Navigating the Intricacies of Medicare, Part II


Changes to Medicare premiums and how they can impact your retirement.


By Andy Fass
Senior Vice President
Wealth Management Branch Manager
HilltopSecurities Inc.



It may not surprise you that Americans continue to spend more of their income on health care each year. In fact, the Centers for Medicare and Medicaid Services (CMS) recently reported a 4.6 percent increase in health care spending by $3.6 trillion in 2018, or $11,172 per person. Furthermore, CMS anticipates spending to reach $6 trillion by 2027.

For retirement-age Americans, Medicare insurance is designed to soften the impact of health expenses by providing a degree of financial security. However, beneficiaries are still subject to premiums, deductibles, and copayment rates, and the policies dictating beneficiaries’ financial responsibility change annually.

Whether you’re heading toward retirement or already enjoying it, staying current on the Medicare’s modifications can help you anticipate the cost of health care and budget your retirement income accordingly.

To help you plan ahead and achieve the retirement you envision, I’ve outlined how some upcoming changes to Medicare premium surcharges will impact current and future retirees below:

Medicare Premium Surcharge Adjustments
On Jan. 1, 2020, the income thresholds used to dictate premium surcharge amounts will be indexed to inflation for the first time since 2011. The surcharges, also known as Income Related Monthly Adjustment Amounts (IRMAA), are additional Medicare premiums that high-income beneficiaries must pay to help generate revenue for the Medicare Trust Fund.

The Social Security Administration uses beneficiaries’ marital status and modified adjusted gross income (MAGI) from the last two years to place them in one of six IRMAA brackets, which defines how much they’ll owe in monthly surcharges.

In 2019, single beneficiaries with incomes over $85,000 and married couples with an income over $170,000 were considered “high-income” and paid $189 in total monthly premiums.1 Because the IRMAA brackets have been re-indexed for 2020, the new thresholds will be increased to $87,000 for single beneficiaries and $174,000 for married beneficiaries. While income ranges and premiums will be higher for 2020, a subscriber’s income would also need to increase to face surcharges or fall into higher IRMAA tiers.

Impact on Retirees
The Social Security Administration indexed the new 2020 IRMAA brackets to the Consumer Price Index for Urban Consumers (CPI-U) and will continue to use the inflation metric to recalculate them again in subsequent years. Because the Congressional Budget Office projects the average annual change in CPI-U will be 2.4 percent, the income thresholds will increase each year. However, this won’t ensure fewer Americans will face surcharges since the average increase to the Average Wage Index (AWI) – the inflation metric for income growth – is projected to be about 4.2 percent each year through 2028.2

Since indexing will likely fall short of income, this could make health care more expensive for many retirees each year. If the CPI-U increases at a slower rate than the AWI, it will force more Medicare subscribers to pay surcharges over time as more Americans fall into the high-income range. Additionally, some high-income beneficiaries could reach higher brackets, requiring them to pay larger surcharge amounts.

Furthermore, since the new IRMAA legislation will likely reduce the number of beneficiaries paying surcharges, the new policy will also reduce revenue to the Medicare Trust Fund. To offset any revenue shortfalls, Medicare may increase cost sharing for subscribers, lower the income thresholds, or reduce coverage options. For example, the CMS has already announced Medicare Plan F, a popular option with no deductible, will no longer be available to new subscribers in 2020.

While re-indexing the IRMAA brackets in 2020 may initially reduce the number of people subject to high-income premiums, the new legislation’s long-term effect may yield financial consequences for unprepared beneficiaries. Anyone moving toward retirement or currently in retirement should be conscious of the new IRMAA legislation and future changes to Medicare. As the federal insurance program finds ways to earn revenue and secure its funding, they will likely push more financial responsibility for medical costs to beneficiaries and negatively impact Americans who don’t plan ahead.

Minimizing the Financial Impact on Your Retirement
Because nobody plans to land in the hospital or become ill, many Americans don’t realize how much income they need to save for medical expenses. In fact, Pricewaterhouse Coopers (PwC), an international accounting firm, found only 46 percent of Baby Boomers are confident they’ll be prepared to cover medical expenses in retirement.

Regardless of your stage in life, you should make health care costs a significant part of your overall financial plan. Staying current on Medicare policy changes and planning ahead can help preserve the longevity of your retirement income, especially if you’re surprised by future program adjustments or medical complications later in life.

Your financial advisor can provide guidance and advice to help you pursue the retirement you envision. To learn more about how you can smooth your transition into retirement, find an advisor near you or call 214.953.4000.


1 IRMAA Sliding Scale Tables. Social Security Administration. Retrieved from:

2 2019 Annual Report. The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. Retrieved from:

Hilltop Securities Inc. (HTS) is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Additionally, Group and Individual Health Insurance products are not offered through HTS. Material presented herein is for informational use only and reflects the views of only the author. This information may not be duplicated or redistributed without prior consent of HTS, and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, HTS does not guarantee its accuracy or completeness. Securities offered by HTS (1) are not insured by the FDIC (Federal Deposit Insurance Corporation) or by any other federal government agency; (2) are not bank deposits; (3) are not guaranteed by any bank or bank affiliate; and (4) may lose value. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, 214.859.1800. Past performance is no guarantee of future results.

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