Medicare IRMAA surcharges to be adjusted for inflation in 2020

Indexing will slow the rise in Medicare premiums for some retirees.

By Mary Beth FranklinSep 20, 2019 @ 12:34 pm EDT

For the first time in a decade, the income brackets used to determine Medicare premium surcharges for high-income retirees will be indexed to inflation starting Jan. 1. As a result, some retirees may experience a reduction in their Medicare surcharge costs next year.

Beginning Jan. 1, the income related monthly adjustment amount brackets used to determine high-income surcharges for individuals and married couples will be indexed to the consumer price index based on the 12-month CPI change from September 2018 through August 2019.

In August, inflation increased 1.7% over the previous 12 months, according to the CPI data released last Thursday.

As a result, the income brackets used to determine Medicare surcharges in 2020 will increase by 1.7%, rounded to the nearest $1,000.

In general, that means income tiers will increase by $1,000 to $3,000 for individuals and by $2,000 to $6,000 for married couples filing jointly, according to a new analysis by HealthView Services, a leading provider of retirement health care cost data for the financial services industry. Medicare premium surcharges for 2020 will be based on income reported on 2018 federal tax returns.

(More: A guide to Medicare open enrollment)

Currently, there are six income tiers that determine high-income surcharges for Medicare Part B, which covers doctors’ fees and outpatient services, and Medicare D, which covers prescription drugs.
Individuals with modified adjusted gross income of $85,000 or less, and married couples with joint MAGI of $170,000 or less are not subject to IRMAA surcharges in 2019. They pay the standard Medicare Part B premium of $135.50 per month. MAGI includes adjusted gross income plus any tax-exempt interest from municipal bonds.

In 2019, individuals with incomes above $85,000 and married couples with joint income above $170,000 pay combined Medicare premiums and surcharges ranging from $189.60 per month to $460.50 per month per person.

The income thresholds that determine who pays the Medicare surcharges have been fixed at their current levels since 2011. As a result, a growing share of beneficiaries have been subject to the income-related premiums over this time period.

But in 2020 and subsequent years, the income thresholds will be indexed to general price inflation, except for the top-level income thresholds of $500,000 for individuals and $750,000 married couples filing jointly that were added in 2019. Those top tiers will be indexed to inflation starting in 2028.

HealthView’s new white paper analyzes the impact of indexing through several case studies. For example, a single, healthy 65-year-old woman who lives to age 89 with $100,000 in current annual income and starts retirement in the second IRMAA income tier ($85,001-$107,000 in 2019) would save more than $50,000 on the surcharge over her lifetime with inflation indexing, according to the white paper. Her lifetime surcharge would be $201,432, compared to $253,516 without indexing.

“Lower surcharges from indexing seem like welcome news,” said Ron Mastrogiovanni, CEO of HealthView Services.

But he warned that reduced revenues from Medicare surcharges as a result of indexing could put added pressure on the Medicare Trust Fund, which is expected to run dry in 2026 unless Congress acts.

“We believe that given pressure on the Medicare Trust Fund, retirees should expect additional changes and cost shifting to make up for lost revenue,” Mr. Mastrogiovanni said.

The white paper also highlights how important it is for advisers and clients to understand the impact of required minimum distributions on surcharges and other events that can impact MAGI in retirement, as well as the opportunities to manage and even reduce surcharges by incorporating financial products in portfolios that don’t count toward MAGI.

For example, distributions from Roth IRAs and Roth 401(k)s are tax-free, as are distributions from health savings accounts used to pay for qualified medical expenses in retirement. Distributions and loans from cash value life insurance, proceeds from a reverse mortgages and direct qualified charitable distributions also do not affect income taxes.

Although the Centers for Medicare and Medicaid Services have not yet announced new Part B premiums for 2020, the latest Medicare Trustees’ Report forecast an increase of $8.80 per month in the Medicare Part B premium in 2020, to $144.30.

https://www.yourwealthmatters.com/medicare-irmaa-surcharges-to-be-adjusted-for-inflation-in-2020/?NLID=CNB&utm_source=newsletter-CNB&utm_medium=email&utm_campaign=weekly-20190921&utm_term=text

Check your Social Security Statement Often & Early

Here's why you should

by Hanna Horvath April 19th, 2019

Checking the amount in your Social Security helps you plan for retirement. But a new report shows most Americans aren’t doing that.

The two ways to check how much Social Security you have are online or through a paper statement sent to you in the mail. The Social Security Administration (SSA) made efforts in recent years to curb the number of paper statements by mailing only to people over age 60 who haven’t gotten benefits or created an online account yet.

In 2010, the SSA mailed out 155 million statements. In 2018, they mailed out 14.5 million statements. And while the number of users who registered for an online account went from two million in 2010 to almost 39 million in 2018, the percentage of those who actually accessed the statement fell: Only 43% of those with an online account in 2018 accessed their statement.

How to find your social security statement online

You can access your benefits through your online My Social Security account. If you don’t have an account, you can create one using your Social Security number. You’ll be asked a series of questions to confirm your identity. If you have trouble signing up, you can either contact the Social Security Administration or visit a local office.

Your online statement should include a summary of your annual earnings, the size of each check you’ll receive in retirement and how much the amount could change depending on what year you stop working. You can also elect online to have a paper statement mailed to you each year.

Viewing your statement each year helps verify all the numbers are correct and flag any signs of identity theft. If you find a discrepancy, contact the Social Security Administration (and make sure to have your tax return handy).

Social Security & retirement

You shouldn’t depend on your Social Security alone for retirement.

Investing in a 401(k) or independent retirement account can help build your nest egg, thanks to compounding interest. Working longer and retiring late also increases the size of your Social Security and other retirement accounts.

Need to save more for retirement? Here are five ways to save in five minutes or less.

Image: Samuel Zeller

Hanna Horvath is a data analyst and personal finance expert at Policygenius. She previously wrote for KNBC in Los Angeles and is regularly quoted in top media outlets and parenting sites, including NBC News, Romper and Fatherly. Follow her on Twitter @Hanna__Horvath.

Related Topics: Retirement

https://www.policygenius.com/blog/no-one-checks-social-security/

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Considering I had not much to lose, I contacted Robin who exceeded all of my expectations. She helped through the process addressing all of my needs, concerns and fears. 

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THIS WILL HELP SO MUCH WHEN CALLING YOUR INSURER (belive me...)

Infographic: Three Tips for Communicating With Insurers

Jay JohnsonMay 17, 2016Infographics0 Comments

https://blog.medicarerights.org/three-tips-communicating-insurers/?utm_source=middle-of-month-registered&utm_medium=email&utm_campaign=mi-outreach

If you are like most people, you have called your insurance provider with a question, been put on hold, and finally reached a representative only to discover you did not have all the necessary documents in front of you.

It can be easier. Below is a handy infographic with some tips to help you get the best results when communicating with insurers. Remember: If you have questions about your insurance coverage, whether you have Original Medicare or get your benefits through a Medicare Advantage Plan (such as an HMO or PPO), you have the right to get answers.

Visit Medicare Interactive for more great articles!

https://www.medicareinteractive.org/get-answers/planning-for-medicare-and-securing-quality-care/getting-quality-care/tips-for-communicating-with-insurance-companies?

Calculate When to Take Social Security

An online tool can help you make the right decision

by Allan Roth, AARP, September 21, 2018 | Comments: 12

GETTY IMAGES

I’m often asked by clients when they should take Social Security. That question will soon be personally relevant, as my wife and I become Social Security-eligible next year. It’s a significant decision we all have to make at some point, so let’s discuss ways to calculate the best choice for you.

You are probably aware that every year you wait between ages 62 and 70, your payment from Social Security increases. First, I want to dispel a myth I’ve heard countless times: “Every year you wait is like earning a guaranteed 8 percent.” That’s just wrong, because it’s typically less than 8 percent.

More importantly, you get the higher payment for one year less for every year you defer. This doesn’t mean that waiting is bad, but you don’t want to compare that 8 percent to a CD paying 3 percent, and probably don’t want to wait if you are single and have a shorter-than-average life expectancy.

My advice to clients is that they don’t have to choose between spending money now by taking Social Security early, on the one hand, and cutting expenses in order to wait, on the other — as long as they have some savings they can live on. What I tell them is that delaying Social Security is like buying a government-backed, inflation-adjusted deferred annuity. Waiting is actually buying a higher cash stream that will increase with inflation.

The last calculation I did on delaying Social Security indicated it was like buying that annuity at a 34 percent discount. Today, to my knowledge, no insurance company is even offering an inflation-adjusted annuity, as they don’t want to take on inflation risk. Fortunately, the U.S. government will.  

Choosing what’s best for you

I’ve kicked the tires on many Social Security calculators and now recommend OpenSocialSecurity.com. It’s free and written by Mike Piper, the author of Social Security Made Simple. It’s relatively simple and uses a methodology superior to that of other calculators. 

Other calculators assume a particular year you or you and your spouse will die. Your actual life span is likely to be different than a precise year estimated by life-expectancy tables, so Open Social Security instead uses probabilities. That is the same methodology actuaries use for insurance companies in pricing their policies. Though it can run as many as 9,216 possible options, the answer is displayed in a way that is very simple to understand.

As Piper told me: “Rather than assuming that you will die at a specific age in the future, this calculator accounts for uncertainty in life spans. It accounts for the possibility that you'll still be alive at age 101. But it also accounts for the possibility that you'll die at age 69. Accounting for such uncertainty is particularly important in the case of a married couple, in which the effectiveness of each person's claiming decision is affected by how long both people ultimately live.”

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For ways to save and more, get AARP’s monthly Money newsletter.

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I had an aha moment when I ran the calculator with data from my wife and me. I have been the higher income earner so wasn’t surprised it told me to wait until age 70. What surprised me was the recommendation that my wife take her benefit at age 62, which was different than any calculator I had ever used.

I spoke to Piper, who explained, “When the spouse with the lower earnings record delays benefits, it only increases the amount the couple receives as long as both spouses are still alive.” Under Social Security rules, as soon as one spouse passes, the surviving spouse will get the higher benefit amount.

He continued, “Many calculators overestimate this length of time during which both spouses are alive, because they ignore the possibility that even the spouse with the longer life expectancy could die early. As a result, those calculators overestimate the value of the lower-earning spouse waiting to claim benefits." I concur with his logic.

My advice

If you are single and in good health, chances are waiting until age 70 is the optimum solution. In fact, if you have saved, research from the Brookings Institution indicates you probably have a longer-than-average life expectancy. That reinforces the decision to wait, since you will collect a higher amount during a longer life. And waiting is easy, since you don’t have to do anything.  

If you are married, however, the choice is more complex. Odds are that the higher-earning spouse should wait until age 70, but the waiting may not be optimal for the lower-earning spouse. Of course, you won’t know what’s best for you until you run the numbers.

Editor's note: AARP also has a Social Security benefits calculator, which can be found here.

Also of Interest

• Are you really ready to retire? 

Why you Should Consider Working Longer and Delaying Social Security Benefits

Each additional year of work can make a big difference in your benefits

by Jane Bryant Quinn, AARP, July 11, 2019 | Comments: 5

HERO IMAGES

The single most effective way to maintain your standard of living in retirement is — ta-da! — not to retire. Or at least, not to retire as soon as you planned. A 2018 study called “The Power of Working Longer,” for instance, found that hanging on just two months longer improves your standard of living more than saving an extra 1 percent of your wages for the last 10 years of your career.

There are several reasons this might be so. If you’re still working, you don’t have to draw on your savings to cover expenses. You can use part of your earnings to add to your savings. And between the ages of 62 and 70, the longer you delay taking Social Security, the greater your monthly benefit. From full retirement age until 70, for example, your benefit grows 8 percentage points for each year you put off claiming.

But few people understand another factor that can improve their finances: how an additional year of work can raise a key number that Social Security uses to set their benefits.

To see how those additional wages help, you need to know how Social Security calculates your benefit. It uses an average of your highest 35 years of earnings covered by Social Security (they need not be consecutive years), starting from age 16. An inflation adjustment is applied to the wages you earned up to age 60 to bring them in line with your current purchasing power. If you put in more than 35 years, your lowest-earning years are dropped, pulling your average earnings up. If you put in fewer than 35 years, you get a zero for each missing year, which pulls your average down. Your 35-year average is then run through a complicated formula to produce your “primary insurance amount.” That number is the starting point for all your benefits, plus spousal and survivors benefits, based on your record. It’s also the number from which your benefits are reduced, if you have a government pension and are subject to the Windfall Elimination Provision or Government Pension Offset.

When you’re working, each year of higher earnings replaces one of your lower-earning years, so your average earnings rise. People who aren’t working can eliminate zeros on their record by getting a job. (To see your year-by-year earnings record, register for a “my Social Security” account at ssa.gov.)

Social Security reviews workers’ records every year. If last year’s earnings knocked out a lower earnings year, your benefit will be recalculated. If you’re currently receiving benefits, the higher payment will show up in next year’s checks.

Adding to a work record can be especially valuable for people who spent part of their lives out of the workforce — for example, women caring for children, laid-off workers who couldn’t find new jobs right away and people who got a late start. This strategy also works wonders for those who held low-wage jobs when they were younger but are making much more money now.

What if your current wage is less than you used to get? No matter. Social Security will still compute your benefit based on your highest 35 years. You may not love working longer, but financially it’s all balloons.

More on Planning for Retirement:

• Many boomers want to transition into retirement
• Try AARP's Social Security Q&A tool

https://www.aarp.org/retirement/social-security/info-2019/delay-claiming-social-security-benefits.html

Don't Rush Social Security by Jane Bryant Quinn

Don't Rush Social Security

If you can afford to wait until 70, you'll be better off

by Jane Bryant Quinn, AARP Bulletin, August 30, 2017 | Comments: 36

JOHN VOGL

Nurture your Social Security nest egg longer for more financial security later in life.

I usually encourage people to wait until age 70 before taking Social Security retirement benefits. By waiting, you get the maximum payout. Your monthly check will be at least 76 percent higher than if you started as soon as you qualified, at age 62. If you’re married and die first, waiting will also provide your spouse with a larger survivor’s benefit.

Many people need the money, so they start their benefits at 62. But what about those with substantial investment portfolios? Even if they can afford to wait, would they come out ahead if they claimed at 62 and invested those benefits for growth? 

I put this question to Bill Reich­enstein, a professor of finance at Baylor University in Waco, Texas, and cocreator of one of the most powerful Social Security calculators. He adjusted for various taxes (for example, the probable tax on a higher-income investor’s Social Security income) and assumed a 2 percent annual cost-of-living increase in benefits. After running several cases at the national average life expectancy for people who are 62, he found that they all produced the same answer: Financially, it’s better to wait. 

For example, say that you claim at 62 (accepting a much smaller check for starting early) and put the money into a nest egg invested half in stocks and half in bonds. You decide not to tap your savings to replace that Social Security income. You’d rather hold your income down so you can build your investments up. At 70, you start drawing on that nest egg, taking the monthly benefit you would have gotten if you had waited until 70 to collect. How long will your invested Social Security money last, after tax? 

Oops, only until age 81. That just about matches national life expectancy. But on average, people in the top two-fifths of the income range live longer than that. For a 50-year-old, that’s nearly 89 for men and 92 for women. Roughly half of the well-to-do will probably exceed even that extended age. Your invested nest egg will run out, leaving you only the discounted Social Security benefit that you took at 62.

Here’s another example. Say that, at 62, you decide to start your benefits and invest them but hold your income level by drawing an equal amount out of your IRA to help pay your bills. The result is about the same — your nest egg will run out before you reach your average extended life expectancy. What’s more, claiming at 62 could raise the percentage of your Social Security benefits subject to tax, Reichenstein says.

You might think you can beat the system by investing more of your Social Security benefit in stocks and less in bonds. Maybe stocks will soar, creating a nest egg that lasts until you’re 88 or older. But there’s also a greater risk of earning even less than Social Security would pay. 

You might consider starting at 62 and investing the benefits if you and your spouse are sure you’ll never need the money. That way, your heirs will inherit the account if you die early. If your health is poor, you might also start at 62, assuming your spouse will never need a larger survivor’s benefit. 

But if you think that investing your benefits will beat the lifetime returns that Social Security pays, well, you can always dream.

https://www.aarp.org/money/credit-loans-debt/info-2017/when-to-take-social-security-jbq.html

How Trump’s Latest Plan to Cut Drug Prices Will Affect You

The proposal seeks to lower out-of-pocket spending in Medicare by taking aim at the secret deals that drug makers strike with industry go-betweens.

President Trump, with Alex M. Azar II, the secretary of health and human services, in October, discussing a plan to reduce prescription drug prices.CreditSarah Silbiger/The New York Times

President Trump, with Alex M. Azar II, the secretary of health and human services, in October, discussing a plan to reduce prescription drug prices.CreditCreditSarah Silbiger/The New York Times

By Katie Thomas and Reed Abelson

Feb. 5, 2019

The Trump administration has made lowering drug prices one of its top priorities, and last week it unveiled a proposal that could vastly rewrite the way drugs are sold in the United States.

The proposal takes aim at the secret deals that drug companies strike with pharmacy benefit managers, the industry intermediaries that negotiate the price of drugs for insurers and large employers.

These after-the-fact discounts, called rebates, have come under harsh criticism and are blamed for helping to push up the list price of drugs, which consumers are increasingly responsible for paying.

Under the proposed rule, released on Thursday, pharmacy benefit managers would lose the legal protections that allow them to accept rebates from drug companies for brand-name drugs covered under the Medicaid and Medicare government programs. Any such discounts would instead have to be credited at the pharmacy counter when patients fill a prescription.

The Trump administration says this could result in significant savings for people 65 and older, who increasingly have been forced to pay out-of-pocket costs based on the rising list prices of drugs. People who are covered by Medicaid, the health care program for low-income Americans, generally pay little to nothing out-of-pocket.

If carried out, the plan is likely to upend the overall market for prescription drugs. Drugs paid for through Medicare accounted for 30 percent of the nation’s retail drug spending in 2017, according to the Kaiser Family Foundation.

But whether the rule will ultimately be adopted is still unclear. It faces an intense lobbying battle — and perhaps a legal one — from the pharmacy benefit managers, and the politics will also be tricky.

I have a Medicare prescription drug plan. How will this affect me?

Let’s answer this question with a question: Do you take an expensive medication for a chronic condition?

If you need expensive drugs, your out-of-pocket costs are likely to go down. Under the current system, your deductible and any coinsurance — a requirement that you pay a percentage of a drug’s cost yourself — is based on something close to a drug’s list price.

Under the new plan, those amounts would be based on a lower net price, or the cost after discounts had been deducted. The proposal estimates that seniors’ monthly out-of-pocket drug costs would decline, on average, $1.70 to $2.74 a prescription in 2020.

That average, however, obscures the significant savings some people will see if they have extremely high drug costs: Some could save about 30 percent on their out-of-pocket costs, the administration estimated.

Not everyone will benefit. Pharmacy benefit managers secure rebates only when there is competition between manufacturers who sell similar brand-name drugs, like two kinds of blood pressure medications.

But many costly drugs — cancer treatments, for example — have little or no competition and carry either no rebates or small ones. Patients needing these drugs would not see extra savings.

If you don’t take expensive drugs, your monthly costs are likely to rise because premiums will go up. Insurers would no longer be able to apply rebate money from the drugs to lower premiums.

The typical Medicare beneficiary will see costs rise $2.70 to $5.64 a month, estimates indicate.

About one-third of people with Medicare drug plans will directly benefit from lower out-of-pocket costs, but it’s unclear how the other two-thirds will see an advantage. That’s why some consumer groups, such as AARP, have opposed similar proposals.

The trade-offs — slight increases in costs for most people and sizable help for those who need expensive drugs — would make the system more fair, proponents contend.

After all, insurance typically works by spreading the high costs of caring for a few across a large group, including healthy people. Patients needing very expensive treatments do not pay the full cost.

I regularly reach the so-called doughnut hole, or Medicare coverage gap. Will this help me?

Seniors enter the Medicare coverage gap — requiring them to pay for a bigger share of their drug costs — once spending for their medications exceeds $3,820 in a year.

With lower net prices under the new plan, many seniors wouldn’t reach that threshold until later in the year, and some wouldn’t reach it at all.

Fewer people would also reach the “catastrophic phase,” once out-of-pocket drug spending exceeds $5,100, at which point the federal government picks up much of the bill. Seniors must still pay 5 percent of a drug’s cost, but that too would be based on the lower net price.

Drug makers are expected to benefit because they must help pay for the costs of drugs once seniors enter the doughnut hole. If fewer people reach the doughnut hole, the companies pay less. And if fewer people enter the catastrophic phase, the government would save money, too.

Will this end up costing taxpayers more or saving the government money?

The Trump administration says that a lot will depend on how companies react. If the plan takes effect next year, it could cost the government an extra $2.8 billion to $13.5 billion that same year.

But longer-term projections indicate that the plan could wind up saving the government nearly a hundred billion dollars, if drug spending and drug pricing methods change.

“It’s clear from the proposal that the administration is genuinely unsure about how pharmaceutical companies and insurers and P.B.M.s will respond to this proposal,” said Rachel Sachs, an associate professor of law at Washington University in St Louis.

How would this affect the 156 million Americans who are insured through an employer?

The short answer is it wouldn’t — at least directly. The only way rebates could be eliminated entirely for all insurance plans, including those provided by an employer, would be for Congress to pass legislation.

Many companies are already introducing plans that allow employees to share in some, if not all, of the discounts when they go to the pharmacy counter.

About a quarter of large employers expect to have a program like that this year, according to the National Business Group on Health, which represents large employers, and the largest pharmacy benefit managers are already working with large companies to pass on savings.

How likely is this to happen?

Industry analysts are generally skeptical the administration will be able to get these proposals in place by 2020. Although the drug industry has come out in favor of the plan, pharmacy benefit managers are likely to pursue legal action against it.

In addition, Speaker Nancy Pelosi and other powerful Democrats have already voiced opposition. “The Trump administration’s rebate proposal puts the majority of Medicare beneficiaries at risk of higher premiums and total out-of-pocket costs, and puts the American taxpayer on the hook for hundreds of billions of dollars,” Speaker Pelosi said in a statement.

You can also expect heavy lobbying from the nation’s largest insurers, since they are now joined at the hip with the pharmacy benefit managers. Aetna is now part of CVS Health, Cigna owns Express Scripts, and both Anthem and UnitedHealth Group have in-house pharmacy operations.

These combined companies “have a bigger voice at the table,” said Ana Gupte, an analyst at SVB Leerink.

I’m still confused. Can you give me an example?

In a speech last week, Alex M. Azar II, the health and human services secretary, pointed to the story of a woman named Sue, whose annual income was $24,000 a year and who could not afford the $7,200 a year in out-of-pocket costs for a drug to treat a genetic skin condition.

“This backdoor system of kickbacks isn’t set up to serve Sue, and it isn’t set up to serve you, the American patient,” Mr. Azar said in remarks to the Bipartisan Policy Center.

But Sue’s case underscores how any one proposal to fix high drug prices is unlikely to solve the broader problem. (This is one of several proposals the Trump administration has put forward in the past year.)

Sue’s out-of-pocket costs would fall, but perhaps not enough to make a difference in her budget: After a 33 percent discount, her out-of-pocket costs would still be $5,544 per year.