There\’s probably never been a time when the future funding needs (and concerns) of Medicare have been in the media more than now. Unfortunately, this trend will likely continue for a good long time. Many proposals have already been instated to help shore up the financial house of Medicare and many more are being discussed. With Medicare being a much more pressing concern in terms of timing than Social Security, expect to hear about it quite often. One of the first approaches which has already been implemented is means-tested Part B premium. Let\’s discuss what this means for you when choosing Medicare and a Medicare supplement insurance plan.

First, what does means-tested really mean? In a nutshell it means the price will vary based on the ability to pay. If you make more money, you can expect to pay more and if you are near poverty, you will likely pay nothing. That\’s basically the approach with Part B with a sliding scale in between the two extremes. How does this directly apply to Part B as it current stands which is important because the concept of means tested will continue but the amounts paid will likely increase going forward.

First, Part B premium is the amount you pay with Traditional Medicare (not including a Medicare supplement plan) for the part of Medicare that deals with physician costs. This is different from Part A which deals with Hospital costs and generally does not require a premium payed as it has been deducted from payroll during the course of your lifetime (in theory). Part B, however, does require payment and is voluntary…you must sign up for it. Each year, Medicare releases the annual deductibles and premiums as these amounts are generally indexed to inflation and will gradually (hopefully) increase with time. This is where you can find more information on how much you will pay for your Part B premium and the true extent of \”means tested\” comes into focus.

In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act required that starting in 2007, the amount a person paid for Part B premium would be based on that person\’s income. The law established a threshold of income for filing individually and a separate one for filing jointly, above which, a person(s) would have to share more of the total Part B cost. In 2012, the individual amount is $85K and the joint amount is $160K. Again, these amounts will rise with each passing year in the current construct. As an example of what means in terms of real cost, a person filing individual who makes under $85K will pay $99.90/monthly. Between $85K and $107K, $139.90/monthly. Between $107K and $160K; $199.80. Between $160K and $214K; $259.70. Over $214K; $319.70. This is for 2012 only and will likely change in out years. For very low income situations, there can be options through Medicaid to get help paying this premium amount.

This is really the future of Medicare where those individuals who earn more will need to share part of the cost. Part B premium is the first piece of this approach and Part A will likely follow soon. The cost for Medicare supplemental insurance is not means tested as it provided by the private market and the premiums are the same regardless of income levels. To some extend, the Medicare Advantage plans offer low or no cost Medicare options for those who are unable to afford Medigap coverage with limitiations inherent in the HMO model of coverage.

Dennis Jarvis is a licensed insurance agent concentrating on medicare supplement insurance.