Understanding Medicare premiums

Older adults preparing to retire and sign up for Medicare often have questions and misconceptions about the program and its costs. Is Medicare free? How do they determine your monthly premium?
While there are $0 Medicare Advantage plans, Medicare is not “free” for anyone, and how your premium is computed is not a mystery.

The ABC(D)s of Medicare
Medicare consists of 3 different parts that cover different types of care:

• Part A — provides hospital insurance

• Part B — covers costs for doctors’ services, outpatient care and medical equipment

• Part D — covers prescription drug costs

Original Medicare includes Part A and Part B. You can sign up for extra coverage with a Medigap plan, which offers to pay for certain health care costs that aren't covered by Medicare. You can also sign up for prescription drug coverage with a Part D plan.
Medicare Advantage plans, on the other hand, are an all-in-one alternative to Original Medicare — they include Part A, Part B and, usually, Part D. Some Medicare Advantage plans also provide extra benefits, such as vision, hearing or dental care, that aren’t covered by Original Medicare.
Medicare Advantage is also known as Part C. Some Medicare Advantage plans charge no additional premium — you only have to pay your Part B premium.

Calculating your Part B premium
Medicare offers 4 different income-based programs that can help pay the Part B (outpatient care), copays and coinsurance. To arrive at the Part B premiums:

• Medicare uses the modified adjusted gross income as reported on your IRS tax return 2 years prior to determine your premium.

• This premium is calculated annually and Medicare sends a letter every year letting you know what your premium will be the following year.

As you move on in your retirement, the Medicare Part B premium will change when the modified adjusted gross income reported reflects only retirement and Social Security income. Your employment income will drop from the equation in the third year of retirement for the calculation.
Want to know more about Medicare? Sharp offers free, virtual classes. Register for “Understanding How Medicare Works” by calling 1-800-82-SHARP or signing up online.