Financial surprises are fun. Getting an unexpected gift of money is a great example. However, there are plenty of financial surprises that are not so great. Getting notified that your Medicare premiums will be going up is one of those not so great surprises. But this happens more often than you'd think. Sometimes this outcome is expected and planned for. Like completing a large Roth conversion. You'll take the good with the bad. Other times, it's an unwelcomed and unexpected outcome based on decisions that were made outside of your control. So do pharmacist families have any reprieve when it comes to increases in their Medicare premiums? In this blog post, we explore how pharmacists can begin the process of appealing Medicare premium increases and the types of circumstances where they should and shouldn't expect a reversal of that premium increase outcome.
What causes IRMAA premiums to increase
What are considered "Life-Changing" events for IRMAA appeal
Why human error isn't a good appeal option
How financial decisions have unintended consequences
Why IRMAA Premiums Go Up
Medicare part B and D premiums increase for individuals if their adjusted gross income reach specific IRMAA thresholds. To learn more about IRMAA premiums, check out the blog "How IRMAA Can Impact Your Retirement Planning In 2022". But when the damage is done (exceeding those specific IRMAA thresholds) it's hard to reverse the decision of increasing your premiums for the year. So the best place to start when it comes to managing this outcome is keeping it from happening in the first place. Two common reasons for premium increase are:
Shadow taxes are the unanticipated or unexpected tax consequences that come from other money moves made within a persons financial situation. A great example of this is Roth IRA conversions. Completing a Roth IRA conversion is the process of moving money from your IRA to a Roth IRA. Hopefully this is done while in a lower than usual marginal tax bracket, therefore saving money on any future (and higher taxed) taxable IRA withdrawals.
These kind of money moves could increase your modified adjusted gross income to a point where you exceed the IRMAA thresholds for increased premiums. Usually this is an afterthought. Meaning you don't even think about the unintended consequence until after the notification of the premium increase arrives.
Major Life Event
There are a number of different life events that could cause your taxable income to spike in any given year. Winning a large prize (lottery), selling a business, receiving a large bonus, settlement payments, etc. are examples. Some of these situations can be planned around to help reduce the impact of the additional income over time. However, some of these are totally out of your control. Hopefully the benefit of the increased income is far greater than any single year increase experienced in Medicare premiums.
Social Security Administration Form 44 (SSA-44)
The entire goal of the IRMAA premium increase on Medicare premiums for part B & D is so that individuals who have higher incomes "pay their fair share" into the Medicare system. Specifically in retirement. So what happens if you are that higher income earner in retirement and you find that your financial situation dramatically changes for the worse in any given year? Are you still stuck with paying those higher premiums even if your income has drastically dropped? Remember, IRMAA premium increases are based on your MAGI from two years ago. So what if your income from two years ago doesn't accurately reflect your current financial state? Luckily, there is an available remedy.
That remedy is to petition to the Social Security Administration for lower Medicare premiums through the submission of form SSA-44. This form can be used if you receive a notice that your monthly Medicare Part B or prescription drug coverage premiums include an IRMAA and you experience a life-changing event that may reduce your IRMAA.
Essentially, the SSA is giving people who experience a life-changing event, the chance to appeal their high Medicare premiums. So what are these life changing events that would allow you to qualify?
Getting married in a year is considered an event that is "life-changing". The reason for this is because the IRMAA tables that determine what your increased premiums are, are based on your tax filing status.
As a single individual who is has a modified adjusted gross income over $91,000, you will have exceed the first IRMAA threshold, which would increase your Medicare B & D premiums. But if you get married and file a Married Filing Jointly tax return, that first IRMAA threshold goes up to $182,000.
So if you get married and your income as a single individual exceeded $91,000 but your married filing jointly income is less than $182,000, this marriage "life-changing" event would be in your favor.
Instead of waiting for two years until your MFJ income starts getting counted, you could use this form to let the SSA know that you'd like your premiums decreased right away.
This life-changing event can be used if your legal marriage ended, and you will not file a joint return with your spouse for the year. It's the opposite situation as the marriage event. If your an individual who doesn't earn a very high income, but your spouse does, this may be beneficial if you get a divorce/annulment.
If you're married and your joint income is $340,000 +, you will experience an increase to your Part B premiums to the tune of $272/month. And this is per individual. So if you find yourself getting divorced, these extra monthly payments could but a substantial strain on you financially. Especially if you were not the bread winner in the marriage.
So, if you find yourself in this kind of situation, you have the ability to appeal those higher premiums for yourself. You will have to prove that you didn't earn most of that joint income previously as well as showing that you are not expected to earn that higher income for yourself within the next year.
Death of Your Spouse
The same situation above can be applied, but instead of getting a divorce, your spouse passes away. If your spouse was a high income earner, which was the reason for the higher Medicare premiums, you can appeal these higher premiums you're required to pay if your spouse passes away.
If you don't appeal the IRMAA increase, you may find yourself earning far less than you had before the passing of your spouse, while still paying those higher premiums for the next two years.
Work Stoppage or Reduction
If you or your spouse stopped working or reduced the hours that you work, you may be entitled to a decrease in your Medicare premiums. This is probably the most common "life-changing" event for individuals. Especially considering that people are working later in life.
Lets say that you have a plan to work until age 70 so you can allow your social security retirement benefit to grow to its maximum amount. However, the income from your job as you continue to work, pushes you into a much higher IRMAA bracket. When you retire and that income goes away, it may leave you and your spouse in a spot where that premium increase could be a much bigger percentage of your new job-less income lifestyle.
When this happens, the Social Security Administration doesn't' want to burden you with these higher premium payments for the next two years. So, they give you this outlet to use as an appeal.
Loss of Income-Producing Property
With the rise recently in the amount of individuals who look to create passive income streams for themselves, this "life-changing" event is becoming a more popular appeal option. You can use this appeal if you or your spouse experienced a loss of an income-producing property that was not at your direction.
If the loss of your property was not due to the sale of transfer of the property at your discretion, you may have an opportunity to appeal IRMAA. This includes loss of real property in a Presidentially or Gubernatorially-declared disaster area, destruction of livestock or crops due to natural disaster or disease, or loss of property due to arson, or loss of investment property due to fraud of theft.
Loss of Pension Income
Pensions are becoming less and less common. But they are nevertheless still available to many Americans today. And although many people may consider their pension to be bulletproof, there are instances when pension payments may cease.
If you or your spouse experience a scheduled cessation, termination, or reorganization of an employer's pension plan, you may have the ability to appeal your higher Medicare premiums if that pension was the primary source of your increased income.
To be granted this appeal, it doesn't mean that your pension has to go away forever, In some cases, when organizations who have offered pensions to their employees go through a re-organization event (sometimes known as bankruptcy), they may stop pension payments for a certain period of time. This is a good enough reason to appeal IRMAA through this life-changing event option.
Your pension doesn't have to go away forever in order to be allowed to take advantage of this appeal option.
Employer Settlement Payment
This appeal option is a direct result of you or your spouse receiving a settlement from an employer or former employer because of the employer's bankruptcy or reorganization. This kind of works in opposition to the aforementioned life-changing events above.
Usually you would appeal based on a decrease of income. This option gives you the ability to appeal IRMAA due to an increase of income due to an employer settlement payment. It's important to note that due to the two year lookback rule, you will want to appeal your increase IRMAA two years after this employer settlement payment happens.
So if you find yourself in this situation, don't forget to keep the appropriate documents and records that can prove this as the reason for why your modified adjusted gross income jumped substantially in that year.
Unfortunately, there are many reasons why you may experience an increase in your Medicare premiums that are not covered by the "life-changing" events that are outlines above. Many times, its just human error that occurs that leads to these higher Medicare premium outlays.
I have seen situations where an individual may have take a large withdrawal from a 401(k) or IRA and not realizing this is a taxable event. The increased income in that year is a tax burden. The increase in Medicare premiums two years later is an even harder pill to swallow.
The Social Security Administration doesn't provide a lot of sympathy in these types of situations. In their eyes, financial ignorance is not an appropriate reason to appeal IRMAA decisions. But with the complexities that come along with personal finance and taxation, it's not realistic to think that an average American can navigate all of it error free. Meaning that there is a higher than believed likelihood that people will run into this problem as they reach Medicare age.
Everything in the world of personal finance in interconnected. A financial strategy or decision that may seem like a positive in the onset may end out costing you more down the road. It's kind of like the butterfly effect. A small decision today could cause major outcomes in unintended areas of your life down the road.
Increases to your Medicare Part B & D premiums could be one of these. But have a little reassurance that if situations arise that cause your income to drop substantially, you may have an outlet available to lower those premiums as well. The first place to start is evaluating your current change in income and figuring out if it qualifies as a life-changing event.
If you believe this a realistic option, filling out and submitting form SSA-44 is your next step. Then it's crossing your fingers and hoping that it works out in your favor, because we all know that when dealing with government entities, nothing is a for sure thing.