Survivors can apply for a refund of the deceased person’s unused premiums.
Just when you think Medicare couldn’t get more complicated, it does. But in this case, the complication is a nice surprise. Did you know that when a Medicare beneficiary dies, their estate or family may be entitled to a refund?
First, a little background about Medicare premium payments.
When someone enrolls in Medicare, usually when they first become eligible at age 65, they pay monthly premiums for Medicare Part B, which pays for doctors’ fees and outpatient services. If the individual is receiving Social Security benefits, the Medicare Part B premiums are deducted directly from their monthly Social Security benefit.
If the Medicare participant hasn’t yet claimed Social Security, they must pay the Medicare premiums directly to the Centers for Medicare & Medicaid Services on a quarterly basis in advance. Most Medicare enrollees pay $164.90 per month for Medicare Part B in 2023, but some people pay much more based on their income.
Higher-income enrollees, defined as individuals with income above $97,000 or married couples with joint income above $194,000 (as reported on their 2021 federal tax returns), are subject to monthly surcharges officially known as income-related monthly adjustment amounts or IRMAA. IRMAA surcharges apply to both Medicare Part B and Medicare Part D prescription drug plans and are deducted directly from Social Security benefits.
Now here’s where things get really complicated.
Medicare premiums and surcharges are paid in advance, but Social Security benefits are paid in arrears. For example, a Social Security benefit for August is received in September, but the Medicare premium and surcharges deducted from the September payment apply to October. That means that when a person dies, the Social Security benefit payment they received in the month of their death includes a deduction of the Medicare premium for the following month.
“This is clearly an overpayment since the participant will have died before that month,” Art Prunier, a retirement income instructor at the American College of Financial Services, wrote to me in an email.
“Therefore, at the time of death, for every Medicare participant who is also receiving Social Security benefits, they will have paid Medicare premium for an extra, unused month of coverage.
“For higher-income Medicare participants who also are subject to IRMAA, one month’s premium can add up to a rather nice refund — much larger than the Social Security lump-sum death benefit of $255 due to a surviving spouse,” he added.
For individuals who pay their Medicare premiums directly to CMS on a quarterly basis, it could mean several months of prepaid, unused Medicare coverage.
The estate of the deceased beneficiary is legally entitled to a refund of that prepaid premium, but it’s not automatic.
“The deceased’s family or personal representative … must proactively contact their Social Security office and specifically request the refund,” Prunier said. Alternatively, they can file SSA Form 1724 and request a refund.
This is just one example of how Medicare is becoming an increasingly important part of retirement income planning and why some financial advisors, like Angela Ford of Compass Financial Resources in Olathe, Kansas, work with third-party experts to help clients make the right Medicare decisions initially and ensure they continue to get the best coverage each year.
Ford uses Medicare BackOffice, a firm that helps her clients decide whether to enroll in original Medicare with a supplemental Medigap policy or an all-inclusive Medicare Advantage plan, and which specific plan best fits their needs. There’s no cost to the client or the advisory firm.
Jeff Osterman of LPL Financial in Naperville, Illinois, also uses Medicare BackOffice to find the right solutions for his clients.
“If we’re going to do right by our clients when we create strategies for retirement, we can’t leave Medicare off the table,” Osterman said. “But like most advisors, I don’t have the expertise or the capacity within my practice to give specific Medicare advice.”
Scott Aschoff, a senior account executive at Medicare BackOffice, said that his company works with advisors from about 80 different firms all over the country.
“Even though we are paid as a company by the carriers, our agents are salaried, so there’s no incentive for them to recommend a certain plan or carrier but [instead they] maintain the focus on their clients’ needs,” he said.
“Even when you identify the right plan, there may still be a gap until you determine if that plan fits the client’s personal situation,” Aschoff said. For example, his agents know which insurers will cover certain medical conditions that most other insurers would deny.
“I think that this is the value we bring.”
(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s 2023 ebook at MaximizingSocialSecurityBenefits.com.)