Why Are Some Medicare Part B Premiums Based On Income?

Combining several recently received questions about 2016 Medicare Part B (Medical) premiums, today’s post is about 2016 premium amounts and explains why a small percentage of people pay a larger premium based on taxable income as shown on their tax returns.

The Department of Health & Human Services, Centers for Medicare & Medicaid Services (CMS), administers the Medicare programs. Social Security helps people enroll in Medicare. The CMS press release announcing 2016 Medicare costs was issued on November 10, 2015.

Part of the reason for different Part B premium amounts is because there was no Social Security cost-of-living adjustment (COLA) for 2016. The law contains a “hold harmless” provision that protects approximately 70 percent of Social Security beneficiaries from paying a higher Part B premium in order to avoid reducing their net Social Security benefit.

As a result, if you had Medicare Part B in 2015 and paid the standard monthly premium of $104.90 from your Social Security benefit, your 2016 premium will stay the same.  Note that this was also the premium amount in 2014.

The “hold harmless” provision does not apply to everyone. With a few others, it does not apply to people first enrolling in Part B coverage in 2016, those not receiving monthly Social Security benefits but directly billed for Part B premiums in 2015 or those already paying a higher premium based on income.

For people not subject to the “hold harmless” provision, the standard 2016 Part B premium will be $121.80 per month, with higher premiums based on income. According to CMS, these groups account for about 30 percent of the 52 million Americans expected to be enrolled in Medicare Part B in 2016.

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People with higher incomes have paid a higher Part B premium since 2007 based on P.L. 108-173, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 signed by President George W. Bush.

Many people do not know that Medicare Part B premiums have always been highly subsidized. Until this 2003 legislation, premiums paid by Part B beneficiaries covered only approximately twenty-five percent of costs with the remaining seventy-five percent subsidized by the Federal government.

MMA legislation, which also created Medicare Part D (Prescription Drug Coverage), provided a way to lower this subsidy by having Part B premium amounts based on modified adjusted gross income from tax returns. Called an income-related monthly adjustment amount (IRMAA), these 2016 Part B premiums range from the standard $121.80 to $389.80 per month based on your 2014 tax return. According to CMS, this affects fewer than five percent of people with Medicare.

Note that the MMA lowers but does not end the subsidy. Medicare Part B remains highly subsidized, especially for those paying standard premium amounts.

From the Medicare website, www.medicare.gov, a chart showing these premiums follows. More information is there and in the SSA publication, Medicare Premiums: Rules for Higher-Income Beneficiaries.

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