Medicare Part B Rate Hikes

In 2009, the basic charge for the Medicare B premium is $96.40/month. Historically, the premium increases were fair and equal across the board. BUT BE WARNED! They may be going WAY UP! Under a new law, people with higher incomes will pay higher premiums. Worse yet, this law is already in effect.

For single taxpayers, annual incomes over $80,000 or married taxpayers with incomes over $160,000, mean 2009 Medicare premium of over $106/month. That is more than a 13% increase in one year. As your income increases, so will your Medicare premiums. If you are high income ($200,000 or more) the increase over just 2 years could be HUGE. Singles may pay as much as $400/month and spouses might pay as much as $800 monthly each!

Under the current law, Medicare now will look at your income tax return from 2 years earlier to determine the current premium amount. For example, you sell some of your stock that has appreciated in value and the reported gain will add to your 2009 income and you have to pay extra income tax. Plus, in the year 2011, when your income has reduced to more normal levels, you will be hit with an enormous Medicare Part B premium: the end result of artificially high income in 2009.

Sometimes there is little that you can do to prevent income increases. For example, if your retirement income is increased by the cost of living, you may not have any control over the amount or timing of the increases. You may end up with your increased income more than offset by higher Medicare premiums. SO MUCH FOR YOUR "COST OF LIVING" RAISE!

But, there is tax planning that you may be able to undertake to reduce these increased premiums. First, if you are already on Medicare, income tax planning done in 2009 can raise or lower the Medicare premiums you'll pay in 2011. For example, if you're selling a second home or other appreciated property, you may also want to sell investments that have gone down in value, so you can offset the gains by the losses. Along the same lines, if you expect your income to decrease in 2011 and therefore you would like to reduce your Medicare B premiums for that year, you might want to sell some investments with losses now, in order to reduce your 2009 income.

Second, if you are not yet on Medicare, you may want to think about boosting your income more than 2 years before you reach age 65. For example, if you're 62 or younger, now may be a good time to sell appreciated assets or to convert your regular IRA to a ROTH IRA. Then, the increase in income will be more than 2 years before the first calculation of your Medicare premium, and will not affect the amount of your premiums.

Keep in mind that you have to plan 2 or even more years in advance, so don't wait. NOW IS THE TIME FOR ACTION!