Paul Sanchez
Adjustments to Medicare are legal and often occur when a beneficiary has a higher income, as the law requires an adjustment to monthly Medicare Part B and prescription drug coverage premiums. This additional premium amount is called the income-related monthly adjustment amount. The adjustment amount is based on the beneficiary's income reported to the IRS, with higher-income beneficiaries paying a larger percentage of the total cost of Part B. These adjustments are calculated using a sliding scale based on the beneficiary's modified adjusted gross income (MAGI). Additionally, Medicare adjustments may occur when there are secondary payers or insurance companies involved, leading to potential overpayments or refunds.
| Characteristics | Values |
|---|---|
| Medicare adjustment | Refers to the "income-related monthly adjustment amount" |
| Who does it apply to? | Higher-income beneficiaries of Medicare Part B and Medicare prescription drug coverage |
| Calculation | Based on a sliding scale using the beneficiary's "modified adjusted gross income" (MAGI) |
| MAGI threshold | If MAGI > $212,000 for married filing jointly or > $106,000 for other filing statuses, higher premiums are paid |
| Primary vs Secondary Payer | Medicare is the primary payer for beneficiaries not covered by other insurance; secondary payer when another entity has primary responsibility |
| Medicare Secondary Payer (MSP) | Legislation passed in 1980 to shift costs from Medicare to private sources; applies when Medicare is not the primary coverage |
| Billing | All entities billing Medicare must determine if Medicare is the primary payer; adjustments may occur due to coordination of benefits |
| Overpayment | If a secondary payer refuses to adjust an overpayment, the credit balance belongs to the patient and should be refunded |
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What You'll Learn
- Medicare beneficiaries are responsible for determining whether Medicare is the primary payer for services rendered
- Medicare Secondary Payer (MSP) provisions apply when Medicare is not the primary health insurance coverage
- Medicare Part B and prescription drug coverage premiums are subject to income-related monthly adjustment amounts
- MAGI and tax-exempt interest income are used to calculate adjustments for higher Medicare premiums
- Refunds for overpayments by secondary payers should be returned to the patient if the payer refuses to adjust their claim
Medicare beneficiaries are responsible for determining whether Medicare is the primary payer for services rendered
There are, however, certain situations in which Medicare is the secondary payer. The Medicare Secondary Payer (MSP) is the term generally used when the Medicare program does not have primary payment responsibility. This occurs when another entity has the responsibility for paying before Medicare. In 1980, Congress passed legislation that made Medicare the secondary payer to certain primary plans, shifting costs from Medicare to the appropriate private sources of payment. The MSP provisions apply when Medicare is not the beneficiary's primary health insurance coverage.
There are some common situations in which it is clear whether Medicare or other health insurance is the primary payer. For example, if a Medicare beneficiary is 65 or older and covered by a Group Health Plan (GHP) through their current employment or their spouse's current employment, and the employer has less than 20 employees, Medicare pays primary and the GHP pays secondary. However, if the employer has 20 or more employees, the GHP pays primary and Medicare pays secondary.
Medicare beneficiaries must be aware of their health insurance coverage and any changes to it. This is because changes in employment, including retirement and changes in health insurance companies, may affect their claims payment.
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Medicare Secondary Payer (MSP) provisions apply when Medicare is not the primary health insurance coverage
Medicare Secondary Payer (MSP) is a term used when the Medicare program does not have primary payment responsibility. In other words, when another entity has the responsibility for paying before Medicare. When Medicare was introduced in 1966, it was the primary payer for all claims except for those covered by Workers' Compensation, Federal Black Lung benefits, and Veteran’s Administration (VA) benefits.
In 1980, Congress passed legislation that made Medicare the secondary payer to certain primary plans. The aim was to shift costs from Medicare to the appropriate private sources of payment. The MSP provisions ensure that Medicare does not pay for items and services that certain health insurance or coverage is primarily responsible for paying. This has protected Medicare Trust Funds.
MSP provisions apply when Medicare is not the beneficiary’s primary health insurance coverage. Medicare remains the primary payer for beneficiaries who are not covered by other types of health insurance or coverage. Medicare is also the primary payer in certain other instances, provided several conditions are met.
There are some common situations when Medicare and other health insurance or coverage may overlap, and the entity that is the primary or secondary payer will depend on the specific circumstances. For example, if an individual is aged 65 or older, is covered by a Group Health Plan (GHP) through their current employment or their spouse’s current employment, and the employer has less than 20 employees, then Medicare pays primary and GHP pays secondary. However, if the employer has 20 or more employees, then GHP pays primary and Medicare pays secondary.
It is important to note that federal law takes precedence over state laws and private contracts. Even if an entity believes that it is the secondary payer to Medicare due to state law or the contents of its insurance policy, the MSP provisions would still apply when billing for services.
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Medicare Part B and prescription drug coverage premiums are subject to income-related monthly adjustment amounts
The IRMAA is calculated based on your Modified Adjusted Gross Income (MAGI) from two years prior to the assessment. For instance, for 2025 IRMAA, your MAGI from 2023 will be considered. The Social Security Administration determines your IRMAA eligibility. If your MAGI is above a certain threshold, you will be required to pay the IRMAA surcharge. The threshold for 2025 is $106,000 for single tax filers, $212,000 for joint filers, and $106,000 for married people filing separately.
The IRMAA surcharge is calculated on a sliding scale with five income brackets. For 2025, if your income is greater than $106,000 and less than $394,000, the IRMAA amount is $406.90. If your income is greater than or equal to $394,000, the IRMAA amount is $443.90. These amounts are added to the regular premium for the enrollee's plan.
It is important to note that most Medicare beneficiaries do not pay IRMAA surcharges. According to the Medicare Trustees Report, about 7% of total enrollees paid Part B IRMAA surcharges in 2024. Additionally, if you disagree with the MAGI amount received from the IRS, you must correct the information with the IRS.
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MAGI and tax-exempt interest income are used to calculate adjustments for higher Medicare premiums
Medicare premiums are calculated based on an individual's Modified Adjusted Gross Income (MAGI) and tax-exempt interest income. MAGI is a figure used to determine eligibility for premium tax credits and other savings for health insurance plans, as well as Medicaid and the Children's Health Insurance Program (CHIP). It is calculated by taking an individual's total adjusted gross income (AGI) and adding certain adjustments, such as student loan interest, qualified education expenses, and tax-exempt interest income.
For Medicare, MAGI is used to determine the income-related monthly adjustment amount, which is an additional premium amount for individuals with higher incomes. If an individual has a higher income, they will pay a larger percentage of the total cost of Medicare Part B and prescription drug coverage. The government typically pays about 75% of the Part B premium, while the beneficiary pays the remaining 25%. However, for higher-income beneficiaries, the percentage of the total cost they pay will be higher.
The threshold for higher premiums is an MAGI of $212,000 for individuals filing taxes as "married, filing jointly" and $106,000 for individuals filing with a different status. If an individual's MAGI exceeds these thresholds, they will be subject to higher premiums for their Medicare Part B and prescription drug coverage. It is important to note that if an individual disagrees with the MAGI amount provided by the Internal Revenue Service (IRS), they must correct the information directly with the IRS.
Additionally, adjustments to Medicare premiums can occur due to changes in tax returns. If an individual amends their tax return and it affects their MAGI, they must inform the Social Security Administration and provide a copy of the amended tax return and acknowledgment receipt from the IRS. Based on the updated information, corrections or removals to the income-related monthly adjustment amounts will be made. Overall, understanding MAGI and tax-exempt interest income is crucial for calculating adjustments to Medicare premiums for higher-income individuals.
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Refunds for overpayments by secondary payers should be returned to the patient if the payer refuses to adjust their claim
Medicare Secondary Payer (MSP) is the term used when the Medicare program does not have primary payment responsibility. In other words, when another entity is responsible for paying before Medicare, this is usually another insurance provider. When an individual has Medicare and another insurance plan, overpayments can occur. In such cases, the patient's money should be returned to them, as it was caused by having another insurance plan that they pay for.
If a patient has overpaid, the provider should investigate to ensure the credit is correct. If there are no other outstanding services, the patient should be refunded immediately. Some providers prefer to contact the patient first to explain the overpayment and allow them to determine whether they want a refund or an account credit. Patient credits should be reviewed and refunded routinely, as many state regulations require overpayments to be returned within 30-60 days.
If the insurance company cannot or will not recoup the money, request that they reprocess the claim and send a formal request for a refund. If the provider receives a refund request that they determine is not valid, they can file an appeal to have the insurance company review the claim for processing errors. It is important to address this as soon as possible, as there may be time constraints for appeals in the contract with the insurance company.
Providers should document all phone calls, correspondence, and checks, both with the patient and the insurance company. Accurate documentation is essential for protection from potential future action from patients or insurance companies. While overpayments happen routinely, they can become a significant issue if the provider does not return the money. Regulations state that providers cannot charge, keep, or accept any amount besides the amount billed for the services provided.
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Frequently asked questions
An "adjustment" or "discount" refers to the portion of your bill that your hospital or doctor has agreed not to charge. Insurance companies pay hospital charges at a discounted rate. The amount of the discount is specific to each insurance company.
The law requires an adjustment to your monthly Medicare Part B (medical insurance) and Medicare prescription drug coverage premiums if you have a higher income. Higher-income beneficiaries pay a larger percentage of the total cost of Part B based on the income reported to the IRS.
If the secondary payer refuses to adjust their claim and retract their overpayment, then that credit balance would theoretically belong to the patient, not the provider. In that case, you should refund the overpayment to the patient as a last resort, not reverse any Medicare adjustments.
