Managing Medicare Part B Premium Increases

Question: I have my Medicare Part B premiums paid automatically from my Social Security benefits, and until now I have been protected by the provision that keeps premium increases at the same level as the previous year’s cost-of-living increase. As a result, my monthly premiums were just $104.90 in 2016, the same as in 2015. But I recently received a notice from Medicare that my monthly premiums will jump to $187.50 in 2017. Why do I have to pay that much more? Is there anything I can do to modify the premium increase?Answer:

As you say, most people who have their Medicare premiums deducted from their Social Security benefits are protected by the hold-harmless provision and paid just $104.90 per month in 2016 for Medicare Part B. Their premiums will rise in 2017 based on the 0.3% cost-of-living increase in Social Security benefits, resulting in monthly average premiums of $109. See Retirees to Pay More for Medicare in 2017.

But even if your premiums are paid from your Social Security benefits, if your modified adjusted gross income in 2015 was more than $85,000 for single filers or $170,000 for married couples filing jointly, you won’t be protected by the hold-harmless provision – and you’ll have to pay a high-income surcharge. Monthly Part B premiums are $187.50 per person for single filers who earned $85,001 to $107,000 and married couples who earned $170,001 to $214,000. The high-income surcharge gradually rises based on income, topping out at $428.60 per month for single filers who earned more than $214,000 in 2015 and married couples who earned more than $428,000. See Part B Costs at Medicare.gov for the full list of “Income-Related Monthly Adjustment Amounts,” which is the official term for the high-income surcharge.

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The modified adjusted gross income Medicare uses to determine your premiums is your AGI plus tax-exempt interest income. Even if you haven’t earned more from working, your modified AGI can increase under certain circumstances. Among them: You had taxable income from a pension or withdrawals from tax-deferred retirement savings, such as traditional IRAs and 401(k)s (but not Roths); you converted a traditional IRA to a Roth; you had taxable income from investments, including municipal bond interest.

Medicare generally bases 2017 premiums on 2015 income because that is the last tax return on file. If your income has decreased since then because of certain life-changing events, such as marriage, divorce, death of a spouse or retirement, you can ask the government to base your premiums on more-recent income. You’ll need to file Form SSA-44 with the Social Security Administration to provide documentation of the life-changing event, such as a letter from your former employer stating that you’re now retired. For more information, see Medicare Premiums: Rules for Higher-Income Beneficiaries.

If you didn’t experience a life-changing event but your income was unusually high because of a one-time income boost -- such as a big taxable withdrawal from a traditional IRA -- then your premiums should go down for 2018 if your 2016 income falls below the limits for the surcharge.