[NOTE FROM MOAA: The following article has been updated with 2018 data.]
Determining how much you personally will pay for Medicare can be complicated. (To learn about the process for signing up for Medicare, read the MOAA publication, Aging into Medicare and TRICARE For Life .)
One important issue to understand is Medicare is a subsidized benefit. For the vast majority of Medicare-eligibles, taxpayers pick up 75% of their Part B premium cost. That acknowledges what we all can understand, but don't think much about….providing health care for older Americans is a very expensive business.
Each year, the Centers for Medicare and Medicaid calculate the expected cost of providing non-hospital medical services to the Medicare-eligible population. Basic Part B premiums for the coming year are set to cover 25 percent of that average cost, with the rest provided out of tax revenues.
For 2018, the expected non-hospital medical cost for the typical Part B enrollee was calculated at $6,432. Of that amount, the basic annual Part B premium (25 percent) was set at $1,608, or $134 per month -- which means taxpayers are ponying up the other 75 percent ($402 monthly) for most Part B enrollees.
But it's not that simple - as many retired officers will discover when they become Medicare-eligible. In addition to their retired pay, most officers have earnings from post-military careers, investments, and other sources. Many married couples also have significant income from spousal employment.
Most people in those situations realize first-hand about Medicare's means-tested aspect, as people with higher incomes are expected to take on responsibility for paying more than the basic 25-percent share of their Part B premium.
The chart below shows how the taxpayer subsidy shrinks successively over five income tiers.
|Monthly Park B Premium
Up to $85,000
Note: a new change (enacted in 2015 but taking effective in 2018) reduced the income threshold for the highest premium bracket from $240,001 to $160,001 (from $480,001 to $320,001 for married couples). This means people with incomes between those levels saw their premiums rise almost $80 per month per person in 2018.
So where does the income data come from? Your federal income tax returns. Because those are mostly filed in April and because premiums have to be established before the start of each new year, there's a lag in applying your tax-based data to your Part B premiums.
So the means-tested 2018 Part B premium rates were based on what you reported on your 2016 tax return.
For most years, that means you get a little break by basing this year's premiums on an earlier year's (and likely lower) income.
But when you retire from working life or downshift to part-time work, that can come back to bite you, because you'll get a notice sometime in November that your next year's Part B premiums are still based on your previous (higher) income.
Fortunately, there's a way to get your Part B premiums reduced when a qualifying event (such as retirement) reduces your income below what you reported on your tax return two years ago.
That form can be found at https://www.ssa.gov/forms/ssa-44.pdf (Important note: This is *not* an “appeal” form. If you google “part B premium appeal,” you'll find something else entirely.)
It provides you the opportunity to explain what life event has changed your income and what your current income is expected to be.
Note that the instructions at the bottom of the form require documentation of the life event change (such as a letter from your employer specifying the date of your retirement.
My experience in this process was that a visit to the local Social Security office was the fastest way to get the Part B premium changed. To ensure I was prepared, I took copies of my leave and earnings statement, tax return, and other income evidence. Having heard horror stories of others' experiences with Social Security offices, I was prepared for an extended wait and documentation hassles.
I was pleasantly surprised that my spouse and I (you need to submit a separate Part B change request for each spouse) were in and out of the office within 90 minutes, and the clerk was very helpful. She did caution against under-reporting expected income, saying “If it turns out to be higher than you said, Medicare will come back after you.”
In our case, the system worked semi-efficiently. Within two weeks, I received a notice that my Part B premium had been reduced. Unfortunately, there was a glitch on my spouse's change, so we had to go back and resubmit her application. But that office visit took a mere 45 minutes, and she got her premium change notice ten days later.
Because we had already paid a couple of months of the too-high premium, we received a repayment credit for the excess amount.
All in all, a pretty painless process to save ourselves several thousand dollars in Part B premium overpayments.
One caution: You won't be able to get your premium reduced in advance. You need to wait until you (and your spouse, if applicable) receive your official notice from Medicare of the too-high premium for the next year. It usually will come to you in November. Then take that notice with your application and documentation to the Social Security office.