Among low-income Americans, premiums for Medicare beneficiaries can look significantly different from premiums that enrollees in Affordable Care Act (ACA) Marketplace insurance plans face. For example, an elderly (age 65 or older) couple making approximately $40,000 a year may pay about $5,000 in Medicare premiums, while a non-elderly (under age 65) couple with the same income will pay less than $800 for Marketplace coverage.

The Federal Poverty Level

The Federal Poverty Level (FPL) is a measure of income which is defined every year by a collaboration of federal agencies. The level is different for individuals, married couples, and households based on size. In 2024, 100% of the FPL is $15,060 for an individual and $31,200 for a family of four.

Federal and state programs use this numerical guideline to determine eligibility for various benefits. Importantly, under the ACA, you can qualify for tax credits (or subsidies), which lower your premium and out-of-pocket costs for a Marketplace plan, if your income falls between 100% and 400% of the FPL. Meanwhile, Medicare beneficiaries are eligible for various benefits depending on where their income falls relative to the FPL:

• Under 100% of the FPL, all costs associated with their Medicare coverage are paid for by the government.
• Under 135% of the FPL, they can qualify for one of several Medicare Savings Programs (MSPs), which help to cover their premiums and/or out-of-pocket costs.
• Under 150% of the FPL, they can qualify for the Medicare Part D Low-Income Subsidy (LIS), which provides discounts on drug plan premiums and prescription drug costs.

As shown in the graph below, ACA Marketplace enrollees and Medicare beneficiaries with incomes below 135% of the FPL do not need to pay monthly premiums. However, at 150% of the FPL, which is considered low-income, individuals and couples enrolled in Medicare pay significantly higher premiums than their non-elderly counterparts who receive subsidies to enroll in Marketplace plans.

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Medicare Savings Programs

Through Medicare Savings Programs (MSPs), state Medicaid programs help to cover the premiums and/or out-of-pocket costs that low-income Medicare beneficiaries face. There are four different types of MSPs, each paying (to varying degrees) for services covered by Medicare, including hospital care (Part A), physician services (Part B), and prescription drugs (Part D). Eligibility for these programs depends on a number of factors, with the key determinant being where the beneficiary’s income falls relative to the FPL.

Notably, all assistance in paying for Medicare Part B premiums ends at 135% of the FPL. Meanwhile, non-elderly people can receive fully subsidized ACA Marketplace coverage (meaning they do not need to pay premiums) if their income is under 150% of the FPL. These disparate cut-offs can lead to dramatically different experiences for elderly and non-elderly Americans with similar incomes. For example:

• An elderly couple who makes 150% of the FPL and is enrolled in Medicare will pay $5,026 in premiums. This equates to 17% of their income.
• A non-elderly couple who makes 150% of the FPL and receives subsidies to enroll in an ACA Marketplace plan may pay $0 in premiums.

What are possible solutions to this problem?

Medicare beneficiaries with low incomes, who are a vulnerable and often high-need patient population, may face significant difficulty with affording the cost of their coverage - a pressing issue that must be addressed.

One potential approach is outlined in a recent Brookings Institution report. In their paper, Wendell Primus and Paris Rich Bingham argue that there are two possible courses of action: (1) modify the existing structure of MSPs or (2) restructure Medicare Part B and Part D premiums to reflect beneficiary incomes, which would replace MSPs. Of these two options, the authors advocate for the latter. 

Their proposed new program would require no Medicare premiums up to 150% of the FPL and slowly increase premiums above that. Under this plan, more low-income beneficiaries would either pay nothing or very low premiums, while high-income beneficiaries would pay more than they currently do to finance this change. Notably, Medicare beneficiaries would be treated more generously than recipients of ACA Marketplace subsidies - they would be required to pay a smaller percentage of their income in premiums. The impact of this proposed program is detailed in the table below:

While this proposal is just one potential fix, it holds promise to improve the lives of low-income older adults by helping to prevent large premium increases with small changes in income, otherwise known as “benefit cliffs,” which can have significant, negative impacts on beneficiaries.

What’s next? 

The Centers for Medicare and Medicaid Services (CMS), which administers Medicare, is currently implementing changes to streamline enrollment in MSPs (source). However, these changes alone may not be sufficient to address the financial challenges that low-income Medicare beneficiaries face. Moreover, as the 2024 presidential election approaches and policy priorities shift, we may not see significant movement on this issue in the near future; the authors of the Brookings report even acknowledge that they would like to see change by 2026, though this is a lifetime away for many Medicare beneficiaries. Nonetheless, ensuring that low-income Medicare beneficiaries are better able to afford their coverage is a critical issue that government officials, policymakers, and researchers must continue working to address.