Are Medicare Premiums Recalculated Every Year?

Medicare Part B and Part D premiums are recalculated annually based on updated financial information. This means the premium amounts can change from year to year, sometimes increasing substantially. Understanding why the premiums are recalculated each year and what triggers changes can help beneficiaries evaluate if they are being charged the right amount.

Overview of Medicare Premium Recalculation

Every fall, the Centers for Medicare & Medicaid Services (CMS) announces the standard Part B premium for the upcoming year, as well as income-adjusted amounts. These premiums are recalculated based on Part B spending trends and Social Security cost-of-living adjustments.

Similarly, Part D plans submit their plan premium bids each year which are evaluated and approved by Medicare. This process allows premiums to be reset annually.

For higher earners, income-related monthly adjustment amounts (IRMAA) are also recalculated using the most recent tax data. This determines if income-adjusted premium surcharges apply.

• Part B spending trends and cost report data
• Social Security COLA adjustments
• Part D plan premium bids
• Updated tax information for IRMAA

While frustrating when premium costs rise, this annual reset process allows rates to keep pace with changing expenditures and enrollee incomes.

Recalculation of Medicare Part B Premiums

Medicare Part B monthly premiums are updated each year based on the expected costs of the program and Social Security COLA increases.

By law, the standard premium must cover 25% of projected Part B costs for aged enrollees. The Centers for Medicare & Medicaid Services (CMS) establishes the standard rate using data on program expenditures and actuarial projections.

Increases are limited thanks to a “hold harmless” provision that restricts growth to no more than the Social Security cost-of-living adjustment (COLA) for a given year. This prevents net Social Security benefits from decreasing.

However, new enrollees who are not held harmless can face premium hikes above the COLA to gradually align standard premiums with 25% of costs. Over time this catches standard premiums up to the target level.

The standard Part B premium and COLA are announced each October and take effect in January. For 2023, the standard premium is $164.90, a 8.7% increase over 2022 driven by higher projected per-enrollee costs.

Premium Recalculation for Higher Earners

Higher-income Medicare beneficiaries also have their Part B and Part D premiums recalculated each year.

For individuals earning above $97,000 annually ($194,000 married filing jointly), income-related monthly adjustment amounts (IRMAA) result in higher premiums based on tax data.

IRMAA brackets are set each year by CMS. Using tax returns from two years prior, the income on record is used to assess if IRMAA applies for the upcoming year.

For example, 2022 tax returns set 2024 premiums. If income decreased significantly since that tax year, enrollees can submit an appeal and updated documentation to have IRMAA recalculated.

So for wealthy enrollees, premiums are reset annually based on tax data. This recalculation process allows premiums to keep pace with any changes in beneficiary income.

Annual Recalculation of Part D Premiums

Medicare Part D plan premiums also go through annual recalculation based on bidding processes and negotiations with Medicare.

Each year, Part D plans submit their proposed premiums and cost data as part of their plan bids. These bids are evaluated and negotiated by CMS.

Final bid amounts approved by Medicare determine what the plan premiums will be for the coming year. Plans with bids higher than benchmark thresholds may have to charge premiums to make up the difference.

This bidding process lets premiums be recalculated annually to account for changing drug program costs. Approved premium amounts are announced each September.

While inconvenient when premiums rise significantly, this mechanism lets rates keep pace with expenditures and prevents Part D plans from facing losses on their policies.

Notices Sent Out Annually

When premium amounts are updated for the coming year, whether for Part B or Part D, Medicare sends out notices to communicate the changes.

For Part B, the annual Social Security COLA notice in October shows the new standard premium and any enrollee-specific details based on income.

Around September, Part D plans send enrollees the Annual Notice of Change (ANOC) detailing any adjustments to plan costs like premiums.

And higher earners may receive notices from Social Security in early fall with updated IRMAA amounts based on recent tax data.

So new premium levels are not implemented without communication, allowing enrollees to understand billing changes and raise objections if needed.

Steps to Take If You Suspect an Error

With premiums recalculated annually, errors can occur or old data may incorrectly carry forward. Here are steps to take if you believe your new premium amount is incorrect:

• Compare new premium to prior notices – Do the numbers align with changes announced last year?

• Check for correspondence from Medicare – Were any mid-year notices sent about income changes or eligibility?

• Verify your income details – Does CMS have your latest tax data that may affect IRMAA?

• Contact Medicare – Speak with a representative to understand how your new premium was calculated.

• Appeal if needed – Formally contest incorrect premiums and provide documentation to correct errors.

Staying vigilant on premium adjustments each fall allows you to catch mistakes early and get erroneous amounts corrected.

Key Things to Know About Annual Recalculation

To summarize the key facts about Medicare premiums being recalculated each year:

• Premiums are reset annually for Part B, Part D, and income-adjusted amounts

• Part B rates account for program spending trends and Social Security COLA

• Part D premiums are re-determined through plan bidding and negotiations with Medicare

• IRMAA levels follow recent tax data on beneficiary income

• Notices are sent in fall announcing upcoming premium changes

• Incorrect premiums can be appealed by providing documentation

While predictably frustrating when rates rise significantly, this annual process allows premium revenue to align with program costs and income. Being aware of the triggers causing recalculation can help beneficiaries review billing accuracy.

Frequently Asked Questions

How far back does Medicare use tax data to set income-based premiums?

Medicare uses tax returns from two years prior – for example, 2022 returns set premiums for 2024. This lagging data can upset some enrollees whose income subsequently dropped.

Are my premiums permanent once set or can they change mid-year?

Premium recalculation only happens annually for the next calendar year. Once set for a given year, premiums cannot be changed until the next recalculation.

If my income decreases, can I get my income-adjusted premium reduced immediately?

Unfortunately, income-related premiums cannot be lowered mid-year. You must wait for the next annual recalculation based on your newest tax return. However, you can appeal with documentation showing reduced income.

Does my premium ever decrease thanks to recalculation?

Yes, it is possible for premiums to go down if there is low Part B spending growth or your income drops. But given rising healthcare costs, decreases are less common than premium hikes.

Who can I contact if I believe my new premium is incorrect?

Reach out to 1-800-MEDICARE and your plan for Part D issues. For Part B, contact Social Security at 1-800-772-1213. Be ready to provide documentation supporting premium errors.

If I am unhappy with a premium increase, are there any options besides switching plans?

For Part B, contact your representatives in Congress if you want to voice opposition to excessive premium hikes. For Part D, you may have to switch plans or reduce prescription use to lower costs.