Medicare is the federal health insurance program for people aged 65 or older, certain people with disabilities, and people with end stage renal disease. Medicare helps pay for many healthcare services and items, but it does not cover all medical costs.
There are limits on both income and assets that can affect your eligibility for Medicare and related programs. Understanding these limits is key to financial planning as you approach Medicare enrollment.
Income Limits for Medicare
The standard Medicare premiums, deductibles, and coinsurance amounts are the same regardless of your income. However, if your income is above certain thresholds, you may have to pay additional premiums for Medicare Part B (medical insurance) and Part D (prescription drug coverage).
The extra premium amounts are determined by your modified adjusted gross income (MAGI). For Medicare Part B, if your income in 2021 was above $91,000 as an individual or $182,000 as a married couple, you will pay an income-related monthly adjustment amount (IRMAA) in addition to the standard premium in 2023. IRMAA surcharges range from $68.30 to $578.30 per month depending on income.
For Medicare Part D, if your income exceeds $97,000 as an individual or $194,000 as a couple, you will pay an extra amount each month ranging from $12.20 to $77.90 on top of your regular Part D premium.
Asset Limits for Medicare
Medicare Parts A and B do not have any asset limits. You can have as much money in your bank accounts and investments as you want and still be eligible for free Part A (if you have enough work credits) and Part B.
Part D prescription drug plans also do not have any asset restrictions. You can enroll regardless of your total savings and assets.
How Savings Affect Your Medicare Eligibility
The amount of money you have in your savings account(s) does not affect your eligibility for original Medicare or Part D plans. You can have $1 million in your savings account and still enroll in Medicare Parts A, B, and D without penalty.
However, if you have significant savings it could push your MAGI above the income limits and trigger IRMAA surcharges for Part B and D as described above. Interest and dividends from your savings are included in your adjusted gross income.
How Investments Affect Your Medicare Eligibility
Your investment income from assets like stocks, bonds, mutual funds, and annuities is factored into your MAGI. If your total investment income minus any deductions puts your MAGI over the thresholds, you could owe additional premiums for Part B and D coverage.
Capital gains from the sale of investments could also potentially increase your income. Work with a financial advisor to project your future MAGI including investment income.
How Real Estate Affects Your Medicare Eligibility
Equity in real estate such as rental properties and second homes is not counted towards Medicare eligibility. You can own multiple properties of significant value and it will not impact your Medicare benefits.
However, income from real estate is included in your MAGI. Rental income and any capital gains from selling property need to be reported and could trigger IRMAA premiums if your MAGI exceeds the limits.
How Retirement Accounts Affect Your Medicare Eligibility
Funds held in retirement accounts like 401(k)s, 403(b)s, IRAs, and pensionsdo not count as assets when determining Medicare eligibility. The total value of these accounts is not considered.
Withdrawals from retirement accounts are taxable income and need to be included in your MAGI. Large withdrawals or required minimum distributions could increase your MAGI past the thresholds for IRMAA.
How Life Insurance Policies Affect Your Medicare Eligibility
The value of your life insurance policy does not apply to Medicare eligibility requirements. You can own a policy with a large death benefit and still qualify for Medicare based on age or disability status.
However, payouts from life insurance policies may increase your overall income. Certain types of payouts like dividends and withdrawal of cash value amounts need to be reported as income.
How Gifts and Inheritances Affect Your Medicare Eligibility
There are no limits on the amount of gifts and inheritances you can receive while on Medicare. These assets are not counted for eligibility purposes.
However, interest or investment gains from inherited assets may increase your MAGI. Also, inheritances from retirement accounts like IRAs and 401(k)s are subject to required minimum distributions that must be factored into your income.
What Are the Penalties for Exceeding the Income and Asset Limits?
There are no explicit penalties for exceeding the Medicare income thresholds. You will simply pay the appropriate IRMAA amount in addition to your standard Part B and D premiums.
The Social Security Administration may request documentation to verify your income if you fail to pay IRMAA surcharges. If you intentionally provide inaccurate information, civil or criminal penalties could apply.
How to Plan for Medicare Financially
- Track all sources of income to estimate your future MAGI, including Social Security, pensions, retirement account withdrawals, investment income, rental income, etc.
- Minimize withdrawals from pre-tax retirement accounts to manage taxable income each year.
- Evaluate the impact of interest, dividends, and capital gains if you have substantial savings and investments.
- Discuss your specific situation with a financial advisor to implement strategies to optimize your Medicare costs.
What Are the Available Assistance Programs for Low-Income Individuals and Couples?
If meeting Medicare costs is a challenge, assistance programs are available based on both income and assets:
- Medicaid helps pay for Medicare premiums and cost-sharing for very low-income seniors. Eligibility varies by state.
- Medicare Savings Programs help pay Part B premiums for those with limited income and assets.
- Extra Help provides assistance with Part D prescription drug costs for those below income and asset limits.
How to Apply for Extra Help with Medicare Costs
To apply for Extra Help with Part D costs:
- Contact your local Medicaid office or Social Security office to pick up an application.
- Apply online at https://www.ssa.gov.
- Call Social Security at 1-800-772-1213 (TTY 1-800-325-0778) to apply by phone or request an application.
- Apply through your State Medicaid Office.
Provide proof of income and assets such as bank statements, tax returns, and pension award letters when applying.
Conclusion
Medicare does not have strict limits on the assets and savings you can have. But your income from all sources, including investments, is considered when determining if you will pay extra premiums. Planning ahead and exploring assistance programs can help optimize costs. Work closely with Social Security, Medicaid, and a financial advisor to understand how your unique financial situation impacts Medicare eligibility and premiums.
