Medicare beneficiaries with high incomes pay more for their Part B and prescription drug plan premiums. I know, I know, nobody likes it – neither do we! Having seen many hundreds of clients in this boat, I want to share what you can do about it. It’s called an IRMAA appeal. You can use to appeal a higher Medicare Part B premium. (This post has been updated for 2020).
Currently in 2020, Medicare Part B costs $144.60 for new enrollees. This is the rate that most people pay. Those in the highest income bracket can pay more considerably more than that.
Social Security determines what you will pay based on your modified adjusted gross income (MAGI) as reported to the IRS. If you owe a higher premium, Social Security calls this your “income-related monthly adjustment amount” or IRMAA. It will be deducted from your Social Security income check. If you are not taking income benefits yet, it will be billed to you.
An IRMAA appeal is a petition that you can file with Social Security to reduce your Part B premium if you feel there is a compelling reason why you should NOT pay this higher premium. You’ll complete Form SSA-44 to report to Medicare that you’ve had a life-changing event which has affected your income.
Before we get to that, let’s take a look at what’s included in the calculation of your premium.
Modified Adjusted Gross Income
Your MAGI amount is made up of your total adjusted gross income plus any tax-exempt interest income. (The Form SSA-44 has instructions which explain which line numbers from your IRS Tax return that you will use to calculate this number).
Examples of income that you may have reported on your tax return would be wages, dividends, alimony received, rental income, farm income, investment income, capital gains and Social Security benefits. Examples of deductions that you may have taken on your tax return would be things like student loan interest, alimony paid, tuition, and retirement plan contributions.
Social Security uses the income information that you reported from your most recently filed federal tax return. This means that they are often calculating your premium based on on your reported MAGI from 2 years prior to now. So your 2020 Medicare premiums will usually be based on your 2018 tax return, and so on.
If they determine you owe a higher premium based on your MAGI, they will send you a letter to notify you of your new amount. They will also give you the reason for their determination. If you disagree with this amount, you have the right to appeal it via a reconsideration request.
Qualifying Reasons for a Medicare Part B Premium Appeal
There are a number of reasons that you might qualify for a lower premium. Social Security calls these Life-Changing Events.
The most common reason is that you’ve stopped working or are working less hours as you move into retirement. In that case, your monthly income is likely quite a bit less than when you were working. For example, let’s say you are single and your income was $90,000 when you retired in 2016. After retirement, your income is only $40,000 from Social Security and IRA distributions. This gives you a pretty good case as to why you should not have to pay a higher Part B premium based on your former income.
Other reasons for an IRMAA appeal may include:
- marriage, divorce or being widowed
- the loss of income-producing property
- changes or termination of a pension
- receipt of a settlement from an employer due to company closure or bankruptcy
Sometimes people also disagree with the MAGI information that the IRS reported to Social Security. If that’s the case, you must contact the IRS and correct that information before you appeal. Filing an amended tax return might correct the issue.
We’ve had feedback from a number of clients about appeals and we’ve seen all sorts of outcomes. Sometimes they adjust your premium. Other times they say…. well, you sure did make a lot of money on that tax return, so we think you can afford this higher Medicare Part B premium for a year.
If I have one takeaway for you, it would be this: it doesn’t hurt to try as long as you can demonstrate a change in your income. An appeal costs you nothing and if you state your case well enough, you might just save yourself some money. For tips on how to file and what to send, you can also watch our Youtube video about IRMAA appeals.
How to file your Medicare Reconsideration Request
If you wish to appeal your IRMAA, you should print out Form SSA-44 titled Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event. This form walks you through the steps of providing updated income information as well as listing what documentation will be required for evidence of your new MAGI.
As with any kind of appeal, the most important thing is your documentation. Write a cover letter explaining why you think you are being overcharged. Then provide backup documentation. For example, you could include a letter from your former employer confirming that you have you now retired. Include a copy of your last pay stub to show them what you used to earn that you are not earning anymore.
Bottom line: provide as many official documents and facts as possible to support your case.
If your appeal is successful, Social Security will automatically correct your Medicare Part B premium amounts. If they deny your appeal, they will provide instructions on how to appeal the denial to an Administrative Law Judge.
Be aware that you will continue to pay the higher Medicare Part B premium while your appeal is in process.
Part D Income Adjustments
IRMAA also affects your Part D premium. Unlike Medicare Part B, your Part D premium varies based on which Part D drug plan you have chosen to enroll in. Right now in 2020, Part D premiums range from around $15 to over $150/month, depending on where you live. (For more on finding the right Part D plan, visit our pages about Part D.)
It is important to note, the extra amount you pay will not be part of your plan premium. Most people have the extra amount taken out of their Social Security check. Should you choose not to have it taken out of your check, you will receive a bill from Medicare directly. In order to keep your Part D coverage, you must pay the extra amount in full.
Let’s say you enroll in a plan that has a $30/monthly premium. If Social Security has advised you that you owe an income adjustment for higher income, you will pay an “adjustment” on top of your monthly premium of $30. Check out our cost charts on this page.
Plan the timing of your Medicare enrollment
Social Security automatically adjusts your premium at the start of each new year. You will receive a letter December or January notifying you of your new premium for the year that’s about to start. So if your income has gone down, they will eventually catch up to that and automatically lower or discontinue your IRMAA. That’s the light at the end of the tunnel!
If you know ahead of time that you will be subject to higher premiums, you can plan your retirement date accordingly. You should work with your financial planner as to when to begin your distributions from retirement accounts so that hopefully they will affect your Medicare premiums as little as possible.
Request for reconsideration of your Medicare Part B premium are the first step. Once you have your Medicare costs squared away and are ready for your Medicare supplement options, there are additional ways to save. I am truly surprised how many higher income individuals never even hear about these plans! Their agents do them a disservice by not talking to them about these money-saving options.
The reason that these plans are such a great fit for higher-wage earners is this: many higher income people have money set aside for a rainy day. This gives you the option to consider Medigap plans that require a bit more cost-sharing but in return give you a significantly lower monthly cost. In a worst-case scenario, you may have to spend a bit on a deductible or coinsurance in a year where your medical spending is higher due to an illness or injury. However, the savings for you in all the other years is pretty great.
Plans that Save You Money
Plan G is a very popular plan among our higher income clients. In return for covering a small, once annual Part B deductible (currently $198 in 2020) you can sometimes find premiums as much as $250 lower than a Plan F. That keeps money in your pocket.
Medigap plans L, M, N and High Deductible F are also great solutions for high income individuals. Agents don’t talk about these plans very often, yet they provide significant savings for slightly higher cost-sharing. The great thing is: you still have Medicare paying 80% of all your outpatient costs, and by accepting a higher deductible or a bit more coinsurance, you can take advantage of great savings. By choosing a plan with lower premiums, you can help offset any higher Medicare Part B premium you may be paying.
To learn more about how to pay less for your Medigap plan, download our free guide here.
Want to compare quotes and see if you are paying too much for your Medigap policy? Just reach out to us for help. We can provide quotes from more than 30 companies for these plans, and we’ll help you analyze your Part D drug plan needs too.