Medicare Surcharges will Increasingly Impact and Surprise Many Boomers

DANVERS, Mass., Oct. 14, 2014 /PRNewswire/ -- A new Insights White Paper and Medicare Surcharges Calculator from HealthView Services, set out to help Americans better understand, manage and reduce Medicare surcharges in retirement.  HealthView Services is the leading provider of retirement health care data and tools for broker-dealers, insurers, financial advisors and consumers.

The new white paper, "Understanding the Impact of Modified Adjusted Gross Income on Retirement Health Care Costs:  Strategies to Reduce Medicare Income Surcharges,"  highlights that many Boomers entering retirement will be surprised when they receive less than expected from Social Security because of Medicare Part B premiums and income-based surcharges that are deducted from Social Security.  It shows that surcharges can more than double Medicare premiums.   

The paper explains the measure used by Medicare to calculate income for surcharges: Modified Adjusted Gross Income (MAGI).  MAGI includes almost every potential source of income—including working in retirement, Social Security, pensions, required minimum distributions, dividends, earned interest, and capital gains.  Once MAGI surpasses $85,000 for a single person and $170,000 for a couple, surcharges are levied.

"These thresholds may seem high, but many retirees including those on traditional pensions are already crossing them," said Ron Mastrogiovanni, Founder and CEO of HealthView Services.  "Since Medicare income brackets are not indexed to inflation, over time more retirees will be impacted.  Surcharges will not only impact affluent Americans, but practically everyone with a moderate income."

The paper shows that crossing the first surcharge threshold increases Medicare Part B and D costs by approximately 35%.  Crossing the highest thresholds can increase costs by more than 200%.  The combined impact of these additional costs during retirement can be in excess of $100,000 (present value) for families in higher income brackets according to the paper.

The new Medicare Surcharges Calculator, which is being launched with financial advisors, provides a valuable tool to calculate expected retirement income and Medicare surcharges.  The calculator is a starting point for advisor conversations about these surcharges and steps a client can take to reduce them. 

"What takes a good many advisers and their clients by surprise is Medicare's two-year look-back period, which means that income earned at age 63 can be applied to the Medicare income algorithm when the subscriber signs up at 65," added Mastrogiovanni.  "Selling a house, for example, just prior to retirement could significantly increase Medicare premiums."

This rule can also become especially troublesome at age 70½, when required minimum distributions must be taken, or when a spouse passes away, which could leave an income stream that may catapult the lone survivor into a higher bracket.

Leveraging products including life insurance, non-qualified annuities, Roth IRAs and Roth 401(k)s, HSAs, longevity insurance, and even a reverse mortgage, can help decrease MAGI and reduce surcharges. 

"Pursing the goal of higher retirement income without consideration of MAGI may move a retiree into a higher surcharge bracket and potentially reduce disposable income," added Mastrogiovanni.  "In one of the case studies in our paper, it would require a 6% return on a $400,000 investment over five years, to equal the savings an advisor would be able to attain by simply adjusting their client's investment mix."

The paper underscores the importance of allocating savings for retirement health care and modifying a retirement portfolio's investment mix to lower Medicare-assessed income to help prepare Americans for future costs, reduce surcharges and increase disposable income in retirement.

HealthView Services (http://www.hvsfinancial.com) is the leading provider of retirement health care cost data and Medicare, Social Security, and long-term care retirement planning tools for broker-dealers, insurers, financial advisors, and individuals.  HealthView Services believes that understanding expected future health care costs, one of the largest burdens facing retirees, should be a foundational component of retirement planning. The company's methodology initiates advisor/client conversations that ultimately lead to portfolio optimization in both the accumulation and decumulation phases of retirement. 

HealthView Services' HealthWealthLink is an integrated retirement planning tool that draws upon cost data from more than 50 million annual health care cases to assist financial advisors in preparing personalized estimates of retirement health care costs and implementing various strategies to achieve clients' retirement goals.  Through the company's partnership with the Insured Retirement Institute (IRI), HealthView Prime, a health care retirement cost planning tool, is being offered to IRI's membership of major insurers, asset managers, broker dealers/distributors, and 150,000 financial professionals.  Individuals can use a one-click version of HealthWealthLink to calculate average retirement health care costs (http://apps.hvsfinancial.com/hvadvisor).                

SOURCE HealthView Services