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.
Currently in 2016, Medicare Part B costs $121.80 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.
A Request for Reconsideration 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.
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. This would include things like wages, dividends, rental income, capital gains and non-taxable Social Security benefits.
To determine your MAGI, Social Security uses the information from your most recently filed federal tax return. This means that they are often calculating your premium based on on your income from 2 years prior to now.
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 Reconsideration Request
There are a number of reasons that you might qualify for a lower premium.
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 2015. 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 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 alot of money on that tax return, so we think you can afford this higher 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.
How to file your Medicare Reconsideration Request
If you wish to appeal your IRMAA, you should visit the Social Security website (www.ssa.gov). Find the form called Request for Reconsideration. This form gives you three options on how to appeal, with the easiest and most common way being a case review.
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 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 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 2016, Part D premiums range from around $18 to over $100/month. (For more on finding the right Part D plan, visit our pages about Part D.)
You will pay the published Part D premium for your chosen plan, and then the adjustment will be added to that premium. Your Part D insurance company collects it on behalf of Social Security.
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 Part B premium are the first step. Once you have your Medicare premiums 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 premium. 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 $166 in 2016) you can sometimes find premiums as much as $300 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 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 25 companies for these plans, and we’ll help you analyze your Part D drug plan needs too.