Medicare and the ‘Temporarily Rich’

Medicare and social security are like an apple and an orange. SkazovD/Shutterstock

Before I write today’s column, there are two important and seemingly unrelated observations I must make.

No. 1: Regular readers of this column know that I don’t like to write about Medicare. Why? Because I’m a Social Security expert, but not much of a Medicare expert.

No. 2: It seems like there are a lot of rich (or temporarily rich) baby boomers out there. Why? Very often it’s because they are selling off property they own and suddenly have a huge influx of cash. This observation is based on the unusually high number of emails I’m getting from senior citizens telling me about their newfound financial gains. And why they are emailing me is how I bring the two points I made together.

Here is one such email I just got today. “My wife and I are in our 70s. We sold some property last year and we ended up with about a million dollars in capital gains, which we duly reported to the IRS. Now the Social Security Administration has sent us a letter telling us our Social Security benefits are being dramatically cut next year. Why in the world are they cutting our benefits? I thought that once we are over our full retirement age, we can make as much money as we want without any reduction in our benefits.”

There is a little part of me that wants to respond to folks like these and say something like: “Hey, you got a million dollars and you’re griping? I sure wish I had your problems!” But here was how I actually replied to this particular couple:

First of all, you are mixing an apple with an orange. The apple is the Social Security law that says, as you correctly pointed out, that once you reach your full retirement age, there is no earnings penalty. You can work and earn as much money as you want and your benefits will not be affected.

But the orange is a totally different law. It’s a Medicare rule, not a Social Security rule. And in a nutshell, that law says that rich people pay more for Medicare. So, what’s happened in your case is that your Medicare premium is going up in 2024. And because that premium is deducted from your Social Security checks, your net benefit went down. I hope you don’t think I’m splitting hairs here. But it’s important that you understand your Social Security benefits have NOT decreased. You are still getting exactly the amount you are due. But again, your Medicare premium did increase—and probably temporarily.

As I said, I don’t like talking about Medicare. But I’ve got to do it here to help you further understand what’s going on. There are two main parts to Medicare. Hospital coverage, or Part A, is free once you reach age 65. (You paid for Part A with the Medicare tax deducted from your paychecks while you were working.)

The other main part of the program, called “doctor’s insurance,” or Part B, is paid for by a monthly premium usually deducted from someone’s Social Security check. And even though people always complain about the amount of that premium, $174.70 in 2024, it actually pays for only 25 percent of the cost of running the program. The taxpayers pick up the other 75 percent. In other words, senior citizens get quite a subsidy from the government and the taxpayers when it comes to paying for Part B Medicare.

So, for years, many people argued that senior citizens should pay a bigger share of the Part B costs. As you might guess, there was a lot of political hemming and hawing on that issue. But eventually, in the early 2000s, President George W. Bush and Congress reached a compromise. They decided that at least wealthy Americans should pay more for their Medicare. How much more depends on a number of factors and on whether you file an individual or joint tax return. To keep things simple, I'll list the cutoff points for folks filing joint returns—because most of the emails I get come from couples. The income referred to here is your “modified adjusted gross income,” or MAGI. (Google that if you want to learn more about what MAGI is.)

• If your MAGI is $206,000 or less, your premium is $174.70.
• If your MAGI is between $206,000 and $258,000, your premium is $244.60.
• If your MAGI is between $258,000 and $322,000, your premium is $349.40.
• If your MAGI is between $322,000 and $386,000, your premium is $454.20.
• If your MAGI is between $386,000 and $750,000, your premium is $559.00.
• If your MAGI is more than $750,000, your premium is $594.00.

Where things get messy and cause the most confusion is for people who are “temporarily” rich. And again, here we are usually talking about folks who sold some land or cashed in some investments. And then it gets messier still because of the tax years involved. Here is an excerpt from something I found on the SSA’s website.

“To determine your 2023 income-related monthly adjustment amounts, we use your most recent federal tax return the IRS provides to us. Generally, this information is from a tax return filed in 2022 for tax year 2021. Sometimes, the IRS only provides information from a return filed in 2021 for tax year 2020. If we use the 2020 tax year data, and you filed a return for tax year 2021 or did not need to file a tax return for tax year 2021, call us or visit any local Social Security office. We'll update our records.” And this is where things start to get too messy for me to understand or to explain to you. If you want more information, at least I can steer you in the right direction. First, you should do a Google search under this heading: “Premiums: rules for higher-income beneficiaries.” This leads you to an SSA publication that not only explains the rules (and maybe better than I did in this column), but it also gives you your appeal rights if you disagree with the premium increase. And it also tells you that your premium will go back down once your tax returns no longer reflect any big capital gains.

A second good source of information is a Medicare expert. They are called SHIPs. That stands for State Health Insurance Program (counselor). To find the SHIP nearest you, go to www.shiphelp.org.

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