What Federal Annuitants Need to Know About the FEHB Program and Income Related Part B Premiums
Historically, the taxpayer has funded three-fourths of the Medicare Part B premium and the enrollee has paid only one fourth of the cost. Under current law, however, some higher income enrollees pay more than the traditional one-fourth share.
This only affects individuals with Adjusted Gross Income (AGI) of $87,000 or more, and married couples filing jointly with income of $174,000 or more. These thresholds are not adjusted for inflation. The actual calculation includes adding some forms of income, such as tax-exempt interest income, to AGI. In 2021 the resulting annual Part B premium will range from about $2,600 for individual AGI of $87,000 to $110,000 and increase in steps to almost $6,000 for income of more than $500,000. The corresponding amounts for married couples filing jointly are twice as high.
There are additional factors that may determine whether this affects you. For example, if you marry or divorce or suffer a casualty loss you may become exempt. If your income fluctuates from year to year you may be subject to the increase one year but not the next (generally, the calculation is based on your AGI two years previously). If you have just retired with previous income above these thresholds, it is very important to apply to the Social Security Administration to use your lower retirement income to reduce or eliminate the higher premium. The premium calculation is made based on your income two years ago, which for many is a much higher pre-retirement amount, unless you apply for an adjustment. The "bottom line" is that if your income is above these thresholds and likely to remain there, the case for enrolling in Medicare Part B becomes far weaker. Dropping Part B will not affect your continued premium-free enrollment in Part A. The sensible solution for many high-income annuitants will be to drop out of Medicare Part B and rely on your FEHB plan. Why pay more than $2,000 annually for a Part B benefit that rarely results in reduced cost sharing of more than a third of that amount? You can read more on this subject here, "Should Federal Annuitants Enroll in Medicare Part B after Age 65?"