If you're enrolled in Medicare, you know that costs have been putting a bigger strain on your wallet lately.
But the program's rapidly rising premiums and deductibles were on full display last week when Medicare officials announced that the standard premium for Part B, which covers services such as doctor's visits and outpatient hospital care, will be $202.90 per month – a 9.7 percent increase. Next year, the monthly premium will exceed $200 for the first time – and it will be 66 percent higher than a decade ago.
The annual Part B deductible will also rise to $283, up 70.5 percent over the past 10 years.
The Part B premium is just one component of senior health care spending, but it is closely watched by many because it is typically deducted from retirees' Social Security checks.
The annual net cost of living (COLA) increase in Social Security benefits depends on the dollar amount of the Part B premium increase. Next year, the Part B increase will eat up a significant portion of that 2.8 percent Social Security COLA announced last month. The average retiree receives $2,008 per month; The $17.90 premium increase will reduce this employee's effective COLA to 1.9 percent. For a lower-income beneficiary receiving $1,000 per month, the effective COLA is just 1 percent.
“Many people won't get the COLA they expect because the premium eats up some of it,” said Tricia Neuman, senior vice president of KFF, a nonprofit health research organization.
Previously, Medicare trustees had forecast an 11.6 percent increase for Part B. Medicare's announcement said a crackdown on expensive bandages made from “skin substitutes” prevented an $11 increase in premiums.
Medicare sets Part B premiums to cover about 25 percent of projected program costs, so premiums rise in line with overall program spending.
Why the big jump?
The new figures reflect general increases in healthcare costs. Federal data show that national health spending rose about 8 percent in 2024 and is expected to exceed gross domestic product growth in the coming decade. Another cause of rising Part B costs is a shift in healthcare delivery from hospitals to outpatient settings. More care and medication would be provided in these facilities, Dr. Neuman.
The growth of Medicare Advantage plans — which now account for more than half of all enrollments — also plays a role. These privately offered alternatives to government-run traditional Medicare often reduce upfront costs by including prescription drug coverage. This also includes out-of-pocket caps ($5,320 this year) without the Medigap policies that provide this coverage in traditional Medicare. This brings with it compromises, including healthcare provider networks and frequent red tape for coverage approvals, known as pre-authorizations.
Medicare spends about $80 billion more annually on Medicare Advantage enrollees than if they enrolled in traditional Medicare, resulting in higher spending on both Part A (which covers hospital stays) and Part B.
“The higher spending contributes to higher Part B premiums paid by beneficiaries in both traditional Medicare and Medicare Advantage programs,” said Dr. Neuman.
Older people with lower incomes are feeling the burden of rising Medicare costs the most. Over seven million beneficiaries, more than 10 percent, spent at least 10 percent of their annual income on Part B premiums in 2024, not including other out-of-pocket costs such as dental or long-term care, according to KFF.
Federal programs can help. Medicare savings programs cover premiums and deductibles for low-income seniors and automatically enroll them in the Part D Low Income Prescription Drug Subsidy Program. Still, only about 60 percent of eligible seniors participate, often because they are unfamiliar with the programs or find it difficult to enroll.
Wealthier seniors face additional costs from surcharges through the income-related monthly adjustment amounts, known as IRMAA. The income levels that trigger the surcharges are calculated from the modified adjusted gross income on your tax return. Next year, IRMAA fees will begin for single filers with modified adjusted gross income over $109,000 and co-filers over $218,000 – paying an additional $81.20 per month, with smaller IRMAA fees added to Part D premiums. There are four additional tariffs for seniors with even higher incomes.
These additions are based on tax returns from two years prior, but Social Security recalculates them for qualifying “life-changing events,” including retirement.
“If your income was $250,000 a year and it is now less than $100,000, you can save a lot of money by simply filling out a two-page form,” said Dr. Carolyn McClanahan, a physician and certified financial planner in Jacksonville, Florida. To file an appeal, use Form SSA 44.
Some studies attempt to predict the total cost of health care in retirement. Fidelity Investments, for example, reported this year that a 65-year-old retiree with an average life expectancy can expect to spend an average of $172,500 on health care expenses throughout retirement.
But Dr. McClanahan urges her clients to think about healthcare costs as part of an annual budgeting process, which can change from year to year along with their health and medical needs. The prognosis should include insurance premiums, out-of-pocket costs and any extras such as hearing, vision or dental care or anticipated long-term care needs.
“Health care costs, like anything else, need to be budgeted for as a cash flow item,” she said.