Important Medicare Changes for 2013

Posted by on Feb 21, 2013 in Broker Development, Employee Benefit Program | 0 comments

Important Medicare Changes for 2013

 

With the advent of the year 2013, the Medicare funding system is affected by two major pieces of legislation: The Patient Protection and the Affordable Care Act, part of which took effect as of January 1; and the Taxpayer Relief Act of 2012, which was passed on January 2nd, 2013. This was the tax deal that Congress struck to avoid the so-called ‘fiscal cliff’ – at least temporarily. The two laws mean a number of changes to Medicare – none of them good from the taxpayers’ perspective

The major changes are as follows:

The payroll tax holiday expires, as a result of the Taxpayer Relief Act. This means that the employee portion of the Social Security tax goes from 4.2 percent to 6.2 percent. Self-employed individuals must also pay an additional 2 percent of earnings. This is a funny form of “taxpayer relief,” but there you have it.

Changes to Medicare Part D

The prescription drug plan available under Medicare Part D will undergo the following changes, effective 2013:

2013 Changes for the Defined Standard Medicare Part D Prescription Drug Benefit

  • Initial Deductible: $5 increase to $325
  • Initial Coverage Limit: $40 increase to $2,970
  • Out-of-Pocket Threshold: $50 increase to $4,750
  • Coverage Gap (donut hole): begins once you reach your Medicare Part D plan’s initial coverage limit ($2,970) and ends when you spend a total of $4,750.
  • Part D enrollees will continue receive a 52.5% discount on the total cost of their brand-name drugs while in the donut hole. The full retail cost of the drugs will still apply to getting out of the donut hole even though 52.5% was paid for by others. Enrollees will pay a maximum of 79% co-pay on generic drugs while in the coverage gap.

Minimum Cost-sharing in the Catastrophic Coverage Portion of the Benefit**: will increase to $2.65 for generic or preferred drug that is a multi-source drug and $6.60 for all other drugs.

  • Maximum Co-payments below the Out-of-Pocket Threshold for certain Low Income Full Subsidy Eligible Enrollees: will increase to $2.65 for generic or preferred drug that is a multi-source drug and $6.50 for all other drugs[J1] .

Plan Selection

Medicare is also cracking down on Medicare Advantage plans that have had performance issues over the past three years. You will not be able to use the Medicare Advantage “plan-finder” tool at Medicare.gov to enroll in any Medicare Advantage plan that has received a rating lower than three stars over the past three years. This could particularly affect those with specific medical conditions who are seeking a plan tailored to maximize the benefits available to treat that specific ailment[J2] .

 New Taxes

A 3.8 percent Medicare surtax now applies to higher-income individuals. Specifically, the tax applies to unearned income for married couples with modified adjusted gross income over $250,000, or singles with MAGIs over $200,000. The tax is computed based on either the tapayer’s net investment income, or on the amount of MAGI over and above the thresholds, whichever is less.

A special 3.8% Medicare surtax on unearned income for single filers with modified adjusted gross income over $200,000 and joint filers above $250,000.  Modified AGI is AGI plus any excluded foreign earned income.  The surtax is imposed on the smaller of the taxpayer’s net investment income or the excess of modified AGI over the thresholds.

Unearned income includes rental income, dividend income, annuities, royalties and capital gains, but not distributions from IRAs or 401(k)s or interest from tax-free municipal bonds.

Note: The gain on a personal residence that is normally exempt from capital gains tax does not count towards unearned income for the purposes of this law.

Additionally, another surtax of 0.9 percent is levied on earned income above $200,000 for single taxpayers, and over $250,000 for couples. This 0.9 percent is added to the 2.9 percent already assessed by the Social Security Administration to fund Medicare, for a total tax on earned income of 3.8 percent.

 


[J1]  http://www.dbm.maryland.gov/benefits/Pages/MedicareChanges2013.aspx

[J2] http://articles.orlandosentinel.com/2012-10-19/news/fl-medicare-guide-qa-20121019_1_coverage-gap-doughnut-hole-drug-coverage