Starting next year, inflation will impact the average monthly health insurance cost and the Medicare premiums 2020 rates. More specifically, even if your income doesn’t change, inflation might diminish your taxable earnings. In turn, you may qualify for lower premiums and tax savings.
Having said that, higher health insurance options are also on the table. If your income increases, so will your monthly payments. Just as importantly, your company or employer might pay higher rates, which they will likely pass on to employees. The Medicare premiums 2020 cost is also subject to change.
In short, the new inflation adjustment impacts everyone, both directly and indirectly. Planning for this enables consumers to identify potential savings or prepare for increased premiums. Beforehand, however, we must understand how the inflation changes impact different economic players and entities.
The New Average Monthly Health Insurance Cost
Health insurance premiums largely depend on your income. The more money that someone makes, the more expensive that their monthly payment becomes. Why? Because a bigger paycheck lowers the tax credits that a consumer can deduct from their health insurance cost.
Any person or household that makes less than the Federal poverty line is eligible for Medicaid and at no cost. The income threshold also depends on the household size. For instance, the poverty line for single taxpayers is $12,490 or less. A family of four, on the other hand, has to make $25,750 or less to qualify for Medicaid.
Households that earn more than the federal poverty rate have to contribute a certain percentage of their income towards health insurance. The specific percent and amount depends on their earnings in comparison to the poverty level.
To clarify, here is an example: A family of four makes $30,000 per year. In this case, their premiums are 2.08% of their income ($624 annually or $52 per month). If their earnings increase to over 133% the poverty line ($34,000+), then the insurance will cost between 3.11% and 4.15% of their annual pay.
However, because of inflation, the average monthly health insurance cost will change in 2020. This applies to all tax credit brackets. As an example, families that make less than 133% the poverty level will only pay 2.06% of their yearly income in premiums. This is 0.02% less than their 2019 contribution of 2.08% the annual income.
Why All Workers Are Impacted
Full-time hourly workers already get an insurance policy from their employer. However, many Americans still pay a portion of the premium out of their own pockets. Self-employed individuals and small business owners, on the other hand, have to purchase their own health coverage.
Nevertheless, both hourly and self-employed workers have to keep an eye on the inflation adjustment.
Firstly, both of them will save money because of the lower avergage monthly health insurance cost contributions. However, if their income increases, so will the premiums.
A single person that gets paid $12,000 per year is eligible for Medicaid. When they get a raise and start making $14,000, they can no longer receive government-sponsored health care. Instead, they have to put 2.06% of their salary ($288 per year or $24 per month) towards their premiums.
Business owners and self-employed workers also have to pay more if their profits go up. This is why planning is important. Some people may spend more after getting a raise, only to be surprised when they receive a higher insurance bill.
Similarly, some households may save money because of the inflation adjustment, especially if their earnings don’t change. Careful budgeting allows them to put their savings towards a worthwhile goal, such as a child’s educational fund or a retirement account. Without a plan, however, that money may be carelessly spent.
Medicare Premiums 2020
Medicare recipients are in a unique situation. Firstly, their social security benefits will go up by 1.6% next year.
The higher income, though, also means that their Medicare premiums 2020 contribution is going to increase in comparison to 2019. Retirees who participate in the Part B program are especially impacted.
Even those who receive other Medicare benefits will feel the change.
Unfortunately, many households already started to celebrate the increase in Social Security payments. Yet, the raise may not be as high as they expect it to be because of the new Medicare premiums 2020 prices.
Again, careful planning can go a long way. For a start, you can avoid the headache that comes with financial surprises and unanticipated costs.
Is This Really a Big Deal?
Yes. Whether it’s a worker or a retiree, most Americans will see their average monthly health insurance cost change.
One of the biggest misconceptions is that most employers incur these expenses. The reality is that only 49% of U.S consumers are covered by their work’s policy. This leaves another 51% who either purchase a private plan or rely on Medicare.
Even the 49% that receive coverage from their employer still have to take care of a portion of the premiums. Nationwide, workers pay an average of 29% the total health insurance cost for family plans. Single employees also contribute 18% towards their premiums.
Equally as important, almost 70% of Medicare Part D recipients will see their monthly payments go up next year.
Therefore, regardless of how you get your health insurance, consumers across the country are undoubtedly going to be impacted by the inflation adjustment.
What Happens Next?
Your average monthly health insurance cost or Medicare premiums 2020 payments depend on several factors. A consumer’s household size and annual income determines what their costs are going to bee.
After identifying your tax bracket and the type of health coverage that you receive, define how the inflation adjustment applies to your finances. If you have to pay more, consider opening a Health Savings Account or find other ways to offset the increased costs.
Similarly, retirees should weigh their Social Security raise against the higher premium payments.
In parts two and three of this article series, we will look at why and how you should plan ahead for this adjustment. In general, nobody likes unpleasant financial surprises or missed savings opportunities, even more so when this impacts your health and well-being.