After the retirement parties are over, some individuals never truly retire. Instead of taking it easy, some retirees choose to perform post-retirement work for non-CalPERS employers. For example, a retired police captain may work for a private security firm and or a retired Human Resources director may open a private consulting practice. While a retiree’s work for a non-CalPERS employer does not raise any issues regarding public agencies hiring retired annuitants, what many retirees do not realize is that if they earn a high amount of income and qualify for Medicare, Social Security will charge them an increased amount of their participation in Medicare. This increased amount is called an “income-related monthly adjustment amount” (“IRMAA”).
The increased IRMAA may also impact public agencies if retirees have a vested contractual right to the agency’s retiree health care and possibly, payment of the IRMAAs. The retiree may expect the public agency to pay for the IRMAA or reimburse the retiree for the IRMAA. Depending on the contractual language conferring retired health care benefits, which may include full payment for Medicare, and the vested nature of such benefit, an agency may be responsible for covering the IRMAA.
Which Retirees are Subject to an IRMAA?
An individual’s most recent federal tax return determines the amount of his/her income. Individuals who file taxes as “married, filing jointly” and have a modified adjusted gross income greater than $170,000 are subject to an IRMAA. Individuals who file taxes using a different status and have a modified adjusted gross income greater than $85,000 are subject to an IRMAA. If a Medicare beneficiary performs post-employment work and earns a high income, the Act requires Social Security to charge an adjusted IRMAA amount to the beneficiary for enrollment in Medicare Part B and/or Medicare Part D.
The Medicare Part B IRMAA
Medicare Part B provides medical insurance for services and supplies that are considered medically necessary to treat a disease or condition. Individuals pay a monthly premium for Medicare Part B. In addition to the standard monthly premium, an individual whose modified adjusted gross income exceeds the threshold amount is required to pay an IRMAA. Failure to pay the billed amount may result in termination of the beneficiary’s coverage.
The Medicare Part D IRMAA
Medicare Part D provides prescription drug coverage. For those participating in CalPERS health insurance, CalPERS prohibits retirees from enrolling in a separate, non-CalPERS Medicare Part D plan. The Part D IRMAA must be paid through a withholding from the beneficiary’s Social Security benefit. Where the beneficiary’s Social Security benefit is not sufficient, or the beneficiary has no Social Security benefits, Medicare directly bills the beneficiary. Failure to pay the Part D IRMAA will result in termination of coverage.
When Retirees Seek Payment or Reimbursement for IRMAAs
If a retiree seeks payment or reimbursement for an IRMAA by a public agency, the public agency may understandably view the amount as an unnecessary burden. After all, it does not make sense that the agency should pay for a retiree’s personal decision to perform post-retirement work, particularly when the retiree makes a lot of money from that work. When faced with such a request, the public agency must determine two things: (1) whether any post-employment benefit to medical insurance is vested, and (2) if so, whether the benefit includes IRMAAs?
To determine if a post-employment benefit is vested, the agency must carefully review the language of any written documents creating any post-employment benefit. A memorandum of understanding, personnel rule, employment contract, or other agency policy may create a post-employment benefit. The idea of a vested right is that an employer promises a benefit in the future if the employee provides service today and the employer promises that the benefit will not be terminated or modified.
If a post-employment benefit has vested, the next step is to determine what post-employment benefit the employee is vested in by again looking to the language of the document creating the benefit, as well as the long-standing practices approved by the governing board that may give rise to implied contractual terms. Does the agency’s document promise to pay the “full cost” of medical insurance in post-employment? How does the document define what constitutes “medical insurance” and could it conceivably include Medicare? If the language provides or could be interpreted to provide a vested right to the payment of Medicare premiums, then the agency may be responsible to pay the IRMAAs.
To complicate matters, many agencies provide post-retirement health coverage through CalPERS. When retirees turn 65, CalPERS requires them to apply for Medicare Part A and Part B in order to keep their CalPERS health coverage. Based on contractual language, a retiree could argue the agency has promised he/she can remain enrolled in lifetime health insurance at no cost. Since he/she must enroll in Medicare Part B at age 65 to keep CalPERS medical insurance, the retiree could claim the agency has an obligation to pay for all of Medicare Part B, including IRMAAs.
Be careful in drafting MOU language, personnel rules, resolutions or other documents which confer retiree health care coverage and avoid the implication that the agency could be liable for payment of the IRMAAs. If retirees from your agency request payment or reimbursement for IRMAAs and you are unsure of your agency’s obligation to cover these costs, seek legal counsel to ensure that your agency is in compliance with any vested, contractual rights based on the specific language in your agency’s documents.