Medicare Means Testing

As more baby boomers turn 65, Medicare enrollment is projected to swell from 57 million in 2016 to around 64 million in 2020 and 81 million by 2030.1

In 2015, legislation known as the “Doc Fix” changed the formula used to reimburse physicians for Medicare services, offering a long-term solution for one of Medicare’s most pressing fiscal challenges. Once again, the costs were offset by raising Medicare premiums for some higher-income retirees.2

Income-related Medicare premiums reduce strain on the federal budget by imposing higher costs on beneficiaries with greater financial means. Now more than ever, it is important to consider your health insurance options carefully and to factor rising health-care costs, including potential Medicare surcharges, into your retirement planning.

Medicare Maze
Original Medicare consists of Part A hospital insurance and Part B medical insurance (for physician services, outpatient care, and lab tests). These programs are administered directly by the federal government and have standardized services, premiums, and deductibles.

Two additional forms of coverage are offered by Medicare-approved private insurance companies and have varying premium costs and benefits. Part C Medicare Advantage is an alternative to Original Medicare, and plans often include prescription drug coverage and other benefits. (Participants must still pay Part B monthly premiums.) Part D Prescription Drug Coverage can be purchased by people who have Original Medicare or Medicare Advantage Plans that do not offer drug benefits.

Those enrolled in Original Medicare also have the option of purchasing Medicare Supplement Insurance (Medigap), which is offered by private insurance companies. Medigap insurance helps cover out-of-pocket costs such as deductibles, copays, and coinsurance (up to plan limits).

Enrollment Windows
Most people sign up for Medicare when they turn 65. Medicare Part A is premium-free for most beneficiaries, but Part B requires monthly premiums, so workers who are covered by an employer-sponsored health plan might wait before signing up for Part B. 

Coverage changes can be made during Medicare’s Open Enrollment period from October 15 to December 7 each year.

Though you can enroll in a Medigap plan at any time, the best time to do so is during the initial Medigap open enrollment period — the six-month period that begins on the first day of the month in which you are 65 or older and enrolled in Medicare Part B. During this time, you can buy any Medigap policy sold in your state for the same premium the company charges to healthy enrollees, even if you have health problems.

Higher Premiums
Means testing for Part B began in 2007 after passage of the Medicare Modernization Act in 2003. A provision of the Affordable Care Act established income-related premiums for Part D.

Income-related Medicare premiums are based on modified adjusted gross income (MAGI). Individuals with MAGIs above $85,000 ($170,000 for married couples) may already be paying surcharges for Part B and Part D coverage. Beginning in 2018, Medicare beneficiaries with incomes between $133,501 and $214,000 ($267,001 and $428,000 for married couples) will be required to pay higher Part B and Part D surcharges than they currently do. It’s estimated that these higher surcharges could cost the average affected individual about $1,000 per year ($2,000 for a married couple).3

Faced with rising health-care costs, more cost sharing, longer life expectancies, and diminishing health-care benefits, future retirees could see a growing portion of their budgets consumed by health care. Creating a long-term plan to save for, manage, and reduce medical costs could help strengthen your financial position in retirement.

1) Medicare Trustees Report, 2016
2–3) MarketWatch, September 1, 2015


The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.

Tony Fazio, CFP® is a Minneapolis, Minnesota Based Financial Planner
4770 Regents Walk Excelsior, MN 55331
Phone: (952) 470-1660 (800) 419-7377 Fax: (888) 241-0848

Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity.


4770 Regents Walk
Excelsior, MN 55331
(952) 470-1660
(800) 419-7377
Fax (888) 241-0848


Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER and CFP logo , which it awards to individuals who successfully complete initial and ongoing certification requirements.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisors LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every representative listed. For additional information please contact the representative(s) listed on the site, visit the Cetera Advisors LLC site at


The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

We are licensed to sell Insurance Products in IA,MN,WI.

[ Online Privacy Policy | Important Disclosures | Business Continuity | Privacy Promise | Order Routing Disclosure | Cetera Advisors ]