According to statisticians, the huge Baby Boomer generation is enrolling in Medicare at the rate of about 10,000 per day. Those who are not yet collecting Social Security benefits receive a monthly premium bill for Medicare Part “B.” Some are also charged for voluntary Medicare Part “D” (Prescription Drugs). These people know exactly what they are being charged for their Medicare participation.
Those who are collecting Social Security monthly benefits get their Medicare premium costs deducted from Social Security before their monthly benefit is deposited. Too often, these people are not aware of their own costs for Medicare “B” and/or Medicare “D.”
Both groups have exposure to being overcharged for their Medicare premiums. This is not a clandestine plot by the government to confiscate their money. Rather, it is a function of the paperwork flow among and between IRS, Social Security, and Medicare. IRS provides Social Security with your income figure, which is always a year behind your most recent tax filing. That amount is then applied by Social Security to next year’s Medicare premium determination. By then, the information is 2 years old.
The problem occurs when new Social Security recipients are receiving a substantially reduced amount of annual income, versus their 2-year-old Tax Returns. Reasons for income reduction can include retirement or reduction of hours, marriage or divorce, and other significant life-changing events. The U.S. Government doesn’t take responsibility for asking if your circumstances have changed. That is 100% up to you. That’s the bad news.
Here’s the good news; you are in control, but you may not know that. If you are like many people, you have a lower income in your first Medicare year than you had 2 years before. Whatever the reason, retirement being the most common, Social Security acknowledges your changes, once you inform them.
Unknown to most people is that Medicare costs more for some people than for others, based on income. Everyone is charged the “Base Rate” ($148.50 in 2021), and higher income people are also assessed a surcharge. The extra amount is called “IRMAA,” which stands for Income-Related Monthly Adjustment Amount.
Around Thanksgiving every year, Social Security mails an Informational Letter to all recipients. This letter itemizes on Page 1 your next-year charges beginning in January, including the Base Rate, and also any IRMAA surcharges you will be assessed. If you aren’t paying anything under IRMAA, you are not being overcharged.
If you are being charged under IRMAA, dig deeper to see if it is correct for your current circumstances. IRMAA brackets are itemized on page 2 of your Information Letter. If your total income has dropped, or will drop, into a lower IRMAA bracket, you may be able to get a reduction in your Medicare premiums. In fact, the process is included in your annual Information Letter, but almost nobody actually reads the entire letter.
Correcting your own Medicare pricing is not a particularly fun process, but we are talking serious money for many taxpayers. Entering your later years, saving money should be a very high priority.
There is no difference in Medicare benefits, only in costs. Medicare Part “B” has been the fastest rising cost for seniors since 2000, having risen 149% faster than inflation. Don’t make it worse. If you are confused, a qualified Certified Financial Planner® may be able to help you.
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