Understanding Medicare Part B Premiums

Medicare was initially designed to provide senior citizens, and certain other individuals with diseases and disabilities, with reliable and affordable medical coverage. The system is funded publicly through payroll taxes that are collected from every individual in the American workforce. Despite the large workforce pool that can be taxed in the United States, the Medicare program is not free of cost to those who use its coverage. The different parts of Medicare have premiums, deductibles, coinsurance payments, and co-payments. While Medicare Part A is a premium free service to many beneficiaries, Medicare’s optional Part B service comes with a cost.

The system for determining Medicare Part B premium amounts was made more complicated during the first decade of the 21st century. The Medicare Modernization Act introduced a premium payment system that charged individuals and married couples with higher incomes a higher premium amount to take advantage of Medicare services.

As of 2010, most individuals or married couples earning less than $85,000 (individuals) or $170,000 (married couples) were paying a standard premium of $96.40 a month to have coverage under Medicare Part B. However, given there is no cost of living adjustment for social security recipients in 2010, those who were already enrolled in Medicare Part B as of 2009 are the only ones who will continue to pay the standard $96.40 a month. Individuals enrolling in Part B in 2010 will pay a standard premium of $110.50 per month.

For those individuals who have higher incomes, a few steps will be taken to determine the appropriate monthly premium payment they must make. The IRS will help the Social Security determine an individual’s monthly premium based upon their modified adjusted gross income which is a combination of gross taxable income and tax exempt interest income. The IRS will determine an individual or married couple’s MAGI based upon tax returns from two years prior. This means an individual or married couple’s 2010 Part B Premium will be based upon the tax return they filed in 2009 for the year 2008.

The following premiums apply to individuals and married couples earning higher incomes:

• $154.70: Individuals with a MAGI between $85,000-$107,000 or Married couples earning between $170,000-$214,000
• $221.00: Individuals with a MAGI between $107,000-$160,000 or married couples earning between $214,000-$320,000
• $287.30: Individuals with a MAGI between $160,000-$214,000 or married couples earning between $320,000-$428,000
• $353.60: Individuals with a MAGI above $214,000 or married couples earning more than $428,000.

Life is often more complicated than simple tables can show and Social Security and the IRS are willing to work with people whose situations have changed since the time that data was collected to calculate their Part B premium. Individuals who have had their income go down for one of the following reasons may have their premium lowered:

o Divorced or marriage annulled
o Individual became widow/widower
o Individual or spouse stopped working or worked reduced hours
o Loss of income due to disaster or other unstoppable event
o Benefits from insured pension plan stopped or reduced

Under these circumstances individuals or couples need to contact Medicare offices and provide proof of events to get their premiums lowered.

Despite a monthly premium amount, Medicare Part B provides substantial help to millions who use the program. It is estimated that most individuals pay only 25% of the costs related to their medical services while Medicare pays up the remaining 75%.