On average, Medicare will cover about half of your health care costs after you turn age 65. Most retirees sign up for traditional Medicare, which includes Part A for hospital coverage and Part B for coverage of doctor visits and outpatient care. Part D provides coverage for prescription drugs. A “Medigap” policy is usually added to further limit the out-of-pocket medical expenses.
Medicare coverage is funded from payroll taxes collected over your lifetime of work. It takes 10 years of covered work to qualify for Part A without paying any further premiums toward its future coverage costs. Future premiums for any other parts of Medicare coverage will be automatically deducted from your monthly Social Security income benefit amount. (Contact your drug plan, not Social Security, if you want Part D premiums deducted from your monthly Social Security payment.) In addition, there will be an extra additional premium charged if your retirement income is too high. If it is more than $170,000 for married couples or $85,000 for single retirees, you will pay a higher amount for Part B and Part D than others will pay who are below these levels.
How the Income Guidelines Affect You:
If you have higher income, there will be an upward adjustment to your Part B medicare and Part D prescription drug coverage premiums. The adjustment is called “the income-related monthly adjustment amount”.
For most individuals, the government will pay about 75% of the premium cost for Part B and the beneficiary will pay about 25% of the premium.
However, if you are a “higher-income beneficiary” you will pay a larger percentage of the total cost of Part B based on the income you report to the Internal Revenue Service (IRS). Depending on your income level, your share of the premium cost may be increased to either 35, 50, 65, or 85 percent of the total premium cost.
For most beneficiaries, the government also pays most of the cost for Part D prescription drug coverage. Prescription Drug plan costs vary, so your portion of the premium will depend on the plan you select. If you are a higher-income beneficiary you will also pay an additional amount for this coverage.
Since prescription drug plan premiums vary, the government specifies an amount called “the base premium” which is used to determine how much you will pay. The base premium is deducted from your monthly social security payment regardless of how you pay your monthly prescription drug plan premiums. If the amount is greater than your monthly payment from Social Security, or you are not yet receiving Social Security, you will get a separate bill for the balance from another federal agency, such as the Centers for Medicare & Medicaid Services or the Railroad Retirement Board.
How Social Security Determines Your Extra Premium Cost:
· Social Security will use a recent federal tax return (usually 2 years prior) provided by the IRS to determine your “modified adjusted gross income” (MAGI). Your MAGI is your annual total adjusted gross income plus any tax-exempt interest you may have received.
· If you file an individual tax return and your MAGI is greater than $85,000 you will pay a higher premium. For joint tax return filers, the MAGI threshold is greater than $170,000. If you must pay an extra premium, the Social Security administration will send you a letter showing the total premium amount you are to pay and the reason supporting the calculated amount.
· If Social Security has not used your most recent tax return to determine your premium cost or is not using an amended return you may have filed, contact them to get a copy of that return to them, including an acknowledgement receipt from the IRS. If your income falls below the surcharge thresholds, Social Security will then correct or remove your income-related monthly adjustment amount(s) for Part B and Part D coverages.
Other Reasons Social Security May Reduce or waive Increased Premiums:
· You married, divorced, or became widowed.
· You or your spouse stopped working or reduced your work hours.
· You or your spouse lost income-producing property because of a disaster or other event beyond your control.
· You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
· You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.
If any of these apply to you, documentation will need to be provided with a copy of your federal income tax return for the year involved.
If you disagree with the decision about your income-related adjustment, you have the right to appeal. The easiest way to file an appeal is online at: www.socialsecurity.gov/disability/appeal. Here you will be able to file and provide documents electronically to support your appeal.
You can also request an appeal in writing by completing a Request for Reconsideration (Form SSA-561-U2), or by contacting your local Social Security office. The form can be found online at: www.socialsecurity.gov/online or requested by calling 800.772.1213 (TTY 800.325.0778).
Part B Premiums by Income: The chart below shows your estimated Medicare Part B plan monthly premium based on your income as reported on your IRS tax return. If your income is above a certain limit, you'll pay an income-related monthly adjustment amount in addition to your plan premium.
Part D Premiums by Income: The chart below shows your estimated prescription drug plan monthly premium based on your income as reported on your IRS tax return. If your income is above a certain limit, you'll pay an income-related monthly adjustment amount in addition to your plan premium.
The extra premium amounts are announced by Social Security each year for the coming year. They sometimes will stay the same as the previous year, but more often they will be increased reflecting the increasing costs of healthcare.
Greg Tinaglia
Last Updated: 01/17/2018