Surcharges can be a big surprise to someone who experiences a one - time increase in income from, for example, the sale of a home, a withdrawal from a retirement account, or a sale of securities. Surcharges caused by a one - time increase in income will disappear when income levels return to normal.
Beneficiaries pay a larger percentage of the total Part B Medicare premium cost as their reported level of income increases.
They also pay increased surcharges for Part D. Retirees may be responsible for Part D surcharges even without their own Part D plan in certain situations. However, those affected by the surcharges should plan accordingly. An appeal process is available to help beneficiaries whose current incomes are substantially less than their MAGI amount from two years previously. Any of eight specific " life - changing events" might qualify beneficiaries for reconsideration of their IRMAA:.
For example, if an individual retires and his or her income declines in subsequent years, this new, lower income level can be used to argue against an IRMAA charge that was based upon pre - retirement income.
The notices are sent out when beneficiaries first apply for Medicare and in November for people with existing coverage. It is important to review the notices and verify that the data is correct. Below are three examples of how Medicare premiums and surcharges are computed. Understanding the calculations will help clients appreciate and understand the strategies to lessen the impact. B is single. He is enrolled in a Medicare Part D plan. How much more will B need to pay in for Medicare premiums?
The excess premiums represent an increase in household expenses as a percentage of his income of 1. He could withdraw enough from his IRA to service the debt and still stay below the threshold. Example 2 concerns a couple who have not signed up for a Part D plan; however, they must still pay Part D surcharges, since a former employer has enrolled them and is paying the basic cost as a fringe benefit.
A former employer enrolled them in a Medicare Advantage plan with Part D coverage. How much should the couple expect to pay for Medicare premiums for ? Their MAGI is just within the fourth threshold. The additional Medicare cost represents 2. Example 3 illustrates the "cliff" effect of the Medicare premium costs. How much more will the couple need to pay in Medicare premiums?
This highlights the need to monitor annual income levels and the importance of proactive tax planning. The additional Medicare costs represent 2. Medicare surcharges can easily increase a household's expenses substantially. The cost - sharing aspect of the surcharges means that higher - income beneficiaries may experience increases for additional Medicare premium costs that exceed normal inflation expectations. People in pre - retirement years but not within two years of Medicare coverage may want to consider contributing to Roth retirement plans and HSAs.
Individuals in this time frame may also want to consider Roth conversions. With a Roth conversion, individuals pay tax when they convert from a traditional IRA, but they can withdraw their money tax - free in retirement. Withdrawals from HSAs, as long as they are used for health care expenses including Medicare premiums , are " triple - tax - free " — taxpayers receive a deduction when contributions are made, contributions grow on a tax - sheltered basis, and contributions can be withdrawn tax - free.
The pre - retirement years are a good time to rebalance and reallocate a portfolio. Individuals may want to recognize capital gains before the income is subject to the two - years - prior IRMAA rules.
Some strategies that retirees may want to contemplate in the years that are subject to IRMAA include timing the recognition of capital gains or harvesting tax losses, filing appeals for " life - changing " events, monitoring income levels to avoid the IRMAA "cliff," and using qualified charitable distributions QCDs. Other ways for new retirees to keep their MAGI below threshold levels include the sensible use of withdrawals from investment accounts that are nontaxable returns of capital, which are excluded from gross income, while still making withdrawals of enough taxable income to make full use of applicable deductions and nonrefundable credits.
Other strategies include postponing distributions from qualified retirement accounts such as IRAs or Sec. However, pre - retirement income recognition may be wise if it can still permit clients to stay within the same income tax bracket for the current year, and their tax bracket will be the same or higher in their retirement years. Therefore, changes in the Part B premium over time generally reflect the growth in total Part B expenditures.
The expected program costs for the aged, that is, the monthly actuarial rate for the aged, is defined as one-half of the expected average monthly per capita program costs for the aged plus any contingency margin adjustments. The contingency margin is the amount set aside to cover an appropriate degree of variation between actual and projected costs in a given year.
The standard Medicare Part B premium is the premium amount paid by beneficiaries not held harmless see " Medicare Part B Premiums for Those Not Held Harmless " and not paying a high-income-related premium. Table 1. Medicare Part B Premiums, Note s : Each member of a couple pays the applicable premium.
Lower thresholds are rounded up to the nearest dollar and upper thresholds are rounded down to the nearest dollar. Modified Adjusted Gross Income MAGI is defined as gross income from all sources excluding nontaxable Social Security benefits and other statutory exclusions adjusted to reflect a number of deductions including trade and business deductions and losses from sale of property plus certain foreign-earned income and tax-exempt interest.
Enrollees at higher income levels pay premiums that represent a higher percentage of per capita costs. Since , 43 high-income beneficiaries have paid higher premiums set to cover a greater percentage of Medicare Part B costs than the standard premium. Adjustments known as income-related monthly adjustment amounts are made to the standard Medicare Part B premiums for high-income beneficiaries, with the share of expenditures paid by beneficiaries increasing with income.
Those subject to a high-income-related premium are determined based on their MAGI and the most recent federal tax return provided to the Social Security Administration by the Internal Revenue Service. Low-income Medicare Part B enrollees may qualify for assistance with premiums and other out-of-pocket expenses through Medicare Savings Programs. Depending on an enrollee's income and the eligibility requirements of his or her state Medicaid program, 47 a Medicare enrollee may be eligible for full Medicare and Medicaid benefits paid for by Medicaid through the Qualified Medicare Beneficiary program.
Low-income Medicare Part B enrollees who do not meet their respective state's Medicaid eligibility criteria may be eligible to have their Medicare Part B premiums paid either by Medicaid, through the Specified Low-Income Medicare B eneficiaries program, or by the federal government, through the Q ualifying I ndividuals program.
Each year, the Medicare Part D base premium is set at The actual cost of coverage and premiums, however, varies by plan. Medicare Part D enrollees may pay premiums to their plans directly or may have premiums automatically deducted from their Social Security benefits.
Those subject to a high-income-related premium are determined based on their MAGI, using the same income thresholds as Medicare Part B income-related premiums. The income -related monthly adjustment amount IRMAA is calculated as the difference between the Medicare Part D base beneficiary premium which represents Some Medicare Part D enrollees with low incomes and limited assets may qualify for premium and cost-sharing assistance. These low-income subsidies are offered on either a full or a partial basis, depending on an individual's level of income.
Enrollees who are eligible for Medicaid, those eligible for one of the three Medicare Savings Programs for Medicare Part B assistance, and those eligible for Supplemental Security Income assistance are automatically eligible for full low-income subsidies , 54 which cover the cost of the monthly premium and the annual deductible and also reduce cost sharing.
Social Security benefits and Medicare Part B premium amounts are adjusted annually using different methods, which typically has resulted in a higher percentage increase in Medicare Part B premiums than in Social Security benefit increases.
By contrast, Medicare Part B premiums are adjusted annually to account for changes in Medicare program expenditures for covered medical services.
Medicare Part B premiums represent a percentage of the actual costs of the program, and thus premiums rise as health care costs rise. The annual percentage increase in Social Security benefits and Medicare Part B premiums for years to is shown in Figure 1.
Figure 1. In , there was only a 0. The standard Medicare Part B premium is the premium amount paid by enrollees not held harmless and not paying a high-income-related premium amount. Some individuals may have experienced different growth rates than those shown if their premiums were adjusted for the hold-harmless provision or high-income-related premiums. There was no Medicare Part B standard premium increase in , , , , , or In , the standard Medicare Part B prem ium decline d by Although Medicare Part B premium changes also have varied from year to year, there is a general trend of increasing premiums paid by beneficiaries.
Standard Medicare Part B premium changes have ranged from The 3. Other than the years in which there was no Medicare Part B premium increase , , , , , and , increases in Medicare Part B premiums historically have been greater than the Social Security COLA increases. A hold- harmless provision in the Social Security Act prevents certain Social Security beneficiaries' benefit amount from decreasing from one year to the next due to an increase in standard Medicare Part B premiums.
The number of individuals held harmless can vary widely from year to year, depending on annual inflation rates and projected Medicare Part B program costs. In a typical year, few individuals are held harmless. The hold-harmless provision does not apply to Medicare Part D premiums. Therefore, a beneficiary is not held harmless if the increase in his or her Medicare Part D premium or the combined increase in Medicare Part B and Part D premiums causes his or her Social Security check to decline.
In other words, an individual's Social Security check may decrease as a result of a Medicare Part D premium increase. Several groups are not covered by the hold-harmless provision. Medicare Part B enrollees who do not receive Social Security may include individuals who spent their careers in employment that was not covered by Social Security, including certain federal, state, and local government workers. Although CSRS benefits are increased annually by the same COLA applied to Social Security benefits, the benefits are not Social Security benefits and thus its beneficiaries are not protected under the hold-harmless provision.
Whether a beneficiary is held harmless or not depends on the amount of the standard Medicare Part B premium increase relative to the amount of his or her Social Security COLA in a given year.
The 2. Therefore, this individual would pay as much of the Medicare Part B premium increase as possible without decreasing his or her Social Security benefit amount. The Medicare Part B premium an individual pays when held harmless may affect his or her future Medicare Part B premium amounts. For example, an individual held harmless in a year with no Social Security COLA may pay an increase in Medicare Part B premiums in a later year in which he or she is not held harmless, even if the standard Medicare Part B premium does not increase.
As an illustration, Table 2 shows how the activation of the hold-harmless provision might affect future Medicare Part B premiums for a hypothetical individual who retired in , receives an average Social Security benefit amount, and is eligible for the hold-harmless provision beginning in A similar situation would have occurred in Table 2. Average Social Security Monthly Benefit b.
Hold- Harmless Provision Activated? Notes: This chart assumes the individual is eligible for the hold-harmless provision the individual is not new to Social Security or Medicare Part B, receives Social Security benefits, does not pay high-income-related Medicare Part B premiums, and is not eligible for a Medicare Savings Program. The standard Medicare Part B premium is the premium amount paid by enrollees not held harmless and not subject to high-income-related premiums.
The hold-harmless calculation is made in November each year, CMS says. So anyone joining Part B in would have to pay the higher Part B premiums until November when they would become eligible for hold-harmless protection. Note: We are currently in the process of replacing our commenting service, so it may take a few days for previous comments to appear.
Login or register on AARP. You are leaving AARP. Please return to AARP. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age.
You can also manage your communication preferences by updating your account at anytime. You will be asked to register or log in. In the next 24 hours, you will receive an email to confirm your subscription to receive emails related to AARP volunteering. Once you confirm that subscription, you will regularly receive communications related to AARP volunteering.
In the meantime, please feel free to search for ways to make a difference in your community at www. Javascript must be enabled to use this site. Please enable Javascript in your browser and try again.
Now Reading:.
0コメント