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Medicare is a federal health insurance program for adults over the age of 65 and for those with certain disabilities or diseases. It is a vital component of the financial and health security of 60 million older adults and disabled people under the age of 65. It covers several primary medical services, including doctor visits, hospital stays, and prescription medications.
What is Medicare? What are its components and coverage?
Original Medicare consists of Part A (Hospital Insurance) and Part B (Medical Insurance). Part A, or hospital insurance, covers inpatient hospital costs, including costs of hospitals and a limited skilled nursing facilities benefit. Part B, or the medical insurance, covers outpatient care and medical supplies. Part D is an optional program that covers the cost of prescription drugs (including many recommended shots or vaccines).
The Medicare program is not free, though. Allow us to walk you through the process of selecting a payment scheme based on your income and describe details of the Medicare premium calculation.
What is a Medicare premium?
To enroll in a Medicare health plan, you must contribute a monthly amount known as the Medicare monthly premium. Most people don’t have to pay a premium for Part A as they or their spouses have been paying their Medicare taxes while they were working. If you (or your spouse) haven’t paid enough Medicare taxes, you may be able to buy Part A when you are eligible for Medicare.
The majority of people, however, must pay a premium for parts B and D. Coinsurance or the cost-sharing between you and your health care plan is applicable in Part B of Medicare.
Are Medicare premiums based on income? What is the Medicare premium income level?
The monthly Medicare premium is determined by income. Your Modified Adjusted Gross Income (MAGI) determines your Medicare premium. MAGI refers to your total adjusted gross income plus tax-free interest, as determined by the Internal Revenue Service based on the most recent tax data collected by Social Security (IRS). If you have higher earnings, you will be charged comparatively higher premiums for Medicare Parts B and D. An “Income-Related Monthly Adjustment Amount” (IRMAA) is the name given to this additional amount. The Modified Adjusted Gross Income for Medicare is allocated based on social security reports.
What income is used to determine Medicare premiums?
Your MAGI determines your monthly Medicare premium. If your MAGI from two years ago is lower, you will remain in the low-income category and pay a lower premium. For example, if your MAGI in 2022 was less than or equal to $103,000 for an individual taxpayer and $206,000 for a married couple, the standard monthly premium will be $174.70 in 2024. The Social Security Department receives the MAGI data and sends the individual a letter informing them of the allocated premium amounts.
At what income level does Medicare premium increase?
The Social Security Department uses the most recent federal tax return from the IRS to determine the Medicare premium for an individual. The federal tax return determines a person’s income in a particular year. The following rates for monthly premiums are applicable for 2024.
| File individual tax return | File joint tax return | File married & separate tax return | Part B monthly premium amount | Part D monthly premium amount |
| $103,000 or less | $206,000 or less | $103,000 or less | $174.70 | Your plan premium |
| above $103,000 up to $129,000 | above $206,000 up to $258,000 | Not applicable | $244.60 | $12.90 + your plan premium |
| above $129,000 up to $161,000 | above $258,000 up to $322,000 | Not applicable | $349.40 | $33.30 + your plan premium |
| above $161,000 up to $193,000 | above $322,000 up to $386,000 | Not applicable | $454.20 | $53.80 + your plan premium |
| above $193,000 and less than $500,000 | Above $386,000 and less than $750,000 | Above $103,000 and less than $397,000 | $559.00 | $74.20 + your plan premium |
| $500,000 or above | $750,000 and above | $397,000 and above | $594.00 | $81.00 + your plan premium |
What are the Medicare premium rules for higher-income beneficiaries?
Parts B and D will require an additional premium amount if your income is higher. You will bear a greater share of the overall cost of Part B. You’ll pay monthly Part B premiums equal to 35, 50, 65, 80, or 85% of the total cost, depending on what you report to the IRS. You will pay a monthly premium plus an additional amount for Part D as well. This amount will be added to the base premium. The Social Security Department deducts this amount from your monthly Social Security payments regardless of how you usually pay your monthly prescription plan premiums.
FAQs
Do Medicare premiums change each year based on income?
The amount of your tax return filed with the IRS determines which premium category you belong to and your monthly premium. If your income changes, so will your premium category, and your monthly premium changes accordingly.
What is the Medicare adjustment for high-income?
If you have a high income, you will be required to pay an additional premium, also known as an Income-Related Monthly Adjustment Amount (IRMAA).
Do capital gains affect Medicare premiums?
Your social security may become taxable if the assets generate additional income in the form of dividends or interest. Additionally, this will raise your monthly premium for Medicare.
What are the additional Original Medicare costs?
Remember that Original Medicare premiums are just one part of Medicare costs. To have a more complete picture of your Medicare costs, you should look at the deductible and copayments or coinsurance. To estimate your expected expense use a platform like Hella Health, where you can see your estimated minimum cost.
The general rule of thumb for Original Medicare is that after you’ve paid your deductible, you’ll pay 20% for each Medicare-covered service or item, with Medicare covering the rest.
What about Medicare Advantage premiums?
Now, the premiums for Medicare Advantage are calculated by private insurance companies, depending on the plan. That premium is on top of Part B. If the plan includes prescription drug coverage, there wouldn’t be a need to pay Part D premium in that case.
Unlike Part B, there is no set price for Medicare Advantage. Some Medicare Advantage plans have monthly premiums as low as $0, while others have monthly premiums that exceed $100.
Plans that provide coverage comparable to the standard Plan A and Plan B options may have little to no additional premium. However, some plans will likely have a higher premium, depending on the deductibles and maximum out-of-pocket, or whether it’s a PPO or HMO plan (the latter tends to be cheaper). You must still pay your monthly Medicare Part B premium in addition to your Medicare Advantage plan premium.
Article updated on October 16, 2023.
