Contributed by: Robert Ingram, CFP®
For many clients with incomes above a certain level, Medicare premiums may be higher for Part B and Part D. As a Medicare recipient’s income exceeds specific thresholds, they may pay adjusted amounts in addition to the baseline Part B and/or Part D premiums.
Now, what if you have been paying these Medicare surcharges, but you experience a drop in your income? Can you also get your Medicare surcharge reduced? The answer is, possibly yes.
If you experience a change to your income because of certain life events, you can request that the Social Security Administration (SSA) review your situation and use your more recent income to determine what premium adjustment (if any) should apply. Examples of these life-changing events include:
Work stoppage or work reduction
Death of a spouse
Marriage
Loss of pension income
Divorce or Annulment
Loss of income-producing property
You might be asking yourself, “Why do I have to request this? Aren’t Medicare premiums automatically adjusted according to my income?”. A big reason for making the change request when you experience a qualifying change in income has to do with how and when the SSA measures your income.
Income-Related Monthly Adjustment Amount (IRMAA)
To determine whether your income makes you subject to an Income-Related Monthly Adjustment Amount (IRMAA) to the regular Medicare Part B or Part D premiums for the current year, the SSA looks at the income you reported to the IRS for the previous two years. This means that your Modified Adjusted Gross Income (Adjusted Gross Income with tax-exempt income added back) reported for 2017 determines your Medicare premiums for 2019.
For individuals paying Part B premiums, for example, the standard premium in 2019 is $135.50 per month. However, the following table illustrates what you would pay in 2019 for Part B depending on your 2017 income.
For a couple who filed a joint return with income above $170,000 and up to $214,000 in 2017, each spouse paying for Medicare Part B may pay an additional $54.10 per month above the standard premium (a total of $189.60 monthly) in 2019. A couple with income that falls between $320,000 and $750,000 (or an individual filing single with income between $160,000 and $500,000) in 2017 could each pay an additional $297.90 above the standard premium, for a total of $433.40 per month in 2019.
If an individual (or couple) experienced a drop in income for 2019, it might normally take until 2021 for the Medicare premiums to reflect any reduction based on the 2019 income. Let’s say the couple who had reported income between $320,000 and $750,000 retires in 2019 and sees their income drop to an expected $165,000. The expected income falling within the $170,000 threshold could mean a difference of $297.90 per month (each!) in Medicare Part B premiums (from $433.40 to $135.50).
If a qualifying life event caused the drop in expected income, then filing a request with the SSA could mean a more immediate change in Medicare premiums, rather than waiting for the savings until 2021.
How do you request the premium surcharge reduction?
If you think you have experienced a reduction in income due to one or more of the qualifying events, make your request to the Social Security Administration by submitting the Medicare Income-Related Monthly Adjustment Amount –Life-Changing Event form (form SSA-44).
Along with this form, you will also provide supporting documentation for your Modified Adjusted Gross Income and your life-changing event (see form SSA-44 instructions). Examples of supporting documentation may include items such as:
Federal income tax return
Signed statements from employers, pay stubs
Certified documents for transfers of a business
Marriage certificate
Certified death certificates
Letter or statement from pension administrator explaining a reduction/termination
For other disagreements with an IRMAA determination, you have the right to appeal. You can file an appeal online (socialsecurity.gov/disability/appeal) and select “Request Non-Medical Reconsideration”, file a Request for Reconsideration form, or contact your local Social Security office.
If you disagree with an IRMAA determination because your reported Modified Adjusted Gross Income is incorrect, you need to address the correction first with the IRS.
Because these Medicare surcharges are determined each year, you have opportunities to do more proactive income and tax planning leading up to and after Medicare enrollment. Employing different strategies that help control your Adjusted Gross Income could also help control potential Medicare premiums in future years. If you have questions about your particular situation, feel free to reach out to us!
Want more information about Medicare? Check out The Center’s Medicare FAQ
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Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.