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Editor’s Note: Journalist Philip Moeller, who writes widely on aging and retirement, is here to provide the answers you need in “Ask Phil.” Send your questions to Phil.
Lauren – Mass.: For the past three years my income has been $30,000. We have a small cottage that we want to sell. We bought it for $135,000, and we’re selling for $230,000 with a capital gain of $20,000. My husband is not on the deed. I will be 64 in October. What happens to my Medicare benefit?
Phil Moeller: Regardless of changes in your future taxable income, nothing would happen to your Medicare benefit. However, it could be another matter when it comes to how much you pay for that benefit. People who must pay Medicare’s premiums for Part B and Part D — and nearly everyone on Medicare does — face high-income surcharges under what’s called the program’s income-related monthly adjustment amount, also known as IRMAA. The surcharges begin kicking in when a couple’s modified adjusted gross income, or MAGI, exceeds $170,000 a year ($85,000 for a single person). There’s a two-year lag between when you earn the money and when it will affect IRMAA charges. Premiums in 2016, for example, are based on 2014 tax returns. If you file for Medicare when you turn 65 in late 2017, for example, your premiums would be based on your 2015 tax return. Now, it doesn’t appear that your home sale would boost your MAGI enough to trigger these surcharges. But if it did, it would not show up until your 2016 tax return, meaning it would not affect your Medicare premiums until 2018. But as I said, it doesn’t look like your taxable income would jump enough to trigger the surcharges for even a single year.
Jackie – S.C.: I have power of attorney for a person whose nursing home bill is $1,350 per month, with medicine costs of another $175. He only draws $1,338 per month in retirement income. He had additional savings that helped cover costs, but those funds are gone and now he faces eviction. Is there anything we can do to help cover his medicine costs?
Phil Moeller: Yes. I am assuming he is dually eligible for Medicaid and Medicare, because your note did not mention anything about Medicare premiums. Medicaid should help with these drug expenses. However, the income figure you provided may be net of his Medicare premiums. If so, Medicare’s Extra Help program might defray some or even all of the costs of his medications. Call a Medicare counselor with the State Health Insurance Assistance Program in South Carolina, and see what can be done.
Wayne – Wash.: I am age 69 and have Medicare Part A coverage. I thought I could cancel Medicare Part A and legally enroll in my employer’s health savings account program, but I found out I could not unenroll in Part A. The HSA started in 2016. My last contribution was in Apr 2016:
Year to date contribution is $6,696.09.
Year to date distribution is $5,294.33.
Current fair market value of the account is $1,402.29.
My question is how do I “zero” out the account? The HSA has suggested the following: I send them $5,294.33 to cover the distributions and do a withdrawal of $6,696.62 ($5,294.33 + $1,402.29). This will in effect set the account to $0.00 and “close” the account.
The other option I can envision is to withdraw the unspent amount of $1,402.29 (which will close the account) and then just pay the taxes and penalties on the contribution of $6,696.09.
Phil Moeller: I don’t know why you can’t unenroll from Part A. Unless you are already receiving Social Security payments, you can unenroll. However, I’ll assume your reasons are valid.
As for the HSA itself, I see no reason why you should repay all the money that’s been distributed from the plan. Most of these dollars came from you, didn’t they? In my view — and I am not claiming to be an expert here — the only dollars you would need to repay would be the ones the company contributed on your behalf. You would also need to pay back the amount of the tax benefits you claimed on the account. Your HSA should have this information.
While you could face an IRS penalty for improperly claiming the tax benefits in the first place, my experience is that if you take care of this within a tax year and have no improper tax deductions on your 2016 tax return, you will escape a penalty.
The unspent funds are supposed to be used for qualifying medical expenses. So simply withdrawing them yourself may be unwise. Odds are that repaying any company contributions and tax benefits would represent an amount close to or even greater than the balance of unspent funds. So, I’d ask the company if it would back out these amounts from your account balance. If there is a remaining balance of your own, post-tax funds, can the company switch these into whatever health plan you’re now using? Also, would it move some if not all of its HSA contributions into your new insurance plan?
Best of luck, and please let me know how all this turns out. If there are other readers who have faced similar problems, please chime in as well. These HSA “gotchas” have been a major problem for lots of folks.
Ellen – Kan.: I will turn 65 soon, but am still working full time, and because of my husband’s sudden death two years ago, I will still need to work for several years. I have good health insurance with my small consulting company employer. Do I have to file for Medicare?
Peter – Va.: I turned 65 in April, but I am still employed full time and have health coverage through my employer. Should I sign up now for Medicare Part A, or should I wait until I retire and/or I lose health converge?
Betty: I am turning 65 in August. I plan to continue working and keep my high-deductible insurance plan through my employer. I contacted my state’s Office on Aging, and the woman I spoke with (perhaps a volunteer) said that I don’t need to do anything until I retire and switch to Medicare. But I read elsewhere that it is necessary to fill out an application indicating “on the back” that I am declining Medicare at this time. I’ve only seen an online application option, so I don’t know whether or how I need to indicate that I don’t want Medicare this year. My concern is that I don’t want to be hit with a penalty later because of a requirement I wasn’t aware of.
Phil Moeller: So long as you have a valid group employer health plan, you do not have to file for Medicare when you turn 65.
However, if you do not have a high-deductible health plan, you might want to enroll in Part A of Medicare, which covers hospital care. Part A charges no premiums to people who have worked enough to qualify for Social Security benefits. It can come in handy to cover some hospital expenses that are not fully paid by your employer health plan. However, Part A invalidates the use of an HSA health plan.
Also, to Ellen, you are eligible for Social Security survivor benefits. I don’t know if you’ve claimed them, but if not, you might want to do so. If they are less than your own retirement benefits would be at age 70, you should file for them right away. If your husband made a lot of money and your survivor benefit will be larger than your own retirement benefit, I would advise you to wait to file for it until it reaches its maximum value when you turn 66.
Ellen’s follow-up: God bless you for getting back to me so quickly and putting my mind at ease. My husband made less than I do, and I was advised not to claim them when he died two years ago. So if I understand you correctly, I can file for them now and not jeopardize the benefits I get from my wages when I retire? Will the IRS take part of his Social Security benefits if I do opt to get them?
Phil’s follow-up: Yes. You can file for them without jeopardizing your own retirement benefits later. Make sure that the person at Social Security you deal with understands that you are electing to claim only your survivor benefit. Depending on your total income, a portion of your Social Security benefits may be taxed.
Phil Moeller is the author of “Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs” and the co-author of the updated edition of The New York Times bestseller “How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. On Twitter @PhilMoeller or via e-mail: firstname.lastname@example.org.
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