For Additional Reading and Research on the Web

The text of the 2003 legislation authorizing the Part B premium increase:

http://aspe.hhs.gov/mits/text/titleVIII/811.html

For an excellent overview of Medicare financing and premiums prepared in PowerPoint by Tricia Neuman of the Henry J. Kaiser Family Foundation:

http://www.kaiseredu.org/uploadedFiles/Medicare_101.ppt[PPT]

For a report on the higher premiums by the Senior Citizens League, including estimates of 2009 premiums at all four MAGI tiers:

http://www.tscl.org/NewContent/102589.asp

For a detailed report on the 2003 legislation, including the estimate that 6% of Medicare Part B participants will be affected after full phase-in:

www.kff.org/medicare/upload/Prescription-Drug-Coverage-for-Medicare-Beneficiares-An-Overview-of-the-Medicare-Prescription-Drug-Improvement-Act-2003.pdf

Why Are My Part B Premiums Increasing?

The explanation of why Part B premiums of high-income seniors are increasing is far from simple. Here is a summary:

Medicare spends more than $300 billion per year, with most of the money provided by two trust funds:
- Part A, the Hospital Insurance Trust Fund, accounts for about 60% of all spending. Payroll taxes (plus interest earnings) and the taxation of Social Security benefits fund almost all of Part A's cost.
- Part B, the Supplementary Medical Insurance Trust Fund, accounts for most of the other 40%; about 75% of Part B's costs are paid from general U.S. Treasury revenue, the other 25% comes from Part B premiums paid by Medicare participants.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 mandates that Part B premiums of higher-income seniors must pay a greater share of Part B's total costs than the current 25%. Subject to a three-year phase-in schedule (2007-2009), these targets will apply for single filers:
- MAGI of more than $80,000 up to $100,000: 35%
- MAGI of more than $100,000 up to $150,000: 50%
- MAGI of more than $150,000 up to $200,000: 65%
- MAGI of more than $20,000: 80%
In each case, MAGI limits for joint filers are doubled, and the same percentages apply.
In the future, Part B premiums of high-income seniors will be directly linked to the solvency of the Part B trust fund. If Part B medical costs keep increasing, so will the premiums of affluent seniors. The calculation of the "premium subsidy" (i.e., the dollar amount of each affluent taxpayer's premium payable from general revenues) will actually be made monthly. The Part B premium each month will represent a bill for the balance of the full premium due; i.e., the total cost to the Part B trust fund allocable to each Medicare participant, less the subsidy. Thus, premiums will change in the future not only among senior taxpayers according to income but also, among the most affluent segment, from month to month. To keep affluent seniors from juggling their current incomes to reduce premiums, the MAGI test will be made on a two-year look-back basis; i.e., income reported in the 2005 tax year will be used to determine 2007 premiums. Therefore, forward planning will become more important.

Instant Insights /

Help Your High-income Senior Clients Plan for New Tax Complexities

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