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Medicare and Social Security Claiming Decisions – Part 2


Last week we began a series regarding claiming benefits for America’s two most comprehensive Social Programs; Medicare and Social Security. This week, we’ll discuss considerations after filing for Medicare. Most Americans know that the eligibility age for Medicare is 65, and most enrollees have looked forward to their eligibility date. Many are surprised that Medicare is not “free.” We should note that fully qualified enrollees receive Medicare Part A (Hospital Insurance) free of monthly premiums.

Medicare enrollees are treated as individuals under Medicare, except for their Part B premiums, which are tied to household income. Part B pricing increases for higher income enrollees. Married people’s incomes are obtained from their tax returns, which are generally filed jointly, reporting combined incomes. This can lead to higher Medicare pricing for both spouses. For enrollees in higher income tax brackets, the cost difference is considerable.

In 2020 the standard Medicare B monthly premium is $144.00 per person. However, as incomes go higher, individual monthly premiums can go as high as $491.60 each. Added to that are potential “IRMAA” extra payments for Medicare Part D, which is insurance for prescription drugs, whether or not the Medicare enrollee is covered by Part D.

In our experience, most Medicare recipients are unaware of their actual monthly premiums. This is largely due to the practice of Medicare deducting the premium cost from the enrollee’s Social Security benefit check. People not receiving Social Security benefits receive a paper bill from Medicare, and are therefore reminded monthly of their actual costs.

Anyone who is receiving Social Security benefits while enrolled in Medicare should immediately go to their account at socialsecurity.gov (open one, if necessary) and look at the details of their monthly benefits. The Medicare deduction is displayed prominently as a reduction from Social Security gross benefit. If you are paying more than the Standard Premium shown above, you should do a little analysis, as you may be getting overcharged based on your current income.

Evaluating income from prior tax returns produces a time lag from people’s current situations. Americans don’t file tax returns until after the year is over, so Medicare tax information is from a return for 2 years ago. During that time lag, many age 65-ish Americans have had a substantial change in financial circumstances, most experiencing income reductions through retirement.

When a dramatic income reduction is experienced, prior tax returns present a false narrative to the Medicare System. When that situation applies, you are going to be overcharged for monthly Medicare premiums. You can fix this, but the government is not going to help you.

Start with your own Medicare premium. Compare it to the base amount (currently $144.00 per month), and see if you are being charged above the standard rate. If not, you are done and can rest easier. If you are being charged more, you need to see if your income is being accurately portrayed right now, based on your Modified Adjusted Gross Income, or MAGI. Here’s the big question; is that MAGI still current, or have you experienced a sharp drop in income? (The MAGI computation is available on the Medicare.gov website.)

Medicare has a procedure for securing a reduction in monthly premiums for people who have experienced what Medicare calls a “life-altering event” since their last tax return filing. Simply search for Form SSA-44 and complete the explanation, which may include marriage/divorce/death of a spouse, loss or reduction of earnings, and others. This form is handled through the Social Security Administration, not Medicare. Include the proper documentation, and Social Security will render an opinion.

When Social Security accepts your claim, they will instruct Social Security to reduce your monthly Medicare withholding going forward, and will refund excess premiums for a period of prior months. Going forward, should your income change again, the process can be repeated for a further reduction.

I’ll repeat the prior warning – you are on your own to go after this cost reduction; the government will not change your premium until the next tax return is filed, by which time you will have paid extra for 12 months.

Next week we will discuss filing for Social Security as a single taxpayer.

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