How We Need to Plan for a Medical Surcharge
Budgeting for future medical expenses and medical surcharge are important elements of personal financial planning. Also, estimating future medical out of pocket expenses is understated. Similarly, controlling the medicare premium cost is also overlooked. Some issues include an overview of medicare taxes and projected health care costs of the upcoming future. Medicare has been popular since its inception in 1966. It provides health insurance to individual Americans age above 65. However, with the almost complete history of Medicare, everyone has paid the same premium amount. There was never the concept of ‘Testings.’
Medical Alphabet Soup
There are two plan choices for Medicare:
- Medicare Advantage
- Traditional Medicare
Individuals and their spouse who have paid Medicare Taxes for 40 quarters are eligible for Medicare at the age of 65. Medicare has 4 different parts:
- Firstly, Part A: Impatient hospitalization & premium-free
- Part B: Hospital insurance & tests & doctors and outpatient.
- Part C: Medicare benefits, an alternative to Parts A and B and sometimes even Part D
- Lastly, Part D: Prescription Drug Insurance.
If clients don’t sign for Parts B and D at the right time, they have to pay lifetime penalties. Even the late filing can lead them with no basic health insurance. Individuals need not sign up for A, B, and D medicare parts. This is applicable if they have other ‘creditable coverage’ such as an active group health insurance plan.
Medical Taxes
Expenses of Medicare are assessed on earned incomes. However, the Medicare tax on wages is paid by both the parties, i.e., the employer and the employee. It has a rate of 1.45% on 100% of wages income. Moreover, self-employed people pay both the employee and the employer part at the tax 2.9%. It is calculated on the net self-employed income.
Taxpayers are also required to pay for the investment income tax. It is equivalent to the medical tax on investment incomes. The section. 1411 net investment incomes are enacted by the Educational Reconciling Act 2010. Unearned income Medicare contribution is not designated as a specific income source. The net investment is imposed on the rate specified by medicare trustee funds. The rate stands for about 3.8%.
Medical Premiums and Surcharge
For Part A, there is no medical surcharge or the premium. Each year, the centers of medicare services set the Part B premium. Most people pay the amount of the premium. A small number of people pay the premium that is lower than the base premium. They are protected by the hold-harmless rule. Also, the hold-harmless provision protects the individuals from having the Social Security benefits of the previous year.
Part D coverage is provided by the individual private plan. The base premium depends upon the plan chosen. Wealthier Taxpayers also pay medicare surcharges of Part B &D. It is an additional benefit to the base premium to the traditional Medicare or the medicare advantage plans. Moreover, the higher-income of the individuals paying the surcharges is not shielded by the hold – harmless provisions.
