The Centers for Medicare and Medicaid Services (CMS) announced the new 2023 Medicare premium amounts last week, which included a few surprises to retirees and other recipients of Medicare. Notably, the Part B premium has gone down from a starting base of $170.10 to $164.90 per month, representing a 3.1% drop. Medicare Part B is the segment of the program that covers physician services, outpatient hospital services and other services and equipment. In a time where most other costs are rising, this is a welcome change to those on a fixed budget and drawing from investments during a volatile year in the markets. While the official cost of living adjustment for Social Security has not yet been released, we anticipate a bump in monthly benefits of at least 8%, or potentially as high as 8.7%. For those that have their Medicare premiums automatically deducted from their Social Security payments, that means they can expect an even higher net check, which can hopefully help to offset the increase in cost for things like groceries and energy.
The decrease in Part B premiums is notable because there have only been two other times in the program’s history where the cost came down. The question for some is “How can this be decreasing when everything else is getting more expensive?” and the answer is very specific to the inputs the actuaries use when setting the premium for the pool of recipients. At a broad level, the base Part B premium is set to cover 25% of the projected expenditures across the recipient pool, with the remaining portion covered by the federal government. The projections, however, are forward looking measures and for 2022, there have been some types of care and drugs, such as a new Alzheimer’s medication, that have cost less than what was expected. In rare events when that happens, the officials at CMS take the new information and revise the new premium set for the following year. This methodology has gone through a number of revisions over the years, and in more recent times, it was temporarily revised once more due to the COVID-19 pandemic. Under the Continuing Appropriations Act, the changes kept the adjustment artificially low, resulting in a smaller increase of premiums for 2021, but then reset for 2022, causing a bigger jump.
Medicare Part A is also set to increase for next year, but this change is only felt by a small number of people. In effect, most US citizens pre-pay for their Part A coverage in during their working lives through payroll taxes. Even for those who have not worked, coverage is extended to spouses and former spouses when a worker has accumulated 30 quarters of covered employment. Medicare Part A covers hospital care
CMS also shared the new Part B premium adjustment that applies to higher earners. The Income-Related Monthly Adjustment Amount (IRMAA) kicks in once an individual has modified adjusted gross income of $97,000, or $194,000 for a married couple. In order to determine the correct adjustment amount for recipients, the Social Security Administration (SSA) will reference tax returns from two years prior to set the cost. What this means in practice is that the new 2023 premiums will look back to 2021 income. What is unique about the brackets is that they are much narrower than income tax brackets, so it takes careful planning in retirement to avoid recognizing too much income to push you into a new bracket.
|2021 Modified Adjusted Gross Income (AGI + Tax-Exempt Interest):||Additional Monthly Premium Surcharge per person|
|Single||MFJ||MFS||Part B||Part D|
|<= $97,000||<= $194,000||<= $97,000||$0||$0|
|$97,001 – $123,000||$194,001 – $246,000||n/a||$65.90||$12.20|
|$123,001 – $153,000||$246,001 – $306,000||n/a||$164.80||$31.50|
|$153,001 – $183,000||$306,001 – $366,000||n/a||$263.70||$50.70|
|$183,001 – $499,999||$366,001 – $749,999||$91,001 – $402,999||$362.60||$70.00|
If circumstances have changed and income in the coming year is going to be lower, it is possible to file an appeal with the SSA to bring the premium cost down. This is available to individuals with specific “life-changing events” such as death of a spouse, divorce or loss of a pension, however, it is also available to those who recently retired or work reduction. Typically in early December, Medicare recipients will receive a “Letter of Determination” that states the expected premium for 2023 for the specific recipient. Upon receipt, if you qualify for an adjustment due to one of the mentioned reasons, you can file form SSA-44, which will have a section where you can provide an estimate of what you think your new, lower income will be for the year. Our team is happy to help talk through this process with you or your loved ones, and can assist with estimating income in coordination with your tax preparer. If you are turning 65 soon and have not begun your research, we can provide you with education and referrals to health care agents if needed.