How Medicare Premiums Are Collected From a Social Security Payment

Answer first: four collection methods, and a fixed order of priority

The regulation lists the ways a Medicare medical insurance premium can be paid: payment by a State under a buy-in agreement; deduction from monthly railroad retirement or Social Security cash benefits or a federal civil service annuity; direct remittance by or on behalf of the enrollee; and direct remittance on a group basis by an employer, union, lodge, other organization, or a State or local government entity.

Which method applies is not a choice. Where an enrollee is covered by a State buy-in agreement, premiums "may not be deducted from monthly cash benefits or annuities" and the enrollee "may not be required to pay by direct remittance." Where an enrollee is not covered by buy-in but receives a qualifying monthly benefit or annuity, "the premiums are deducted from that benefit or annuity." Only where neither applies must premiums "be paid totally by direct remittance."

The deduction rule says the same thing from the enrollee's side, and it is blunt: "Enrollees who are receiving monthly benefits do not have the option of paying by direct remittance to avoid deduction."

The statute is the source of that. In the case of an individual entitled to monthly benefits under the cited Social Security provisions, monthly Medicare premiums "shall ... be collected by deducting the amount thereof from the amount of such monthly benefits," in the manner and at the times the Commissioner of Social Security prescribes by regulation.

Which benefit the premium comes out of, and in what order

Where someone is entitled to more than one kind of monthly benefit, the regulation sets an order of priority for the deduction: railroad retirement benefits first, then Social Security benefits, then civil service annuities.

The railroad rule is stated separately and is unusually specific. If an enrollee is entitled to railroad retirement benefits, "his or her SMI premiums are deducted from those benefits by the Railroad Retirement Board (RRB) even though he or she is also entitled to social security benefits or a civil service annuity, or both." If those railroad benefits are suspended, the Board sends premium notices requesting direct remittance under the ordinary rules.

The civil service route has its own statutory provision. For an individual receiving an annuity under the federal retirement system or another law administered by the Director of the Office of Personnel Management, and to whom the Social Security and railroad deduction provisions do not apply, premiums "shall, upon notice from the Secretary of Health and Human Services to the Director of the Office of Personnel Management, be collected by deducting the amount thereof from each installment of such annuity." With the individual's agreement, a spouse's premiums can be collected the same way where neither of the other provisions applies to the spouse.

What happens when the benefit is too small is handled explicitly, and differently by benefit type. If a monthly Social Security benefit or age 72 special benefit is less than the monthly premium, "the benefit is withheld and the enrollee is required to pay the balance through direct remittance." If a monthly railroad retirement benefit or civil service annuity payment is less than the premium, "the monthly payment is not withheld and the enrollee is required to pay the total premium by direct remittance."

The statute also lets an individual pre-empt a shortfall. Someone who estimates that the amount available for deduction will be less than the premiums for a payment period "may (under regulations) pay to the Secretary such portion of the monthly premiums for such period as he desires."

The one-month lag that explains a confusing statement

The regulation states the timing in a single line, with its own example attached: "The premium for each month is deducted from the cash benefit for the preceding month, e.g., the premium for March is deducted from the benefit for February, which is paid at the beginning of March."

That lag is why a statement can appear to show a mismatch between the month named on the premium and the month named on the benefit. Both are correct; they refer to different months by design.

Two other timing rules sit alongside it. When an enrollee receives a monthly benefit check after an initial award or after a period of suspension, that check is, if administratively feasible, "reduced or increased to deduct unpaid premiums or refund premiums paid in advance by direct remittance." So a first payment after an award can be adjusted in either direction.

And where buy-in coverage ends, the regulation provides that coverage continues on an individual enrollment basis and premiums are then deducted from benefits or paid by direct remittance under the ordinary rules — which is the mechanical explanation for a deduction reappearing on a benefit payment.

The limitation that protects a December payment

There is a statutory provision limiting how much a premium increase can reduce a benefit. For any calendar year after 1988, if an individual is entitled to the specified Social Security or railroad benefits for November and December of the preceding year, if the premium for December and for January is deducted from those benefits, and if the individual's premium is not adjusted for that January under the income-related provision, then the monthly premium otherwise determined "shall not be increased, pursuant to this subsection, to the extent that such increase would reduce the amount of benefits payable to that individual for that December below the amount of benefits payable to that individual for that November (after the deduction of the premium)."

Two exclusions are written into the same provision. Retroactive adjustments or payments, and deductions on account of work, are not taken into account in determining the monthly benefits to which the individual is entitled. And an increase attributable to an individual moving from one enrollment basis to another is not taken into account in applying the limitation.

The regulation implements this as a "nonstandard premium." The basic rule is that one may be established in individual cases "only if the individual is entitled to old age or disability benefits for the months of November and December, and actually receives the corresponding benefit checks in December and January." Beginning with 1989, a premium increase greater than the cost-of-living increase remains a prerequisite, and a nonstandard premium is "not precluded solely because the cash benefit is further reduced as a result of government pension offset or workers' compensation payment."

The amount is defined as the greater of the premium paid for December, or the standard premium promulgated for January reduced as necessary to compensate for the fact that the cost-of-living increase was less than the premium increase, or for the further reduction caused by a government pension offset or workers' compensation payments.

Two limits are worth noting. Beginning with calendar year 2007, a nonstandard premium "may not be applied to individuals who are required to pay an income-related monthly adjustment amount." And a nonstandard premium is still subject to the late enrollment or reenrollment increase, computed on the standard premium and added to the nonstandard one.

The regulation also fixes its duration: a nonstandard premium "continues in effect for the rest of the calendar year even if later there are retroactive adjustments in benefit payments," though it can be affected by a determination that the individual had not established, or had lost, entitlement to monthly benefits for November or December.

Reading a benefit statement with these rules in hand

Three of the most common confusions have mechanical answers. A premium month that does not match the benefit month reflects the one-month lag the deduction regulation states. A deduction that appears or disappears without any change in the premium usually reflects a change in collection method — most often buy-in coverage starting or ending. And a first payment after an award or a suspension may carry an adjustment for unpaid premiums or a refund of prepaid ones.

A fourth is the priority order. Someone entitled to more than one type of benefit will see the deduction on the highest-priority one, with railroad retirement ahead of Social Security and Social Security ahead of a civil service annuity — and, for a railroad retirement beneficiary, deducted by the Railroad Retirement Board rather than by Social Security.

A fifth is the small-benefit rule, which behaves differently depending on the benefit. A Social Security benefit smaller than the premium is withheld entirely with the balance billed; a railroad retirement benefit or civil service annuity smaller than the premium is not withheld at all and the full premium is billed.

None of these rules determines any individual amount. The regulation states how a premium is collected, not what it is, and this article states no premium figure for any year.