Retirees may be surprised when they see their Social Security checks diminished by Medicare premiums and income-based surcharges, according to a new white paper from HealthView Services.
“Surcharges will not only impact affluent Americans, but practically everyone with a moderate income,” said Ron Mastrogiovanni, founder and CEO of HealthView Services, in a statement.
Medicare imposes surcharges by measuring modified adjusted gross income – tacking extra payments onto premiums once income crosses a certain threshold, beginning at $85,000 for an individual or $170,000 for a married couple.
While the income thresholds are not expected to change over time, the paper points out, retirees’ incomes will rise with inflation, causing them to cross these thresholds and be susceptible to surcharges.
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“These thresholds may seem high, but many retirees including those on traditional pensions are already crossing them,” said Mastrogiovanni, in a statement. “Since Medicare income brackets are not indexed to inflation, over time more retirees will be impacted.”
The paper, titled “Understanding the Impact of Modified Adjusted Gross Income on Retirement Health Care Costs: Strategies to Reduce Medicare Income Surcharges,” shows that crossing the first threshold can increase Medicare Parts B and D costs by approximately 35%, and surpassing the highest thresholds can inflate costs by more than 200%.
“In order to fully comprehend, manage, and even reduce the impact of surcharges, it is necessary to understand that MAGI incorporates almost every potential source of income — including working in retirement, Social Security, pensions, required minimum distributions, dividends, earned interest, and capital gains,” the paper states.
The MAGI also includes a two-year look-back period, which Mastrogiovanni explained in further detail in a statement.
“What takes a good many advisors and their clients by surprise is Medicare’s two-year look-back period, which means that any income earned at age 63 can be applied to the Medicare income algorithm when the subscriber signs up at 65,” said Mastrogiovanni. “Selling a house, for example, just prior to retirement could for example significantly increase Medicare premiums.”