What You Need to Know
- Medicare Part B premium increases make the headlines.
- Medicare deductible changes get less media attention.
- Other changes in out-of-pocket costs? Crickets.
With the industry starting to focus on 2024 Medicare premium increases, it’s important to see the forest, not just the trees.
As advisors know, Medicare can be a bear for its complexity.
The Trees
There’s not only the alphabet soup of Part A, B, C and D, but also the sub-alphabet of supplemental insurance programs, as well as the annual changes to premiums and to Social Security benefits from which, for most of your clients, Part B is deducted.
That’s before advisors take a deeper dive into the role of modified adjusted gross income (MAGI) on potential surcharges, along with its two-year look back on income, rules around enrollments, and variables based on state of residence. Then there are the relative merits of Original Medicare versus choosing a Medicare Advantage program.
Given this context, it should be no surprise that a narrow focus on annual changes to premiums alone risks missing the bigger picture.
The Forest
You also need to take Part D premiums, supplemental insurance, out-of-pocket (OOP) costs, and premiums related to dental, vision and hearing into account. All of those come out of your clients’ retirement budgets.
Based on the 2023 numbers, once you include all of the costs, Part B premiums account for only around 14% of a retiree’s health-related expenses.
The Forest, Over Time
Annual changes to premiums and benefits matter to clients.
But, for planning purposes, they need to be seen in context.
Whipsawing premiums — currently driven by inflation and expectations around the cost of Alzheimer’s drugs — underscore the need for a longer-term and holistic perspective.
Looked at over two years, 2023′s 3.06% Part B premium decrease and 2022′s Part B premium increase of almost 14.55% represent an average increase of 5.74%.
Over the last four decades, health care costs have risen about 1.5 times as fast to twice as fast as the Consumer Price Index, or CPI.
And, for another reality check, although the Inflation Reduction Act’s reduction of catastrophic prescription spending maximums to $2,000 and reduction in insulin costs will be beneficial for some clients, they will have a limited impact for most.