Q: Some friends and I realized that we pay different Medicare premium amounts. Why are there differences?
A: This question refers to the premium for Medicare Medical Insurance (Part B). Everyone enrolled in Part B pays a premium. People eligible for Social Security benefits do not have a monthly premium for Medicare Hospital Insurance (Part A) so very few pay a Part A premium.
The standard 2012 Medicare Medical Insurance (Part B) premium is $99.90 per month. Different Part B premiums are possible for several reasons. This post concentrates on premium differences based on income.
Part B premiums are heavily subsidized and have been since the program began. For most people with Medicare, the government pays a substantial portion, about 75 percent, of the Part B premium and the person pays the remaining 25 percent. In other words, the basic $99.90 premium that you pay covers only about one-fourth of the Part B cost with the rest paid by government funds.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) was signed into law by President George W. Bush in 2003. This legislation provided for the voluntary Medicare prescription drug benefit.
To reduce the Part B premium subsidy over time, a portion of this legislation contained provisions to have Medicare Part B premiums based on income as reported on federal income taxes. Less than 5 percent of people with Medicare are affected, so most people do not pay a higher Part B premium.
Since 2007, higher-income beneficiaries pay a larger percentage of the total Part B cost based on their income as reported to the Internal Revenue Service (IRS). Monthly Part B premiums are possible equal to 35, 50, 65, or 80 percent of the total cost, depending on what you report to the IRS.
To determine if you will pay a higher premium, Social Security uses the most recent Federal tax return that the IRS provides. If you pay a higher premium, a sliding scale based on your modified adjusted gross income (MAGI) is used to make adjustments. Your MAGI is the total of your adjusted gross income and tax-exempt interest income.
Including detailed Part B premium amount charts for 2012, more information is in Medicare Premiums: Rules for Higher Income Beneficiaries (SSA publication 05-10536).
The Social Security Administration enrolls people for Medicare coverage but the Medicare program is administered by the Centers for Medicare & Medicaid Services (CMS), a component of the Department of Health and Human Services (DHHS).