IRMAA's Rise & Medicare's Future
by P.J. DiNuzzo March 6, 2018
Higher income retirees cannot be faulted for thinking that Washington has a hand in their pocket. In 2018, the Medicare Access and CHIP Reauthorization Act lowered the threshold on which Medicare recipients pay an income-related monthly adjustment amount (IRMAA) to their Medicare Part B premiums. Previous to this year, the highest premium kicked in for individuals with $214,000 a year; in 2018, the threshold goes down to $160,000, at which point the monthly cost goes up almost $300 over what less-wealthy people are required to pay.
The new Bipartisan Budget Act of 2018 added a new surcharge for a new income tier; individuals earning more than $500,000, or joint filers earning more than $750,000. Their surcharge goes up to $321.40, above the $134.00 monthly premium. With two increases in two years, you can see where older Americans in the higher income brackets are destined to be paying roughly what they would in the private markets for their health insurance coverage.
Several items that everybody seems to be overlooking in the recent budget deal signed by President Trump are potentially-significant changes to how Medicare is administered. First on the list is the elimination of Medicare's independent payment advisory board, authorized under the Affordable Care Act to serve as a check on higher Medicare expenses, labeled by some as a "death panel."
Beyond that, there were changes to prescription drug coverage under Medicare's Part D plans, which cover 42 million seniors. The so-called "donut hole," the point where overall expenses are high enough that the patient suddenly starts paying for drugs out-of-pocket, but not (yet) above the threshold where more generous catastrophic coverage kicks in, was supposed to end in the year 2020. In that year, consumers would pay no more than 25% of the costs of their drugs, less in many cases. The budget deal will close the donut hole in 2019 instead.
In addition, people who require long-term outpatient therapy have had to deal with expense caps-but the budget deal removes them.
How will the government pay for these benefits? The new budget requires individuals earning more than $500,000 a year, or joint filers earning more than $750,000, to pay 85% of the actual costs of their Part B and D plans in 2019, up from 80% this year. (Most Medicare enrollees pay premiums that equal about 25% of these costs.)
P.J. DiNuzzo, CPA, PFS, AEP®, AIF®, MBA, MSTx
President, Founder, and Chief Investment Officer