Who Pays the Part D Higher-Income Surcharge?
Drug coverage in a retiree plan may not exempt you
En español | Q. I've been told I must pay the higher-income Part D surcharge. But I get my drugs through retiree benefits from my former employer, not through Medicare. If I'm not enrolled in Part D, can they make me pay this surcharge?
A. Maybe, maybe not. It depends on the kind of prescription drug coverage you receive from your former employer.
Medicare beneficiaries with higher incomes are now required to pay more for Part D prescription drug coverage as well as pay higher premiums for Part B.
The Part D surcharge started Jan. 1, 2011 as a cost-saving provision of the new health care law, whereas the Part B surcharge has been in effect since the beginning of 2007. In both cases, the surcharges affect only people whose modified adjusted gross income (MAGI) on their latest tax returns is higher than $85,000 for a single person or $170,000 for a married couple filing joint returns. (For information on how this system works, see the Social Security document "Medicare Premiums: Rules for Higher-Income Beneficiaries.")
If you're enrolled in a regular Part D drug plan or a Medicare Advantage health plan that includes drug coverage — in other words, a plan that you've chosen from Medicare's menu of plans, that you pay for yourself and that has nothing to do with retiree benefits — the issue is quite clear. If your income makes you liable for the surcharge, you pay the required amount on top of your plan's premium. In 2013, the surcharge ranges from $11.60 to $66.40 a month, depending on your adjusted income level.
But what if you get prescription drug coverage from a former employer, as you do? It's an issue that will come up time and again relating to the new Part D surcharge, because millions of Medicare beneficiaries receive prescription drug coverage through retiree plans.
According to Medicare officials, "a lot of people think they have [purely] retiree drug coverage, but the employer actually contracts with a Part D plan." That means people are not always aware that they are in a Medicare employer group plan where the Part D surcharge would apply.
Here's how to tell whether the surcharge applies in your retiree plan, Medicare officials say:
- If your former employer's retiree health care plan receives a retiree drug subsidy from the government, you are not liable for the Part D surcharge.
- If your former employer's retiree health care plan contracts with Medicare to provide Part D coverage — either through a Part D drug plan or through a health care plan that includes Part D drug coverage — you are liable for the Part D surcharge if your income is above the specified level.
- If your retiree plan pays your Part D premiums, the employer may choose to pay the surcharge also, when applicable, but is not obliged to. You should be aware that even if your former employer springs for the surcharge, you are still legally responsible for ensuring that it is paid each month.
Medicare officials say they've sent a memo to Part D plans so that "they could help provide information to employers to relay to their retirees about the Part D surcharge." So eventually, if your retiree drug coverage actually comes under Part D, you may receive details about the surcharge from your retiree plan.
In the meantime, if you receive a letter from Social Security saying that you owe the higher-income surcharge, call your retiree plan to ask whether it receives a drug subsidy from the government or contracts with Medicare to provide coverage under Part D — and, if the latter, whether it will pay the surcharge for you. Then you'll know whether the assessment is correct.
Finally, be aware that liability for the higher-income surcharge for both Part B and Part D is based on your latest tax return, which reflects income you received the previous year. If your income this year is substantially less than you were receiving two years ago because of certain "life-changing events" — which include retirement — you can request a reassessment. For details, see the Social Security document previously cited.
Patricia Barry is a senior editor with the AARP Bulletin.
Updated Deember 14, 2012
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