The maze of government rules can create unexpected outcomes. And that's certainly the case for 2018 Medicare premiums. While the standard Part B premium remains $134 a month, many beneficiaries will pay more for Part B. The culprit in this counterintuitive result? The hold-harmless provision.
Last year, this provision had a positive effect for most beneficiaries. For those whose Medicare premiums are automatically deducted from Social Security, the rule prevents premiums from rising more than the amount added to benefits by the annual cost-of-living adjustment.
In years when there is no Social Security COLA or a minimal COLA, such as 2017's 0.3%, Medicare premiums are reined in. Although the standard Part B premium for 2017 was $134 a month, the tiny COLA meant many people continued paying about $109 a month.
But inflation heated up slightly in the past year, resulting in a 2% COLA for 2018. That may still not seem like much, but for about 42% of beneficiaries it's enough to allow cover for Medicare premiums to rise to $134. One Retirement Report reader in this boat says he was disheartened to see the significant jump in his monthly Part B premium for 2018.
Hold-harmless is still kicking in for about 28% of beneficiaries in 2018. For those with lower Social Security benefit amounts, the 2% COLA isn't enough to let their Part B premiums rise all the way to $134. They'll pay less than the standard amount.
Groups that aren't held harmless, such as those who don't deduct their Medicare premiums from their Social Security benefits or new Medicare enrollees, will pay the standard $134 a month.
Some high incomers face surcharge spike
There's one other group not protected by the hold-harmless rule: high incomers. And they will pay premiums significantly higher than the standard amount, up to about $429 — and that's just for Part B. High incomers also face a surcharge as high as about $75 a month on Part D premiums. The surcharges for Parts B and D begin to kick in when adjusted gross income plus tax-exempt interest is more than $85,000 if single or $170,000 for married couples filing jointly.
While the premium surcharge amounts for Part B remain the same for 2018 (and are slightly lower for Part D), the income thresholds in the three highest tiers drop — subjecting some high incomers to higher costs. In 2017, for example, an individual with $140,000 of modified adjusted gross income would have been in the second tier, which ranged from $107,001 to $160,000, and charged about $268 a month.
But in 2018 that individual moves to the third tier, which ranges from $133,501 to $160,000, and will pay about $348 a month — a spike of about 30% due solely to the shifting income thresholds. See the box for 2018 details.
If you're threatened by an income-related surcharge, check to see if you qualify for relief. The government determines who owes surcharges by looking at tax returns from two years ago. So 2018 surcharges are based on income reported on 2016 returns.
If your income has dropped as a result of a qualifying life-changing event, such as death of a spouse, divorce or retirement, you can ask for relief, and the government will use your income from a more recent tax year to determine if you have to pay the surcharge. File Form SSA-44 with the Social Security Administration to request relief and provide documentation of the qualifying event. Learn more at socialsecurity.gov.
But note: A spike in income, such as from the sale of a house, is not considered a life-changing event. If your income spiked in one year but fell the next, you'll pay the surcharge until the lower year's tax return is used to determine your premiums.