How to Avoid the Medicare High-Income Surcharge

Has the government announced the new 2011 Medicare Part B premiums yet? I retired recently, and I am worried that I’ll have to pay the high-income surcharge based on my income from when I was still working.

Yes, Medicare just announced next year’s premiums, which remain steady for most people. But high-income beneficiaries face an even bigger hit than in the past -- not only will they have to pay higher premiums for Medicare Part B, which covers doctor visits and outpatient services, but they’ll also have to pay a new surcharge for Part D Medicare prescription-drug coverage starting in 2011. However, you may be able to avoid the surcharge, depending on when you retired.

In 2011, most Medicare beneficiaries will continue to pay Part B premiums of $96.40 per month, which have been in effect since 2008. Those who first enrolled in Medicare in 2010 will continue to pay $110.50 per month. And if you’re new to Medicare in 2011, you’ll most likely pay $115.40 per month.

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But high-income beneficiaries -- individuals who earned more than $85,000 in 2009 and couples with joint incomes of $170,000 or more -- will pay a high-income surcharge, boosting their total Part B premiums to at least $161.50 per month, and in some cases, as much as $369.10 per month.

And, starting next year, the same high-income folks will also have to pay a new surcharge of $12 to $69.10 per month for prescription-drug coverage, depending on their income, on top of their regular Medicare Part D premiums. For the new Part B and D premiums, see How Much You'll Pay for Medicare in 2011.

But if your income has dropped since 2009 (the most recent tax return the IRS has on record), you may be able to reduce or eliminate the surcharge. To qualify, your income loss must be tied to a life-changing event -- such as a marriage, a divorce, a job loss or reduced work hours (including retirement), loss of income from income-producing property, or cuts in pension benefits. The Social Security Administration will have an updated form available for you to fill out with your income for the year and evidence of the life-changing event. That could include a statement from your former employer verifying that you’ve retired. For more information about contesting the high-income surcharge, see Medicare Part B Premiums: Rules for Beneficiaries with Higher Incomes.

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.