The vast majority (>95%) of Medicare subscribers pay the standard premium for Medicare Part B coverage and for the prescription drug coverage (Medicare Part D) plan that they choose.  The other 5% of subscribers are deemed high income and must pay additional Income-Related Monthly Adjustment Amounts (IRMAAs) on top of the standard premiums.  These IRMAAs can add as much as $341/month combined to your Part B and Part D premiums.  Multiply this by two if your spouse is also a subscriber, and you are looking at IRMAAs of up to $682/month for a couple!  That is $682/month (~$8,182/year) more than the average subscriber pays for Medicare Part B and D. Understanding how Medicare Part B and D premiums are calculated and your right to request a premium reduction could save you a substantial amount in early retirement.

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How are My Premiums Determined?

When you apply for Medicare Part B, the Social Security Administration (SSA) examines the most recent federal tax return provided to it by the IRS.  If your modified adjusted gross income (MAGI)-  which consist of the Adjusted Gross Income shown on your tax return plus tax-exempt interest – exceeds a threshold amount, you must pay surcharges (the IRMAAs) in addition to the standard Part B and Part D premiums.  The amount of the IRMAAs varies depending on your MAGI.  For 2016, the MAGI threshold is $170,000 for subscribers who file a joint tax return and $85,000 for all others.  For a chart showing the 2016 IRMAA tiers, see the Social Security publication titled Medicare Premiums: Rules for Higher-Income Beneficiaries”.

There is a flaw with the SSA’s method for determining whether you are higher-income and thus subject to IRMAAs.  The SSA bases this determination on the most recent tax return it has available.  Say an individual chooses to retire in early 2016 and signs up at that time for Medicare Part B and D.  The most recent tax return available to the SSA will likely be the subscriber’s 2014 pre-retirement tax return.  If the MAGI shown on this 2014 tax return exceeds the threshold amount, the subscriber will be assessed a surcharge for Medicare Part B and D premiums in 2016 even though his/her 2016 income may be substantially lower than the threshold amount.

This scenario may repeat itself in 2017 with Medicare Part B and D premiums based on 2015 pre-retirement income.


What Can I Do If I’m Facing an Income-Related Monthly Adjustment Amount (IRMAA)?

In the event the SSA determines that you must pay any surcharge amounts, you will receive a letter showing your higher premiums and the reason for the determination.  If you feel that your current situation does not warrant these IRMAAs, you can appeal.

If you have an amended tax return or a more recent tax return which places you in a lower premium tier, call or visit any local Social Security office to request that your premium be reduced.  You will be required to provide a copy of the more recent tax return.

What if you have had a life change such as the death of a spouse, divorce, work stoppage or reduction, etc. since your last tax return was filed?  If using your current income would result in a reduction or elimination of the IRMMAs, you can request a premium reduction by completing Social Security Administration Form SSA-44, Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event form.  This form is your appeal for lower premiums. This simple form requires you to specify the life-changing event, your anticipated MAGI for the year of the change, and your anticipated MAGI for the year following the change (only if this 2nd year MAGI would place you in a different premium tier).  Certain life-changing events require documentation such as a divorce decree or death certificate. Your signature on the SSA-44 form is accepted as evidence of work stoppage or reduction though you may later be required to provide a completed tax return as proof of the reduction in your income.  See Form SSA-44 for the documentation required for each life-changing event.

Medicare premiums are calculated individually for each subscriber.  That means if you and your spouse are both paying higher premiums, you will each have to file a separate form.

What Happens After an Appeal?

The SSA will use the information you have provided to make a decision about your IRMAAs.  If it is determined that you qualify for reduced Medicare Part B and D premiums, you should see a reduction in premium amounts going forward and you should also receive a reimbursement of any premium surcharges paid during the current year.

That’s money you can use to enjoy the start of your retirement!