By Dr. Eileen Hilton
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While most retirees pay the standard premium amount for Medicare health coverage, those in higher income brackets pay an additional amount based on their income. If you’re in a higher income bracket and your income drops during retirement, less money for Medicare should be deducted from your Social Security payments, meaning more money should stay in your pocket. More often than not, however, you must take the initiative and request a Medicare premium reduction to see an increase in your Social Security benefit.
For most retirees, Medicare premiums are deducted automatically from their Social Security benefit each month. When people first apply for Social Security payments, the Medicare deduction is based on their income from two years before the application date, a time when many are at peak earnings. Because of this, they may see a substantial deduction from their monthly Social Security payment.
This premium deduction can have a major impact on retirees’ income and lifestyle, especially if they see a sudden decrease in their income for other reasons. The premium deduction rates for Medicare Part B, which covers doctor visits and procedures, and for Medicare Part D, which covers prescription drugs, vary greatly depending on income levels.
The chart below depicts income brackets (for 2014 income) and the corresponding premium deductions (called the income-related monthly adjustment amount) for 2016. Depending on what category you fall into, you will pay the following amounts for each type of coverage:
|Filed individual tax return||Filed joint tax return||Filed married and separate tax return||Part B||Part D|
|$85,000 or less||$170,000 or less||$85,000 or less||$121.80||$0|
|above $85,000 up to $107,000||above $170,000 up to $214,000||Not applicable*||$170.50||$12.70|
|above $107,000 up to $160,000||above $214,000 up to $320,000||Not applicable*||$243.60||$32.80|
|above $160,000 up to $214,000||above $320,000 up to $428,000||above $85,000 and up to $129,000||$316.70||$52.80|
|above $214,000||above $428,000||above $129,000||$389.80||$72.90|
Request a Medicare premium reduction
As you can see, if your income falls during retirement, you could owe much less in Medicare premiums. To find out if you might qualify for a premium reduction, you’ll need to review your most recent tax return and determine whether your modified adjusted gross income, or MAGI, has declined. Your MAGI is your adjusted gross income (your taxable income) plus any tax-exempt income you may have. TurboTax offers a good explanation of MAGI, or you can do a rough calculation using the IRS worksheet to see if your new MAGI places you in a lower premium class.
If it does, you can request a revised Medicare deduction. There are two ways to file:
- If you experienced a life-changing event such as marriage, divorce, the death of your spouse, or the loss of various types of income, you can submit Form SSA-44, Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event.
- If none of those applies, you could file a formal appeal. Contact your local Social Security office or request an appeal in writing by completing a request for reconsideration (Form SSA-561-U2).
Many retirees are eligible for a substantial upward adjustment in their monthly Social Security checks. One of my clients saw a major boost to her benefit when her husband’s income fell by 70% due to illness. She discovered that their Medicare Part B and D premiums, adding up to hundreds of dollars each month, were based on their higher income from two years before. Once she appealed to the Social Security Administration, their monthly Social Security check increased by more than $450 and they received a refund for overpayment from the previous year.
The drop in earnings for this couple was precipitous, but it’s not unique to them. If your income changes during retirement, make sure to find out whether it could result in a higher monthly Social Security benefit.