Which Medicare Plans Make Sense for High Earners?
When signing up for Medicare, you will have many options that range from Original Medicare to private plans, supplemental options and prescription drugs. But which combinations of coverage makes the most sense for you can vary depending on your income level. High earners should be wary of income limits that will impact certain premiums and coverage choices.
- Written by Christian Simmons
Christian Simmons is a writer for RetireGuide and a member of the Association for Financial Counseling & Planning Education (AFCPE®). He covers Medicare and important retirement topics. Christian is a former winner of a Florida Society of News Editors journalism contest and has written professionally since 2016.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Reviewed ByMichael Jones
Michael Jones is a licensed insurance agent who manages his own agency called Grand Anchor Insurance Solutions. In addition to being a Medicare expert, Michael specializes in other insurance products such as voluntary benefits for employees of businesses.Read More
- Published: December 12, 2022
- Updated: December 20, 2022
- 6 min read time
- This page features 2 Cited Research Articles
- Edited By
How Your Income Impacts Your Medicare Premiums
Your income level can play a significant role in how your Medicare premiums are calculated. Premium levels are identical for most beneficiaries, but high earners must be wary that they will be required to pay more for some options.
Not all parts or types of Medicare are affected by your income level, and this can be important to consider when comparing your options.
What Are Income Limits?
To understand income limits and how they impact you, you first need to understand the basics of Medicare. Original Medicare is provided by the federal government. It is made up of Part A, which covers inpatient care and hospital stays, and Part B, which covers outpatient care, treatments and services.
There are also private options. Part C (or Medicare Advantage) refers to plans that are sold by private insurers. Part D is another form of private insurance that offers prescription drug coverage.
And there is also Medigap, which is a type of supplemental insurance that can be paired with Original Medicare.
For some parts of Medicare, what you pay is tied to your income level. Part A is free for the vast majority of beneficiaries, but Part B comes with a monthly premium of $164.90.
But that premium rises if you are past a certain income level. In 2023, if you filed an individual tax return of more than $97,000 or a joint tax return of more than $194,000, then you will face a higher cost each month. And the jumps can be dramatic.
Say, for example, that you filed an individual tax return of $95,000. You would not be required to pay a higher premium and would end up spending $1,978.80 on Part B in the course of a year.
But if you made just $5,000 more than that, bringing in $100,000 in a year, then your monthly premium would be adjusted to $230.80. This means you would have to spend about $791 more on Part B that year.
|Individual Return Amount||Joint Return Amount||Monthly Premium|
|$97,000 or less||$194,000 or less||$164.90|
|$97,000 to $123,000||$194,000 to $246,000||$230.80|
|$123,000 to $153,000||$246,000 to $306,000||$329.70|
|$153,000 to $183,000||$306,000 to $366,000||$428.60|
|$183,000 to $500,000||$366,000 to $750,000||$527.50|
Unlike with Part C or Medigap, there isn’t a way around paying the Part B premium. If your income is a certain level, your premiums will increase accordingly.
The other subsection of Medicare that includes an income adjustment is Part D, which covers prescription drugs. Since these are private plans, the base premium varies, but the U.S. Centers for Medicare & Medicaid Services creates set income related adjustments. According to CMS, the adjustments affect 8% of beneficiaries.
The set income levels are the same as they are for Part B, with the added monthly amount varying from $12.20 for those in the individual $97,000 to $123,000 bracket to $76.40 for those making $500,000 or more.
Can You Reduce Your Premiums?
Simply put, you cannot reduce your premiums without reducing your income. There is no workaround. If your tax returns exceed a certain threshold, then you will be charged an increased premium.
If you file an individual tax return of $182,000, then you will pay an additional $3,164.40 for Part B over the course of a year than someone who is unaffected. You’ll also pay a total adjustment of $608.40 on top of your Part D premium.
But if you bring in just $2,000 more that year, getting to $184,000, things will look different. You’ll move into the next bracket, meaning your combined income adjustments will grow by an annual total of more than $1,400.
For that reason, it’s important to be aware of where you are in your bracket and monitor your income, especially if you are relying on irregular or adjustable income such as with freelance and consulting work.
There is a circumstance where your premium could change mid-year. If you were a high earner and need your premiums to decrease because of a life circumstance that led to you no longer making that amount of money, you may be able to get help.
According to AARP, your premium can be reviewed and potentially lowered if you faced a life-changing event that dramatically impacted your income and moved you into a different bracket.
What Plans Make Sense for You?
What Medicare plans and options make the most sense for you can vary depending on your income but will also depend on the health coverage that you need and what options best fit your lifestyle.
High earners have a few different options when examining their coverage choices. They can focus on choices that help minimize the additional money they are spending on premiums, or they can use their earnings to justify enrolling in high-quality plans with many benefits.
Original Medicare, Part D and Medigap
Your first option is to stick with Original Medicare and add coverage to it in the form of a Part D plan and Medigap. In this scenario, if you are a high earner, you will face both the adjusted Part B premium and Part D premium.
Remember that you are not required to have a Part D plan if you are on Medicare. But it may make sense to add a plan even with the income adjustments since prescription drugs can quickly become very expensive. If you choose to sign up for a Part D plan after your initial enrollment period, you will be charged a late enrollment penalty for the amount of time that you went without it.
The benefit of opting for Original Medicare and pairing it with Medigap and Part D is more control over where you receive your coverage. You can visit doctors or receive treatment anywhere that accepts Medicare.
This can be a particularly important advantage if you split your time between different locations or parts of the country. Medigap also allows you to receive care outside of the United States if you spend time abroad.
Medicare Advantage plans are your other option. Unlike Original Medicare, you don’t have to worry about balancing different plans, since many private plans include Part D coverage and Medigap cannot be paired with them.
If you are looking to make up for income-adjusted premiums, Medicare Advantage could be one way to do so. Many private plans offer $0 premiums that are paired with additional benefits, such as vision, hearing and dental.
High earners, however, could consider more expensive private plan options that may not be as feasible to others. Some Medicare Advantage plans come with significant additional premiums but include favorable costs and many additional benefits that can take on a lot of different forms.
The trade off with Medicare Advantage is that beneficiaries often remain within the plan’s network to receive care. If you travel often, then this may cause problems.
2 Cited Research Articles
- AARP. (2022, September 27). My Medicare premiums went up because of my income from two years ago. My income has since gone down. Is there anything I can do? Retrieved from https://www.aarp.org/retirement/social-security/questions-answers/medicare-premium-irmaa.html
- U.S. Centers for Medicare & Medicaid Services. (2022, September 27). 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts. Retrieved from https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly
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