Why Did My Medicare Premium Just Go Up?

by Siobhan Lukowsky, CPA

We frequently receive calls and emails from our clients every year when they receive notification from Social Security regarding changes to their Medicare Premiums. Set and stable prices for basics such as health insurance, especially Medicare Premiums, are items that a retired taxpayer might reasonably expect. Yet significant changes in Medicare premiums are actually common, and they can be quite a shock to the unsuspecting retiree who has carefully made a place in their budget for a specific, predictable, monthly sum.

The surprise factor most commonly stems from increases to your income. However, the lag time between a change in income and a change in premium causes even more confusion. Social Security bases its calculation of your income for purposes of the 2017 premium for Medicare Part B on information it gathers from your 2015 tax return. That means the increased income shown on your 2015 returns determines the increase to your 2017 premium. Of course, 2015 may have been a very unusual year, with increases in capital gains or one-time separation payments from an employer, or the like.

Confusion also stems from the way in which Social Security computes your income. It does not use Adjusted Gross Income, or AGI, or even Taxable Income. Instead, it starts with your AGI and adds to it your tax-exempt interest income, coming up with what it calls your Modified Adjusted Gross Income or MAGI.

Everyone must pay for increases in the standard monthly premium which has been increased from $121.80 to $134 per month for 2017. Using your MAGI, Social Security increases your premium based on the income ranges as shown in the table below.

If you are Single, and your 2015 MAGI was: If you are MFJ, and your 2015 MAGI was: Then your total monthly premium in 2017 is: The increase over your 2016 monthly premium is:
< or = to $85,000 < or = to $170,000 $134.00 $12.20, or about 10%
Between $85,000 and $107,000 Between $170,000 and $214,000 $187.50 $17.00, or about 10%
Between $107,000 and $160,000 Between $214,000 and $320,000 $267.90 $24.30, or about 10%
Between $160,000 and $214,000 Between $320,000 and $428,000 $348.30 $31.60, or about 10%
Greater than $214,000 Greater than $428,000 $428.60 $38.80, or about 10%

Using this information, hopefully you will be able to set a more accurate budget or have a better understanding of your Medicare premiums.