Planning for Higher Medicare Premiums

Means-testing was introduced into Medicare premiums a few years ago. Higher-income beneficiaries pay higher premiums than others. That’s going to continue and expand, regardless of who wins the election or how Medicare is reformed (or not). Most people don’t incorporate medical expense planning sufficiently in their retirement spending plans. They think their medical expense will be about the same, not realizing how much employers tend to subsidize the cost of medical insurance and care. You need to plan a cushion for higher medical expense and insurance in your spending, because Medicare is going broke and changes need to be made.

The extra premiums are also something those nearing retirement should be aware of in their personal financial planning.  Fidelity Investments estimates that a couple turning 65 this year, without any employer paid medical retirement benefits, needs an average of $240,000 (in current dollars) to cover Medicare premiums, deductibles and co-pays over the rest of their lives.  But that doesn’t factor in a single dollar of income based premiums, let alone long term care, dental care or over-the-counter-medicine costs.

For 2012, the extra Part B charges total $480 to $2,638 per person ($960 to $5275 per couple), on top of the normal Part B premium of $1199 per person ($2398 per couple) a year. The highest surcharge applies to singles with an AGI above $214,000 and couples with income above $428,000. Premiums for Part D vary depending on the drug plan a retiree selects. The average plan costs $360 a year per person, with surcharges running an additional $144 to $792 per person ($288 to $1584 per couple).  Note that surcharges for 2012 are based on income you reported on your 2010 tax returns.