Ways to Contest Medicare Premiums

I read your column about Medicare Part B premiums and had a follow-up question: Based on my income while working, I'd have to pay the extra premium. But I will retire in January 2007, and my income will drop. What amount will determine my Medicare Part B premium?

Because you're retiring and your income will drop, you can ask the Social Security Administration to reevaluate your premiums and use your 2007 income figures rather than those for 2005. If your income drops enough, you could get your premiums reduced.

The government is using 2005 tax figures to determine the Medicare Part B premiums for 2007 because that's the most-recent tax information it has on file. Adjusted gross income plus any tax-exempt interest will be considered. For more information about the specific numbers the government will use, see my Feeling the Shock of the New Medicare Premiums column.

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I've written several columns over the past few weeks about the new income-based premiums for Medicare Part B because readers have lots of questions about how it will work. A quick summary: Most Medicare beneficiaries will pay $93.50 a person per month for their Part B coverage in 2007. But if you're married filing jointly with an income of $160,000 or more in 2005, or single earning $80,000 or more, you'll have to pay an extra premium for Part B. The per-person premium gradually increases based on your income, rising as high as $162 per month for individuals earning more than $200,000 and joint filers earning more than $400,000. See my column about the new premiums for a table with the specifics. The Social Security Administration estimates that about 1.6 million people will have to pay the higher rates.

However, the government just issued final regulations explaining when Medicare beneficiaries can contest their income-based premiums.

As expected, beneficiaries can ask the Social Security Administration to re-determine their premiums if their income has dropped since 2005 because they were married, divorced or their spouse died. They'll also be able to contest their premiums if they lost income from property due to a disaster, or if they or their spouse's benefits from an insured pension plan stopped or decreased.

And, most important, Medicare beneficiaries also can contest their income-based premiums if they or their spouse have stopped working or reduced their work hours. People who retired or cut their work hours in 2005 and 2006 should wait to receive their 2007 Medicare Part B premium statement (which should arrive in the mail in the next few weeks). If they're being charged the extra income-based premium, they should contact the Social Security Administration to see if they can have their premiums recalculated. (People who were earning less than $80,000 while working or $160,000 if married filing jointly don't need to do anything because they should be paying the lowest monthly rate of $93.50 per person anyway).

And anyone retiring in 2007, like yourself, should contact the Social Security Administration as soon as they retire (call 800-772-1213 or visit a local field office). You'll need to provide evidence that you retired, such as a letter from your former employer, and an estimate of your 2007 income. If you retire in the middle of 2007 and your income goes down enough, then you could get your premiums reduced retroactively for the full year.

For more information about the Part B premiums, see the Social Security Administration's fact sheet about the new rules.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.