Patricia Barry - Medicare For Dummies

One other calculation isn’t shown in Table 3-1. It relates to married couples filing separate tax returns. In that case, each spouse pays a surcharge based on his or her individual MAGI in one of two levels: from $87,000 to $413,000 and from $413,000 and above.

The dollar amounts of the surcharges change slightly each year because they’re based on percentages of the total costs of Part B and Part D in the previous year, and these costs, of course, may fluctuate from year to year. But the thresholds — the MAGI amounts that take you to a higher level of premium — were frozen through 2019 and were adjusted in 2020 and thereafter each year for inflation.

Note: The Bipartisan Budget Act of 2018 required beneficiaries with incomes of more than $500,000 ($750,000 for married couples) to pay 85 percent of program costs beginning in 2019, up from 80 percent prior to 2019. See www.kff.org/medicare/issue-brief/summary-of-recent-and-proposed-changes-to-medicare-prescription-drug-coverage-and-reimbursement/ for more information.

A lot can happen in the two years that pass between the year on which your income is assessed and the year in which surcharges are applied. For example, in the former (I’ll call it year A), you may be working and pulling in high earnings, while in the latter (year B) you’re retired with a greatly reduced income. In year A you’re married; in year B you’re widowed or divorced. In year A you’re doing okay with your stocks and shares; by year B, the market has crashed and you’ve lost your shirt.

In any of these cases, can you have the surcharges waived? The following sections explain events that qualify as life changes and other instances in which you may be able to secure a waiver from Social Security. (The Social Security Administration, not Medicare, assesses higher-income surcharges.)

In certain specific circumstances when your income has recently gone down, you may be able to avoid paying a higher-income premium surcharge. The Social Security Administration calls the following circumstances life-changing events:

You marry, divorce, have your marriage annulled, or are widowed.

You or your spouse stops work — for example, you retire or lose your job.

You or your spouse works fewer hours.

You or your spouse loses income because your former employer’s pension plan ends or is altered.

You or your spouse receive a settlement as a result of your current or former employer’s closure, bankruptcy, or reorganization — so in this case, the increased income doesn’t count toward a premium surcharge.

You or your spouse loses income-producing property (such as a house you rent out, farmland and crops, or animals you’d otherwise have sold) due to a disaster or other event beyond your control.

If any of these events has happened to you, resulting in reduced income, and you’re already paying the premium surcharge or have been told that you must pay it soon, contact Social Security (at 800-772-1213 or TTY 800-325-0778) immediately and ask for a new initial determination, which is the phrase Social Security uses in this situation. Social Security decides whether you need to pay the surcharge without your having to go through a formal appeal.

If you request a new initial determination, you need to provide proof of the life-changing event on which it’s based, such as a death certificate or a letter from your former employer confirming that you’re no longer in your job. You also need to show a more recent tax return with evidence of reduced MAGI — or, if you haven’t yet filed a tax return for the current year, you must give Social Security an estimate of your reduced earnings and then provide a signed copy of the return after you’ve filed it with the IRS.

Social Security officials told me that a new determination request is usually processed on the day it’s received if it’s supported by proper documentation. Otherwise, the request will be delayed or denied for want of evidence. If Social Security agrees that one of the life-changing events on the list applies to you, it will revise its records and the premium surcharges will be waived or reduced. This adjustment may take a while, but any overpayments you’ve already made will be refunded. If your request is denied or you disagree with the new determination, you have the right to file an appeal by calling Social Security at 800-772-1213.

Check out some example scenarios:

Kate had a well-paying job with health benefits and worked until she turned 68 in the fall of 2019. On retirement, she was dismayed to find that her Medicare Part B and D premiums included hefty high-income surcharges. The amounts had been based on her latest tax return, filed early in 2018, which reflected the large salary she had earned in 2017. But in retirement, her income had fallen sharply. However, retirement counts as a life-changing event, so Kate was able to apply to Social Security for a reassessment. Her premiums were reduced to the standard amounts, and Social Security refunded the excess payments she’d made.

Jose and Maria didn’t grumble too much about paying the higher-income surcharges because, though well into his 70s, Jose was still earning good money as a self-employed consultant. That ended abruptly with his sudden death from a heart attack. Without his earnings, Maria’s income more than halved. Acting on a friend’s advice, she asked Social Security to reduce her Medicare premiums to the standard rate. Because Jose’s death counted as a life-changing event, Maria’s request was granted.

What if your income went down for other reasons? For example, what if you lost investment income after being wiped out in a stock market crash? Social Security doesn’t count this occurrence as a life-changing event, even if it seems like one to you, so you can’t apply for a new determination. All you can do is file an amended tax return to the IRS and then, if that is accepted, submit it to Social Security as proof that your MAGI is now much lower.

One other situation is worth mentioning. If your income is reduced by fraud or other criminal activity — such as being duped in a Ponzi scheme — Social Security will consider a request to waive a premium surcharge. But you have to provide proof that fraud or a crime has been committed and show that the perpetrator has been convicted for it.

Finally, what if you simply can’t afford to pay the surcharge because of lost income but don’t qualify for a life-changing event waiver? In most cases, you just have to suck it up and pay the higher premium until your next tax return shows your true income. Still, Social Security says it will consider waiving the surcharge “if payment of the premiums would create severe financial hardship.” If that’s the case, call Social Security and request a waiver.

It has happened rarely — so far only in 2010, 2011, 2016, and 2017 — but there are certain years when about 70 percent of Medicare beneficiaries pay one Part B premium and the remaining 30 percent pay much more. I’m not talking here about the higher-income premium described in the previous section. This is a different scenario, the direct result of Social Security not providing a cost-of-living adjustment (COLA) — that is, an increase — or only a very tiny one, during some years.