How can selling your home raise your Medicare premiums?

Even a one-time boost in income, from the sale of a home, for example, can raise your Medicare premiums. Photo by Flickr user kenteegardin/www.seniorliving.org.

Editors Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in Ask Phil, the Medicare Maven. Send your questions to Phil.

Medicare rules and private insurance plans can affect people differently depending on where they live. To make sure the answers here are as accurate as possible, Phil is working with the State Health Insurance Assistance Program (SHIP). It is funded by the government but is otherwise independent and trains volunteers to provide consumer Medicare counseling in state and local offices around the country.

Moeller is a research fellow at the Center on Aging & Work at Boston College and co-author of How to Live to 100. Follow him on Twitter @PhilMoeller or e-mail him at medicarephil@gmail.com.

Ralph Tenn.: If you sell your home to move to another state to retire, does that raise the cost of your Medicare Part B for that year, and how is that fair? Why do the proceeds from your house, a one-time event, put you into a high-income category?

Phil Moeller: Descend with me deep into the weeds, or, for the anatomically inclined, bowels of Medicare and Social Security bureaucracy. Ralphs question involves what is called the Income Related Monthly Adjusted Amount. Thats IRMAA for short, although there is nothing particularly short about it.

In brief, Medicares rates for Part B (doctor and outpatient) and Part D (drug) coverages are higher for those with higher incomes. IRMAA involves Part B but Ralphs official income levels should also affect his Part D premiums, according to the SHIP counselors who provide me advice for these answers.

Social Security, which does a lot of work affecting Medicare beneficiaries (you may shudder now), looks at a persons federal tax returns to see if their income has changed and is high enough to cause a boost in their Part B and Part D premiums. There is normally a two-year lag, so the agency will look at a 2013 tax return in evaluating 2015 premiums.

Im on Ralphs side here in that one-time gains like this do distort Ralphs true income situation. Of course, IRMAA should only jack up his Medicare premiums for a single year. But still, unfair is unfair.

Ralph apparently is concerned that the sale of his home will produce a big surge in his taxable income. This is a bit surprising, in that tax laws permit a hefty tax exclusion when someone sells their last home and does not roll over the proceeds into a new home. But lets assume Ralph has done his homework here and, for whatever reason, has or will report a big rise in his taxable income tied to the sale of his home.

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How can selling your home raise your Medicare premiums?