Considering the Social Security cost-of-living adjustment for next year will be 1.7%, advisors can see that seniors’ medical costs are rising faster than the overall inflation.
Medicare Part B covers doctors' fees, outpatient hospital visits, and various other medical services. In 2012, most enrollees pay $99.90 a month; that will rise to $104.90 per month in January.
High-income seniors pay more for Part B. Clients will be in that category if their modified adjusted gross income (MAGI) is over $85,000, or over $170,000 for married couples filing joint tax returns.
Clients with MAGI just over those thresholds will pay $146.90 a month for Part B. As MAGI rises, premiums increase. The breakpoints are MAGI of $107,000, $160,000, and $214,000 for single taxpayers; double all those numbers for couples filing jointly. The 2013 monthly premiums will be $209.80, $272.70, and $335.70, in successively higher income levels. (The same MAGI breakpoints apply to higher premiums for Medicare Part D prescription drug coverage.)
Couples will pay double if both spouses pay Part B premiums. Thus, a couple with MAGI over $428,000 will pay a total of $671.40 a month for Part B in 2013, over $8,000 a year.
Advisors should keep in mind that higher-income Part B premiums come with a two-year lag time. That is, the income that clients had in 2011, reported on a tax return filed in 2012, will be the income that determines Part B premiums in 2013.
Consequently, advisors should pay special attention to tax planning for clients in their early 60s. It may make sense to pick up income before age 63, because that income might generate higher Part B premiums at age 65 or later. Clients who are interested in a Roth IRA conversion, for example, might convert before the resulting income will affect their Medicare Part B premiums.
In addition, some clients’ 2011 reported income may have been much higher than their expected 2013 income. If so, you might have clients paying steep Part B premiums, relative to next year’s cash flow. Seniors in these circumstances may be able to reduce next year’s Part B premium payments by showing a lower anticipated income.
- Reasons for a premium reduction include:
- Becoming married, divorced, or widowed;
- Reducing work hours; and
- Losing income-producing property due to a disaster.
In such situations, advise clients to contact their local Social Security office.