John T. Bannen, Retired Partner

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Medicare Premiums for the First Two Years After Retirement: Possibly a Nasty Surprise

Estate, Trust & Wealth Preservation Alert John T. Bannen

New Medicare Card for Social Security Insurance Medical Benefits

How Medicare B and D premiums (if applicable) are Calculated

In 2020 the day of your retirement has arrived and you will begin having Medicare as your primary insurance provider.

You have discovered much to your disappointment that Medicare is not entirely free and you will need to contribute by paying for certain coverages.

You receive a letter from Medicare telling you how much will be deducted from your social security for Medicare B (doctor's fees, and other outpatient services) and possibly Medicare D (drug coverage if you choose it) and you are astonished at the amount.

The letter says your premiums are based on your income and to calculate the premiums for 2020 they are using your income from 2018, when you and your spouse were still fully employed (this is the Income Related Monthly Adjustment Amount, known unhappily to many as IRMAA).

The problem is that, like most working individuals, you are making much less in retirement through social security, IRA distributions, and investments than when fully engaged in employment. So, in point of fact, you are paying more in your Medicare income-based premiums than you should be.

Here is a Case in Point

A married couple where both were employed

  • John and Jane retired together on January 1, 2020.
  • Together their income, including tax-exempt interest, (Modified Adjusted Gross Income) was $330,000 for 2018 when they were both hard at work. Due to the unavailability of this information for 2020 Medicare uses the 2018 to calculate the income adjusted premiums.
  • In retirement, however, their Modified Adjusted Gross Income is only $170,000.
  • Applying the IRRMA tables (See Schedule A below) Medicare using 2018 income is calculating their premiums as follows:

  • If instead Medicare used the estimated income for 2020 which is much reduced, the premium would be calculated as follows:

  • Thus, John and Jane are paying $9,314.40 too much for their Medicare in 2020, which will reoccur in 2021 until the base year used to calculate the premiums gets to 2020 which reflects their actual income. So they overpay their Medicare premiums $18,628.80 for the two-year period.
  • What can be done to achieve a more fair result?

The remedy is to tell Medicare what your income will really be for the IRMAA premium calculation.

Because the premium calculation is always for two years behind, John and Jane need to tell Medicare their income is less in 2020 (the retirement year which the premium is calculated) than their 2018 full employment years Medicare is using.

They do so by filing form SSA-44 to report their retirement as "Life Changing Event". Click here for form SSA-44.

They do this as an appeal when they get the letter from Medicare telling them what Medicare calculated these premiums to be for 2020 where Medicare used the 2018 income.

Alternatively, they would stop into the Social Security office and have a knowledgeable representative help them through filling out the SSA-44 form.

Doing so will save John and Jane $18,628.80. Well worth the effort.

What also should be obvious is that post-retirement income will affect future Medicare premiums. Retirees, to some extent, can control post-retirement income and could have one eye on the IRMAA premium tables while they do so. Maybe at least so far as not going one dollar over an income bracket and suffering a premium increase for the whole bracket.

Fortunately, a bump in the IRMMA tables is only for the year involved. If income returns to a lower level the next year, so does the Medicare premium.

For more information on how this might affect your retirement income, contact your Quarles & Brady attorney or:

Schedule A

Income Related Monthly Adjustment Amount for

Medicare B and D Premiums


Note: Medicare is typically using your 2018 income to calculate 2020 premiums.

*income brackets and base premium will be adjusted for 2021 to reflect inflation and base premium cost increases.