As we transition to a new calendar year, it’s a good time to bring together information on Medicare premiums, how much they are, how they are paid, how late enrollment penalties work, how the relatively new high-income surtaxes are applied, what opportunities are available for assistance in paying your premiums, and the consequences of not paying your premiums. Each part of Medicare has a premium structure, and as each is different, it’s easy to confuse them; putting all the information about each in one place will help keep things straight.
We’re not going to go in alphabetical order, which would be Part A, B, C, then D, but rather in terms of how many beneficiaries are responsible for a premium. This actually makes everything easier to explain. So our order will be Part B, D, C, and, finally, A. Medicare’s such an alphabet soup!
Part B Premiums
Part B Premium Amounts: All beneficiaries who enroll in Part B, also called Medical Insurance or Supplementary Medical Insurance (SMI), are responsible for a premium; in 2012 the standard premium will be $99.90 per month. Each year Medicare’s actuaries come up with an estimate of how much Medicare Part B will pay out over the next year, and one-quarter of this amount is allocated to come from beneficiary’s premiums. The amount varies each year, and although it usually increases, in 2012 it will go down. Payment: People getting monthly benefits from Social Security, Railroad Retirement, or a federal annuity from the Office of Personnel Management will have premiums taken out of their benefit payments. Everyone else will be directly billed and have to send their payments to the Medicare Premium Collection Center. If you are direct billed, you will be billed quarterly, but you can ask to be billed monthly instead. You can pay these bills by check, money order, or with a variety of credit cards. You can also make arrangements with the Social Security Administration to have someone other than you pay your premium (e.g., a union or a son for a forgetful parent).
Savings Clause: A savings clause is one that prevents beneficiaries of Social Security or Railroad Retirement from being hit with an increase in their Part B premium greater than the yearly cost-of-living increase in their Social Security or Railroad Retirement benefit.” (This increase is also called the “cost of living adjustment” or COLA.) Therefore in 2009 and 2010, most beneficiaries paid $96.40, which was the 2008 premium. This is because they received no COLA increase in 2009 or 2010, so their premiums were frozen.
This savings clause applies only to those who have their Part B premium taken out of their Social Security or Railroad Retirement monthly payment. If you are paying your premium directly to Medicare because you have elected not to draw your Social Security yet, someone else is paying your premium, your payments are in suspense because you are working, or if you get a federal pension instead of Social Security, this does not apply to you. You should also note that this savings clause applies only to Part B premiums. This savings clause is technically called the “Variable Supplementary Medical Insurance” (VSMI) premium.
Late Enrollment Penalties: For one reason or another, you may not have enrolled in Part B at your first opportunity. If so, you will be penalized — the cost will increase 10 percent for each 12 month period that you could have had but did not have Part B. (The 12 months are total, not necessarily consecutive.) For example, if you reached age 65 in October 2008, but decided not to enroll in and begin utilizing Part B until July of 2010, you would be penalized 10 percent extra. (You did not have it for a total of 21 months.) So in 2012 you would pay $109.90 per month (the standard premium of $99.90 x 110 percent).
If you did not have Part B because you were enrolled in an employer or union group health plan as a worker, or the spouse or dependent of one, or if you were a foreign volunteer, these don’t count as penalty months.
Penalty Rollback: If you became enrolled in Part B before age 65 and had a penalty attached to your premium, when you turn age 65 and continue to get (or become re-enrolled in) Part B, your penalty will be wiped out.
High Income Surtaxes: Beneficiaries who have higher incomes are subject to paying surtaxes on their Part B premiums. (The government euphemistically calls this a “subsidy reduction” because it reduces how much Medicare subsidizes your Part B. It is also called an “income related monthly adjustment amount,” or IRMAA.) The amount depends on your income, how you file your federal income taxes, and your marital arrangements. To determine your income for this purpose, look at your tax return from two years before the year in question (so for your 2012 surtax, you look at your 2010 return), and add your adjusted gross income to any tax-exempt interest reported on your return. This amount is called your “modified adjusted gross income,” or MAGI.
HIGH INCOME PART B MONTHLY PREMIUM SURTAXES
|Surtax You Pay
|$85,000 or less||$170,000 or less||$99.90#||—|
|$85,001 to $107,000||$170,001 to $214,000||$146.00||$46.10|
|$107,001 to $160,000||$214,001 to $320,000||$215.20||$115.30|
|$160,001 to $214,000||$320,001 to $428,000||$284.40||$184.50|
|$214,001 or more||$428,001 or more||$353.60||$253.70|
|MAGI if MARRIED,
|$85,000 or less||$99.90#||—|
|$85,001 to $129,000||$284.40||$184.50|
|$129,001 or more||$353.60||$253.70|
* the surtaxes are for each beneficiary’s premium
# this is the standard premium for 2012
Note: all the income amounts stay the same each calendar year
You’ll get a notice from Social Security each year about what your surtax will be. If you believe they used the wrong income, filing status, or family situation, you can challenge their amount. You can even do this if your financial situation has changed substantially. Managing Your Medicare has extensive information about this. Beneficiaries who are subject to this surtax do NOT get the savings clause protection discussed above.
Low Income / Low Resources Assistance: Medicare beneficiaries who have both low income and modest assets (your home, car, personal possessions, etc., don’t count) can usually get their Part B premiums paid by their state’s Medicaid program. This will happen if they have Part A and either become eligible for Medicaid or if they can meet the criteria to be in a Medicare Savings Program (MSP) as a “Qualified Medicare Beneficiary” (QMB), a “Specified Low-Income Medicare Beneficiary” (SLMB). As an SLMB your monthly income must be less than $1,109 as an individual or $1,246 as a couple. ). As a “Qualified Individual” (QI), Your monthly income must be less than $1,246 for an individual or $1,675 for a married couple living together, and your resources less than $6,680 for a single and $10,020 for a couple. The rules about what counts as each are very complex and vary by state. (The income limits are higher in Alaska and Hawaii; all income amounts will change a bit in early 2012.) Your exact family composition can also make a difference, so you should always apply if you are remotely near these income limits (some states don’t even have a resource limit). It is even possible for only one member of a married couple to qualify under the “spousal denial” process. For those of you who meet the criteria as a Medicaid beneficiary or as a Qualified Medicare Beneficiary (QMB), not only will you have your Part B premiums paid, but your Part A and Part B deductibles and coinsurances too, so it’s truly worth applying for these programs.
Failure to Pay: • If you fail to pay your Part B premium, you will be disenrolled. The process is a little involved, and you will be several notices before this is done, including your premium notice, a delinquency notice, given a grace period, and then a final notice. So you’ll have opportunity to pay up even if you miss your usual payment deadline. But if you don’t pay at all, you will be disenrolled. • If you are disenrolled from Part B and you are in a Medicare Advantage Plan (Part C), you will be disenrolled from it, too. • If you have your Part D prescription drug benefit with your Plan, you will also lose it because you must be in either Part A or Part B. If you are a beneficiary that has only Part B (no Part A), and are in a stand-alone prescription drug plan, you will be disenrolled from it. This is because in order to have Part C, you must have both Part A and Part B. Carefully consider the consequences of not paying your Part B premium if for some reason you decide not to do that.
Part D Premiums
Let’s now discuss Part D premiums – but only for beneficiaries who are in a stand-alone prescription drug plan, often called a PDP. (You can also get Part D when your join certain Part C Medicare Advantage Plans, but we’ll discuss that when we talk about Part C premiums.)
Part D Premium Amounts: If you join a Part D plan, you will also become responsible for a monthly premium. In 2012, (in the 50 states), these range from $15.50 to $131.80, and the average beneficiary will probably pay just under $40 a month. (There is even one plan in Puerto Rico which charges no premium.) Your plan cannot change its premium during a calendar year, but may change it each new year. The Medicare Plan Finder (on www.medicare.gov) takes each plan’s premium into account when searching for the best overall plan for you. The good news is that Part D premiums for 2012 have come down slightly from 2011.
Payment: You can either get your plan’s monthly premium deducted from your Social Security or Railroad Retirement check, or make arrangements to pay your plan directly. Most plans accept checks, credit cards, automatic withdrawals, etc., so you can do whatever is easiest for you.
Late Enrollment Penalties: As with Part B, you are penalized with a higher premium if you did not join Part D when you first were able to, but it’s determined quite differently. The Part D penalty is computed by determining the total number of months you could have joined Part D but did not, and multiplying this by $0.3108 for your 2012 penalty. (This odd figure is 1 percent of a weighted average monthly premium.) Technically, it’s known as the “national base beneficiary premium,” and it’s computed each year by government actuaries; in 2012 it is a little less compared to 2011, so almost every beneficiary paying a penalty in 2011 will see a slight decrease in 2012.
So if you could have joined Part D in January 2006, when it started, but didn’t join until January of 2012, your penalty will be 72 months (6 years times 12 months) times 31.08 cents, or $22.40 a month (it’s always rounded to the nearest 10 cents). Note that the penalty is the same no matter what the premium for your drug plan. Perhaps it’s worth knowing that your penalty is collected by your plan if you pay your premium directly to it.
Penalty Rollback: If you joined Part D before age 65 and had a penalty attached to your premium, when you turn age 65 and continue to get (or again join Part D), your penalty will be wiped out.
High Income Surtaxes: Beneficiaries who have higher incomes are subject to paying surtaxes on their Part D premiums, just as with their Part B premiums. The rules on who are subject to these, what income counts, what tax years are used, and so forth, are identical to Part B, so refer to the information above. The amounts are different, and they are:
HIGH INCOME PART D MONTHLY PREMIUM SURTAXES
|$85,000 or less||$170,000 or less||none|
|$85,001 to $107,000||$170,001 to $214,000||$11.60|
|$107,001 to $160,000||$214,001 to $320,000||$29.90|
|$160,001 to $214,000||$320,001 to $428,000||$48.10|
|$214,001 or more||$428,001 or more||$66.40|
Married, Filing Separately
|$85,000 or less||none|
|$85,001 to $129,000||$48.10|
|$1297,001 or more||$66.40|
* the surtaxes are for each beneficiary
Note: all the income amounts stay the same each calendar year
These amounts depend only on your income and not on how much your plan’s premium is. If you are in the unfortunate situation where you are subject to a penalty and a surtax, the penalty never applies to the surtax amount. You should also be aware that you pay these surtaxes directly to the government, not to your plan. They are deducted from your Social Security or federal pension; otherwise you are directly billed for these. (Railroad Retirement always bills directly.)
Low Income / Low Resources Assistance: A special program popularly known as “Extra Help” and technically known as the “Part D Low-Income Subsidy” (LIS) can help Medicare beneficiaries with their Part D premiums (as well as with their Part D deductibles and copayments). There are two very different ways to apply for Extra Help.
One option is to go to your state’s Medicaid program, and find out if you are entitled to Medicaid or to one of the Medicare Savings Programs discussed above in the Low Income / Low Resources Assistance section of Part B. Your state’s rules and interpretations will be used to determine your income level, amount of resources, and family arrangements; this may be beneficial to you as states frequently have more generous approaches to these issues than the federal government. If you qualify for any one of these programs, you will automatically be put into “Extra Help.”
A second option is to call the Social Security Administration and apply for Extra Help. It will use a nationwide set of federal rules and interpretations, which may be a little stricter, but the income and resource levels are also higher, so it’s easier to qualify. Generally, if your income is less than $16,335 for an individual or $22,065 for a couple AND your resources are less than $12,640 for an individual or $25,260 for a couple, you will qualify. Income levels are even higher in Alaska and Hawaii. If you do qualify, Extra Help will pay for all or part of your premium (as well as all or part of your deductible, and will limit your copayments). In addition, beneficiaries who get Extra Help may enroll in or change their Part D drug plan any month.
The income and resource limits given above will change in 2012, and probably go up a bit. But if you are anywhere near the limits shown, apply.
Extra Help Premium Upper Limit: No matter how you qualify for Extra Help, you should also know that with regard to your Part D premium, there is an upper limit as to how much Extra Help will pay on your premium, and this differs by state. In 2012, these limits range from $21.30 in New Mexico to $40.90 in Utah, but in most states they are in the low to mid $30 range. These limits are also called the “Low Income Subsidy (LIS) Benchmark Amounts.” If you enroll in a plan whose Part D premium is above this amount, you will be responsible for the difference between the benchmark limit and the total premium. So let’s say that in your state the limit is $31.20 a month, and you pick a plan whose monthly premium is $42.10. You will be responsible for this additional $10.90 a month. Your Medicare & You 2012 printed booklet’s section on Medicare Prescription Drug Plans, in the very back of the booklet, prints the premium amount for a prescription drug plan in blue instead of black if that plan’s premium is under the benchmark limit. (And like almost everything in Medicare, there is an exception. If a plan’s premium is within $2 of the state’s benchmark, it has the option of waiving the small difference if it does so for all Extra Help beneficiaries. If you enroll in such a plan, you will pay NO premium, even if the plan’s published premium a little over the benchmark. And that’s why you will see some premiums in your booklet in blue that are a bit over your state’s benchmark. This is sometimes called the “de minimis policy.”)
One final, important warning: it may well be that you can get a Part D plan with a premium over the benchmark (that is, where you are responsible for the additional over-the-limit premium amount). It may be an overall cheaper plan for you because it has all of your drugs on its formulary, so don’t necessarily avoid over-the-limit plans. The Medicare Plan Finder on www.medicare.gov, or your State Health Insurance Counseling Program (SHIP) (their number is on the back of your booklet) can help with this.
Failure to Pay: • If you fail to pay your Part D premium, your plan has the option to disenroll you. However, your plan must give you a notice and at least a one month grace period before it does this. You should be aware that you have some special protections if there is a mix-up, such as you are being billed by another plan or you have a problem with Social Security withholding your premium, etc. • If you are properly disenrolled, you will be able to enroll again in a Part D plan during the next Annual Election Period (October 15 to December 7 of each year), with an effective date of January 1.
Part C Premiums
Part C Premium Amounts: If you enroll in a Medicare Part C, also called Medicare Advantage or Medicare Managed Care, you will usually be responsible for a monthly premium (a few plans have no premium). You can either join a Medicare Advantage Plan that is stand-alone, in which you get your Part A and Part B services, or a Medicare Advantage – Prescription Drug Plan (MA-PD) where you get those services plus your Part D prescription drug benefit. Monthly premiums can range from zero to several hundred dollars, although the Centers for Medicare & Medicaid Services reports that the average for 2012 will be down by 4 percent from 2011’s average of $39 per plan.
Payment: As with Part D, you can have your monthly premium taken out of your Social Security or Railroad Retirement payment, or you can pay your Plan directly. Most plans accept checks, credit cards, automatic withdrawals, etc., so you can do whatever is easiest for you.
Late Enrollment Penalties:Late enrollment penalties do not exist for Part C.
High Income Surtaxes: High income surtaxes do not exist for Part C, but you, of course, are subject to this for your Part B enrollment, as discussed in that section. If your Medicare Advantage Plan has a prescription drug benefit, you are subject to the Part D surtax, also as discussed above, and you are subject to this Part D surtax even if you are in a zero-premium plan.
Low Income / Low Resources Assistance: The Medicare program does not have any assistance program for paying Medicare Advantage premiums. However, if your Medicare Advantage Plan has a prescription drug benefit, and you get Extra Help, it will pay that portion of your Plan’s monthly premium which is allocated to its drug benefit, up to the benchmark amount for your state. That’s why in the Medicare Plan Finder you will see a breakdown of a plan’s total premium into separate “health” and “drug” amounts. If you choose a plan whose separate drug premium is above the benchmark amount for Extra Help in your state, you will be responsible for paying the leftover amount above the benchmark.
If you are a full dual-eligible Medicare and Medicaid beneficiary, your state may pay your Part C premium. Check with your State Agency or your caseworker.
Failure to Pay: • If you fail to pay your Part C premium, your plan has the option to disenroll you. Your plan must give you a delinquency notice and at least a two month grace period before it does this. You should be aware that you have some special protections if there is a mix-up, such as you are being billed by another plan, or you have a problem with Social Security’s withholding your premium, etc. • If you are in a Medicare Advantage – Prescription Drug Plan (MA-PD), and you are also subject to the Part D surtax but don’t pay it, you must be disenrolled. • If you are disenrolled, you will revert to Original Medicare. • If your Plan has a drug benefit, you will lose it. Typically, you will be able to again enroll in a Medicare Advantage Plan and/or Part D plan during the next Annual Election Period (October 15 to December 7 or each year, with an effective date of January 1).
Part A Premiums
Part A Premium Amounts: Only about one percent of Medicare beneficiaries pay a premium for their Part A. Almost everyone gets this premium free because they worked and paid Medicare taxes under Social Security, Railroad Retirement, or the federal retirement system, or are related to someone who did.
For those who did not and wish to purchase this, and who meet the other requirements, there is a two-tier premium structure. For those who have earned 29 or fewer “quarters of coverage” under Social Security (or its equivalent), you may purchase this for a monthly premium, in 2012, of $451.00. (You are called a “not insured” beneficiary.) If you have 30 to 39 quarters, you will pay $248.00. (You are called a “partly insured” beneficiary.) And, of course, if you have 40 or more, you qualify for premium free.
Payment: You will be billed for these premiums by the Centers for Medicare & Medicaid Services. Because of the high premiums involved, you will be billed monthly. If you also pay for your Part B, its premium will also be on your monthly bill. As with Part B, you can also make arrangements with the Social Security Administration to have someone other than you pay your premium.
Late Enrollment Penalties: If you do not become entitled to premium Part A in the first 12 months that you could have, you will pay a penalty. The penalty is a straight 10 percent, no matter how much longer it took you to become entitled. If you fall into this category, you would pay, in 2012, either a penalty of $45.10, for a total of $496.10, if you are a not insured beneficiary; or a penalty of $24.80, for a total of $272.80, if you are a partly insured beneficiary.
Penalty Rollback: Once you have paid the penalty for twice as many months that you could have had Part A but did not, it will reset to the non-penalty amount. Let’s say that you could have bought it when you first reached age 65 in May 2008, and you did not sign up until the general enrollment period of 2011, and thus you became entitled to Part A in July 2011. In this case, you did not have Part A for 38 months that you could have. You will pay a penalty premium from July 2011 through October 2017, for a total of 76 months, and beginning in November 2017, your premium will reset to the standard premium.
High Income Surtaxes:High income surtaxes do not exist for Part A.
Low Income / Low Resources Assistance: We mentioned the state Medicare Saving Programs which will pay your Part B premium. Another of these programs, the “Qualified Disabled Working Individual” (QDWI) program, will pay a Part A premium under limited circumstances. Generally, you must have been disabled, and then, in spite of your continuing disability, you returned to work. Eventually in this circumstance you will lose your Medicare, but these beneficiaries may purchase Part A. The Qualified Disabled Working Individual program will pay your Part A premium if you meet the low income / low resources limits for this program. The resource limit is the same as the other Medicare Savings Programs, but the monthly income limit is currently $3,715 for an individual and $4,989 for a couple in 2011. These will change a bit in early 2012. Apply to your state’s Medicaid program for this.
Failure to Pay: • If you fail to pay your Part A premiums you will be disenrolled from Part A. • If you are under 65 you will be disenrolled from Part B, as there is a requirement is that those under 65 must have both to have either. • If you fail to pay your Part A premiums, you will also be disenrolled from any Medicare Advantage Plan you are in because you have to have both Part A and Part B to be in Part C. • If you are under 65 and lose both Part A and Part B, you will be disenrolled from your Part D plan as you have to have one or the other to have Part D. So you should carefully consider the consequences of not paying your Part A premium if for some reason you decide not to do that.