit for couples is $ 170,000). The basic costs will be $ 115.40 a month for Medicare Part B and for Part D, the cost will be just the plan that is chosen premium but, for those earning just $ 1 or more the costs will be:

 

Modified Adjusted Gross Income (MAGI)
Part B monthly premium amount
Prescription drug coverage monthly premium amount
Individuals with a MAGI of $ 85,000 or less
Married couples with a MAGI of $ 170,000 or less
2011 standard premium= $ 115.40
Your plan premium
Individuals with a MAGI above $ 85,000 up to $ 107,000
Married couples with a MAGI above $ 170,000 up to $ 214,000
Standard premium + $ 46.10
Your plan premium + $ 12.00
Individuals with a MAGI above $ 107,000 up to $ 160,000
Married couples with a MAGI above $ 214,000 up to $ 320,000
Standard premium + $ 115.30
Your plan premium + $ 31.10
Individuals with a MAGI above $ 160,000 up to $ 214,000
Married couples with a MAGI above $ 320,000 up to $ 428,000
Standard premium + $ 184.50
Your plan premium + $ 50.10
Individuals with a MAGI above $ 214,000
Married couples with a MAGI above $ 428,000
Standard premium + $ 253.70
Your plan premium + $ 69.10

 

To add to the confusion the MAGI for Social Security is defined differently than what is commonly used before being on Medicare; MAGI is defined as “the total of your adjusted gross income and tax-exempt interest income you may have. These are the amounts on lines 37 and 8b of IRS from 1040. Some examples of income are: wages, salaries, tips, taxable interest, certain dividends, business income, capital gains, and unemployment compensation, as well as annuities, Social Security payments and some pensions”.

And once that higher MAGI threshold is hit there are only a few ways that someone who is enrolled will be able to lower the premiums back down and they are;

You married, divorced, or became widowed;
You or your spouse stopped working or reduced your work hours;
You or your spouse lost income-producing property due to a disaster or other event beyond your control;
You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan; or
You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

A Possible scenario from Mark Wilson: (A CFP for BottomLine Secrets) A hypothetical Bill Jones sells his vacation home in 2007 because he doesn’t want to maintain it any longer. As a result, his MAGI for this year is well over $ 200,000.

By 2009, Bill is living on his Social Security benefits plus investment income from interest and dividends. His MAGI is around $ 50,000.

Result: Bill still has to pay the highest Part B premiums in 2009. The fact that his income has dropped sharply won’t help.

 

So, please keep in mind that once you hit that higher MAGI level you may be there for a while no matter what may happen to your income.

 

This problem may or may not have an impact at all for some but for others it could be costly. If we were to look at HealthView’s RetireMark Health Care Expenses Report and input data for a 65 year old male living in New York who has no health conditions and earns less than $ 85,000 a year MAGI, we will find out that;

His life expectancy – 88 years old
Expected total costs to cover just Medicare B & D – $ 98,220.00

Same male with everything else being equal except that he’s making $ 85,001 MAGI, his total bill will be;

$ 135,618.00 for just premiums on Medicare Part B & D

At an MAGI at $ 107,001 the cost

$ 192,674.00 for just premiums on Medicare Part B & D

At an MAGI at $ 160,001 the cost;

$ 249,817.00 for just premiums on Medicare Part B & D

At an MAGI above $ 214,000 the cost;

$ 306,874.00 for just premiums on Medicare Part B & D

How do the numbers look for female aged 65 living in New York? Higher and for the main reason that she will live longer – actuarially to age 90

$ 85,000 or less = $ 116,330.00
$ 85,001 = $ 160,599.00
$ 107,001 = $ 228,150.00
$ 160,001 = $ 295,807.00
Above $ 214,000 = $ 363,359.00

The cost of earning just one dollar from $ 85,000 to $ 85,001 can be the difference for a Male in New York to be roughly $ 37,000 over the course of his retirement. If planning is not properly thought out and a sale of a vacation home or realized capital gain on an investment occurs and the amount is significant the damage can be extreme.

With Social Security being roughly $ 28,000 annually for most high income earners already and if everything stays the same with the MAGI calculation like it has with AMT Ruling a 55 year old could see Social Security being roughly $ 48,000 in future dollars of their MAGI annually.

All that is needed is some other sources of income to start flowing and the breakpoints will be met, but again, with proper planning from a Medicare knowledgeable Financial Advisor these MAGI levels can be managed correctly.

For more information on MAGI & Medicare please see Medicare.gov or SSA.gov

Dan McGrath is a founding member of HealthView Services, a firm dedicated to helping individuals plan properly for their health care and its costs throughout retirement

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