How Does Medicare Calculate Income for Premiums?
- For most beneficiaries, Medicare pays approximately 75 percent of their Part B premium.
- For beneficiaries with higher incomes, Part B premiums will be 35, 50, 65 or 80 percent of the total cost of Part B, based income reported to the IRS.
- Higher income beneficiaries also pay more for their Part D premiums (additional amount tied to a base premium).
- Medicare premiums and coinsurance rates come out each fall and go into effect the following January.
For Medicare Part D, premiums vary depending on the plan selected in addition to income considerations. Beneficiaries with higher incomes pay the monthly Part D premium plus an additional amount. The additional amount is tied to a base beneficiary premium rather than any given individual’s premium, since individual plan premiums vary.
This additional amount is deducted from the beneficiary’s monthly Social Security payment regardless of how a higher-income beneficiary pays for Part D premiums. If the amount due is greater than the Social Security payment, or if the beneficiary does not receive Social Security, a bill from the Centers for Medicare & Medicaid Services (CMS) or the Railroad Retirement Board is mailed.
Social Security uses the most recent tax returns provided by the IRS to determine if a person pays higher Parts B and D premiums. A sliding scale, based on the modified adjusted gross income (MAGI), is used to make the adjustments. MAGI is the total of a beneficiary’s adjusted gross income and tax-exempt interest income.
Married beneficiaries who file jointly and have a MAGI greater than $170,000 will pay higher premiums for both Parts B and D. For those with a different status (such as married but filing separate tax returns), higher premiums will apply if the MAGI is greater than $85,000. The CMS will send a letter to those who must pay higher premiums, and it will include the amount and the reason for the determination. The higher premium applies to Parts B and D, so a beneficiary will see an increase if they have one or both types of plans. If a beneficiary with only one part applies for the other in the same year as the receipt of the letter, an adjustment will be automatically applied but another letter will not be sent.