Medicare Part B Income-Related Monthly Adjustment Amount

AGENCY:

Social Security Administration (SSA).

ACTION:

Final rules.

SUMMARY:

We are adding to our regulations a new subpart, Medicare Part B Income-Related Monthly Adjustment Amount, to contain the rules we will follow for Medicare Part B income-related monthly adjustment amount determinations. The monthly adjustment amount represents the amount of decrease in the Medicare Part B premium subsidy, i.e. the amount of the Federal Government's contribution to the Federal Supplementary Medical Insurance (SMI) Trust Fund. This new subpart implements section 811 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Modernization Act or MMA) and contains the rules for determining when, based on income, a monthly adjustment amount will be added to a Medicare Part B beneficiary's standard monthly premium. These final rules describe: What the new subpart is about; what information we will use to determine whether you will pay an income-related monthly adjustment amount and the amount of the adjustment when applicable; when we will consider a major life-changing event that results in a significant reduction in your modified adjusted gross income; and how you can appeal our determination about your income-related monthly adjustment amount.

DATES:

These final rules are effective December 26, 2006.

FOR FURTHER INFORMATION CONTACT:

Craig Streett, Team Leader, Office of Income Security Programs, Social Security Administration, 252 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235-6401, 410-965-9793 or TTY 1-800-966-5609, for information about this Federal Register document. For information on eligibility or filing for benefits, call our national toll-free number, 1-800-772-1213 or TTY 1-800-325-0778, or visit our Internet site, Social Security Online, at http://www.socialsecurity.gov.

SUPPLEMENTARY INFORMATION:

Electronic Version

The electronic file of this document is available on the date of publication in the Federal Register at http://www.gpoaccess.gov/fr/index.html.

Statutory Provisions

Section 811 of the MMA (Pub. L. 108-173), which was enacted into law on December 8, 2003, added subsection (i) to section 1839 of the Social Security Act (the Act), and established a Medicare Part B premium subsidy reduction (referred to in these final rules as “the income-related monthly adjustment amount”) effective January 1, 2007, which will be added to the standard monthly Medicare Part B premium amount for certain beneficiaries. Section 1839(i) of the Act was subsequently amended by section 5111 of the Deficit Reduction Act of 2005, Public Law 109-171. The Centers for Medicare & Medicaid Services (CMS), in the Department of Health and Human Services (HHS), has overall responsibility for determining the annual Medicare Part B standard monthly premium amounts and premium increases for late enrollment or reenrollment. CMS regulations at 42 CFR part 408 describe the rules that CMS uses to determine those amounts. As explained in these final rules, we are responsible only for making initial determinations and reconsidered determinations about income-related monthly adjustment amounts. Any subsequent levels of appeal will be provided by HHS under its regulations at 42 CFR part 405.

Section 702(a)(5) of the Act allows us to make the rules and regulations necessary or appropriate to carry out the functions of SSA. Other provisions in section 811 of the MMA provide us with additional specific authorization to make rules and regulations to determine the income-related monthly adjustment amount. For example, sections 1839(i)(4)(B) and (i)(4)(C)(ii)(II) of the Act authorize us to promulgate regulations necessary for our determinations about income-related monthly adjustment amounts. Section 1839 of the Act requires the Secretary of HHS to determine annually the Medicare Part B standard monthly premium amount. Section 1839 of the Act also authorizes the Secretary of HHS to establish a premium increase for late enrollment and for reenrollment under certain circumstances and provides for a limitation on increases in the Medicare Part B standard monthly premium for some beneficiaries.

The new section 1839(i) requires us to determine the income-related monthly adjustment amount for Medicare beneficiaries with modified adjusted gross income above an established threshold. The income-related monthly adjustment amount is added to the Medicare Part B standard monthly premium and any applicable premium increase for late enrollment or reenrollment. The MMA provides that in 2007 the modified adjusted gross income threshold is $80,000 for individuals who file their Federal income taxes with a filing status of single, married filing separately, head of household, or qualifying widow(er) with dependent child and $160,000 for married individuals who file a joint tax return. Section 811(c)(1) of the MMA enacted a new section 6103(1)(20) of the Internal Revenue Code authorizing the Internal Revenue Service (IRS) to provide certain income information to us to use in determining the income-related monthly adjustment amount. The MMA requires that the threshold amount be adjusted yearly based on the Consumer Price Index.

Section 811(b)(1)(C) of the MMA also amended section 1839(f) of the Act, so that the limitation on increases in the Medicare Part B standard monthly premium for some beneficiaries will not apply to beneficiaries who are responsible for an income-related monthly adjustment amount.

Background

Medicare Part B is a voluntary program which provides medical insurance coverage for medical and health services such as physician services, diagnostic services, and medical supplies. Medicare Part B beneficiaries are responsible for deductibles, co-insurance and monthly premiums towards the cost of covered services. CMS promulgates rules and regulations concerning the Medicare program.

The Medicare Part B standard monthly premium is set by CMS so that it covers approximately 25 percent of the Medicare Part B program costs. Certain beneficiaries may also pay an increased premium for late enrollment in Medicare Part B or for reenrollment after a period without coverage. Approximately 75 percent of the full cost of Medicare Part B is subsidized by the Federal Government by contributions to the Federal Supplementary Medical Insurance Trust Fund. In addition, for certain beneficiaries whose premiums are deducted from other payable Social Security (or railroad retirement) benefit amounts that they receive, the yearly adjustment to the premium amount cannot be raised more than the amount of the cost-of-living adjustment for those other benefits.

Starting in January 2007, the Medicare Part B premium subsidy will be reduced for an estimated 4 to 5 percent of the approximately 40 million Medicare Part B beneficiaries. Beneficiaries who had modified adjusted gross income above the threshold level set in the MMA in the tax year 2 years prior to the year for which we make a determination about whether they must pay an income-related monthly adjustment amount (the effective year) will receive a reduced Federal subsidy of their Medicare Part B premium. The reduction of the Federal premium subsidy will result in beneficiaries with modified adjusted gross income above the threshold paying more of the cost of their Medicare Part B benefits through an income-related monthly adjustment amount that will be added to the Medicare Part B standard monthly premium plus any applicable premium increase for late enrollment or reenrollment.

How This Will Affect You

Your modified adjusted gross income is your adjusted gross income, as defined at 26 U.S.C. 62 and in related regulations, plus certain other forms of income that may be excluded from adjusted gross income for the purpose of determining the amount of Federal income tax that you must pay. The MMA as amended by the Deficit Reduction Act provides that the payment of the full amount of the income-related monthly adjustment amount will be phased in starting in 2007 and will be completed in 2009. If you must pay an income-related monthly adjustment amount, you will not be eligible for the limitation on Medicare Part B standard monthly premium increase beyond the amount of your Social Security (or tier 1 railroad retirement) cost-of-living adjustments, as described in 42 CFR 408.20.

If you are a Medicare beneficiary prior to January 1, 2007 and you will be required to pay an income-related monthly adjustment amount in 2007, we will notify you by sending you a letter at the end of 2006 about the additional amount of your premium and any related changes in the amount of your Social Security monthly benefits or other payments (railroad retirement or Civil Service annuity payments) from which your premiums will be withheld. If you enroll in Medicare Part B after January 1, 2007, your initial Medicare Part B premium may not include an income-related monthly adjustment amount. If we subsequently determine that you must pay an income-related monthly adjustment amount for your Medicare Part B coverage, you will be notified shortly after you enroll in Medicare Part B, and you will be responsible for your income-related monthly adjustment amount for all months after December 2006 for which you were enrolled in and entitled to Medicare Part B. If you are a Medicare beneficiary during 2007 or after, we will notify you prior to the start of each year if you must pay an income-related monthly adjustment amount in that year.

How We Determine Your Income-Related Monthly Adjustment Amount

The amount of your modified adjusted gross income will determine if you are to pay an income-related monthly adjustment. Section 1839(i)(2) of the Act establishes the threshold for modified adjusted gross income used to determine if you are to pay an income-related monthly adjustment amount. In 2007, the modified adjusted gross income threshold amount is $80,000 for individuals who file their Federal income tax return with a filing status of single, married filing separately, head of household, or qualifying widow(er) with dependent child, and $160,000 for individuals who file a joint income tax return with their spouse.

Section 1839(i)(4) of the Act requires us to request information about your modified adjusted gross income from IRS in the Department of the Treasury and to use this information to determine if you must pay an income-related monthly adjustment amount. We will specify the tax year involved in our information request. We will request that IRS send us Federal income tax return information about your modified adjusted gross income for the tax year which is 2 years before the effective year. If modified adjusted gross income information is not available from IRS for the tax year 2 years before the effective year of our determination, IRS will send us your modified adjusted gross income information for the tax year 3 years before the effective year if it exceeds the threshold. We will use information for the tax year 3 years prior to determine whether you must pay an income-related monthly adjustment amount only until we obtain information for the tax year 2 years prior. When we use such information to make a determination, we will make retroactive corrections that will apply to all months that you paid an incorrect income-related monthly adjustment amount.

If we use information from IRS for the tax year 3 years before the effective year of our determination, you may request that we use information that you provide for the tax year 2 years before that year. In some cases, you may pay a higher premium based on your 2-year information. However, providing that information to us rather than having us receive information from IRS at a later date will help you avoid an extensive retroactive correction. In order for us to make an initial determination based on such a request, you must provide your retained copy of your Federal income tax return for that year, a copy that you request from IRS, or an IRS transcript of your return. If you provide your retained copy, we will also verify this information with IRS.

If we receive information from IRS about your modified adjusted gross income for a tax year for which you did not file a tax return that shows that you had income that year that exceeded the established threshold, we will make a determination about your income-related monthly adjustment amount for that year. We will apply the highest applicable percentage adjustment based on that information, as required by statute. If IRS provides information to us that indicates a change in your modified adjusted gross income for a prior tax year, we will use this information to establish corrections for the appropriate effective years regardless of when we receive such information. We are consulting with IRS to develop processes for the transmission of modified adjusted gross income information for situations involving those who do not file income tax returns and for changes in information that IRS provides.

The Sliding Scale Formula and How It Applies to You

Section 1839(i)(3) prescribes a sliding scale formula that CMS will use to establish annually four income-related monthly adjustment amounts beginning in 2007. The calculation of the income-related monthly adjustment amount reduces a beneficiary's Medicare Part B premium subsidy using specified percentages. The amount of this premium subsidy reduction is the income-related monthly adjustment amount. To determine each income-related monthly adjustment amount, CMS will use the unsubsidized Medicare Part B premium (approximately four times the Medicare Part B standard monthly premium) and multiply it by a specified percentage. The percentage used in the calculation changes as the amount of modified adjusted gross income increases the income-related monthly adjustment amount.

We will use your modified adjusted gross income and your Federal income tax filing status (e.g., single, married filing jointly, married filing separately) to determine whether you must pay an income-related monthly adjustment amount, and if so, what your income-related monthly adjustment amount will be. Section 1839(i)(3)(C) provides the modified adjusted gross income ranges. The range amounts for individuals who are married filing jointly are double the range amounts for single income tax filers. IRS recognizes three additional filing statuses: head of household, qualifying widow(er) and married filing separately. If you file as a head of household or as a qualifying widow(er), we will apply the modified adjusted gross income range applicable to individuals who file their Federal income tax return with a filing status of single. Section 1839(i)(3)(C)(iii) provides a different rule for determining the income-related monthly adjustment amount for individuals who file their Federal income tax return with a filing status of married filing separately and who lived with their spouse at any time during the year. For these individuals, we subtract the threshold amount as described in section 1839(i)(2)(A) established for single income tax filers for that calendar year from the modified adjusted gross income ranges for individuals with a tax filing status of single. For 2007, this results in the following two ranges for married filing separately: (1) $80,000 to less than or equal to $120,000 and (2) More than $120,000. Individuals affected by section 1839(i)(3)(C)(iii) will pay either the third or fourth range of income-related monthly adjustment amount as described in section 1839(i)(3)(C)(i) as modified by 1839(i)(3)(B).

Starting in 2007 for calendar year 2008, and annually thereafter for each following calendar year, CMS will publish the annual modified adjusted gross income ranges and income-related monthly adjustment amounts that are associated with each range. We will use this published information to determine which amount applies to you based on your tax filing status in the tax year we are using to determine your income-related monthly adjustment amount.

If you filed an amended tax return for the tax year we used to make a determination of your income-related monthly adjustment amount, you may request that we use your amended tax return for that year. You must provide us with proof that you filed an amended tax return with IRS, including your retained copy of the amended tax return and a letter from IRS verifying receipt of the return or an IRS transcript of your amended tax return. If you believe that IRS provided incorrect modified adjusted gross income information and we used that information to determine your income-related monthly adjustment amount, you may request that we make a new income-related monthly adjustment amount determination. You must provide proof of the error in the IRS data and evidence of your actual modified adjusted gross income, such as a copy of the return that you obtain from IRS. When we use information from your amended or corrected Federal income tax return to make a determination, we will make retroactive adjustments that will apply to all months that you paid an incorrect income-related monthly adjustment amount.

Phase-In and Inflation Adjustment of the Income-Related Monthly Adjustment Amount

Section 1839(i)(3)(B) requires the amount of the full income-related monthly adjustment to be phased in over a 3-year period beginning in 2007. The effect is that from 2007 through 2009 the amount of the income-related monthly adjustment amount will increase, because the subsidy will decrease. The percentage will change each year so that the income-related monthly adjustment amount will gradually increase, until the full amount is phased in starting in 2009. In 2007, you will pay 33 percent of the income-related monthly adjustment amount, and in 2008, you will pay 67 percent of the income-related monthly adjustment amount. In 2009, you will pay the full income-related monthly adjustment amount for your tax filing status and modified adjusted gross income.

Beginning in 2008, section 1839(i)(5) of the Act requires an annual inflation adjustment for the threshold amount and the amounts used in the modified adjusted gross income ranges. The adjustment will be based on the percentage increase in the Consumer Price Index for all urban consumers and rounding the result to the nearest $1,000. CMS will calculate and publish these amounts annually.

Changes in Your Modified Adjusted Gross Income

Section 1839(i)(4)(C) of the Act requires us to establish procedures in consultation with the Secretary of the Treasury for determining your modified adjusted gross income for a tax year more recent than the information ordinarily provided by IRS. The statute states that we will grant your request to use a more recent tax year to determine your income-related monthly adjustment amount only when:

• You experience a major life-changing event;
• That major life-changing event results in a significant reduction in your modified adjusted gross income;
• You request that we use a more recent tax year's modified adjusted gross income; and
• You provide evidence of the event and the reduction in your modified adjusted gross income.

These final rules describe the standards that you must meet in order for us to use a more recent tax year's modified adjusted gross income to determine whether you must pay an income-related monthly adjustment amount and what your income-related monthly adjustment amount will be. In these final rules we define qualifying major life-changing events and what is a significant reduction in your modified adjusted gross income. We also specify the evidence we will require of major life-changing events and the resulting reduction in your modified adjusted gross income.

Section 1839(i)(4)(C)(ii)(II) specifies that major life-changing events include marriage, divorce, and death of a spouse. Under that section, we have discretion to include in regulations additional major life-changing events that would allow us to grant your request that we use information from a more recent tax year to determine your income-related monthly adjustment amount. In these rules we establish the following categories of qualifying major life-changing events:

• Death of a spouse;
• Marriage;
• Marriage ended by divorce or annulment;
• Partial or full work stoppage;
• Loss of income from income-producing property when the loss is not at your direction, for example, loss of income from real property due to a natural disaster in a Presidentially or Gubernatorially-declared disaster area, or due to arson, or destruction of livestock or crops; and
• Reduction or loss of income from an insured pension plan due to termination or reorganization of the pension plan, or a scheduled cessation of your pension benefits.

We have included these additional categories of major life-changing events because we recognize that these events may cause a significant reduction in your modified adjusted gross income. We will include losses in pension income from an insured pension plan that occur due to events outside of your control, such as underfunding that results in a termination of the plan, but not due to your choices about funding an employee-directed pension plan. The statute authorizes us to define as major life-changing events circumstances that affect your income, not circumstances that affect only your expenses.

We define a significant reduction in your modified adjusted gross income as any change that results in a reduction or elimination of your income-related monthly adjustment amount. Therefore, a significant reduction in your modified adjusted gross income is any change that lowers your income below the threshold amount or lowers the modified adjusted gross income range in which your income falls. Section 1839(i)(4)(C)(ii) provides that we may grant your request to use a more recent tax year's modified adjusted gross income to determine your income-related monthly adjustment amount only if you provide us with a copy of a filed Federal income tax return or equivalent document. These final rules define the evidence that we will consider to be equivalent to a copy of a filed Federal income tax return.

When we make an income-related monthly adjustment amount determination based on your request due to a qualifying major life-changing event, the determination will generally be effective on January 1 of the calendar year for which we make the determination. If you enrolled in Medicare Part B after January 1 of the year for which we make an income-related monthly adjustment amount determination based on your request due to a major life-changing event, the determination will be effective the month of your Medicare Part B enrollment.

When we make an income-related monthly adjustment amount determination following a major life-changing event using your more recent tax year's modified adjusted gross income, we will continue trying to get IRS data for that tax year. When we receive modified adjusted gross income information from IRS for that tax year, we will use the information from IRS to determine the correct income-related monthly adjustment amount for the year or years for which we used information that you provided, and we will make retroactive adjustments, if necessary. Retroactive adjustments will apply to all months for which you paid an incorrect income-related monthly adjustment amount.

If You Disagree With Our Determination of Your Income-Related Monthly Adjustment Amount

We will decide whether you must pay an income-related monthly adjustment, and the amount of any adjustment, based on information we receive from IRS or you. We will send you a notice of our initial determination of your income-related monthly adjustment amount and the basis for our determination. The notice will explain that, if you disagree with our determination, you may request that we reconsider it within 60 days after the date you receive notice of our initial determination. The notice will also explain that you may request a new initial determination, rather than a reconsideration, if you believe the information we used in our initial determination was correct, but you want us to use different information about your modified adjusted gross income.

For purposes of this subpart, in making initial determinations and reconsiderations, we will use the rules for the administrative review process that we use for determinations of your rights regarding nonmedical issues under title II of the Act. However, in order to expedite the processing of requests for reconsideration under these final rules, we have also provided in these rules that we may accept requests for reconsideration that are filed by electronic or other means that we determine to be appropriate, other than a request in writing, as our title II regulations provide. If you are dissatisfied with our reconsidered determination, you may request further review, including a hearing before an administrative law judge (ALJ) from the Office of Medicare Hearings and Appeals (OMHA) at HHS, review by the Medicare Appeals Council (MAC), and judicial review, consistent with the CMS regulations at 42 CFR part 405. As part of your request for an ALJ hearing or MAC review, you will be required to provide your consent for us to release your relevant tax return information to OMHA or the MAC for the purposes of adjudicating any appeal of the amount of an income-related adjustment to the Part B premium subsidy and for any judicial review of that appeal.

We are establishing a new procedure, a request for a new initial determination, that you may use when you do not dispute the accuracy of the determination we made based on the modified adjusted gross income information provided by IRS, but you want us to use different information. You may provide evidence of your modified adjusted gross income for a more recent tax year than the information provided by IRS when you have had a major life-changing event that significantly reduces your income or when IRS has provided modified adjusted gross income information from 3 years prior to the premium effective year and you supply your retained copy of your Federal income tax return for the tax year 2 years prior. You may also request that we make a new initial determination when you have amended your Federal income tax return or when you can furnish proof that IRS has provided incorrect information about your modified adjusted gross income for the year that we used to determine your income-related monthly adjustment amount.

We are establishing this alternative procedure in view of the nature of the information that we are required by the MMA to use in making determinations regarding the income-related monthly adjustment amount. We anticipate that the use of this new procedure will allow us to make timely adjustments when you have updated information about your modified adjusted gross income, or when you can prove the IRS information we used is incorrect. This process does not affect your right to appeal an initial determination that we make about your income-related monthly adjustment amount, but allows you to choose an alternative of requesting that we use other information to make a new initial determination.

Explanation of Subpart B

We are adding a new subpart B, Medicare Part B Income-Related Monthly Adjustment Amount, to part 418 of chapter III of title 20 of the Code of Federal Regulations. Subpart B contains the rules that we will use to determine when you will be required to pay an income-related monthly adjustment amount in addition to your Medicare Part B standard monthly premium plus any applicable premium increase for late enrollment or reenrollment. Following is a description of each section for subpart B.

Introduction, General Provisions, and Definitions

• Section 418.1001 describes what subpart B is about, lists the groups of sections in the subpart, and the subject of each group.
• Section 418.1005 explains that the purpose of the income-related monthly adjustment amount is to reduce the premium subsidy of the Medicare Part B program, i.e., the amount of the Federal Government's contribution to the Federal Supplementary Medical Insurance Trust Fund for certain beneficiaries. It also explains how the income-related monthly adjustment amount will be administered.
• Section 418.1010 contains definitions of terms used throughout this subpart.

Determination of the Income-Related Monthly Adjustment Amount

• Section 418.1101 explains what the income-related monthly adjustment amount is and when it is applied.
• Section 418.1105 defines the modified adjusted gross income threshold and what the modified adjusted gross income threshold amounts will be in the year 2007. It also describes how threshold amounts will change in later years.
• Section 418.1110 describes the effective date of our initial determination about the income-related monthly adjustment amount.
• Section 418.1115 defines modified adjusted gross income ranges and explains how we will use them and your tax filing status to determine the amount of your income-related monthly adjustment amount when applicable, and what effect Federal income tax filing status has on the ranges.
• Section 418.1120 explains how we will determine your income-related monthly adjustment amount.
• Section 418.1125 explains how the income-related monthly adjustment amount will affect your total Medicare Part B premium.
• Section 418.1130 explains how we will phase in the full applicable income-related monthly adjustment amounts.
• Section 418.1135 describes what modified adjusted gross income information we will use to determine your income-related monthly adjustment amount.
• Section 418.1140 describes what will happen if the modified adjusted gross income that we later receive from IRS is different from the information that we previously used to make a determination of your income-related monthly adjustment amount.
• Section 418.1145 describes how we will determine the income-related monthly adjustment amount if IRS does not provide your modified adjusted gross income information.
• Section 418.1150 describes when we will use a copy of your amended Federal income tax return filed with IRS to determine the income-related monthly adjustment amount and what proof is necessary to show that you filed a tax return with IRS.

Determinations Using a More Recent Tax Year's Modified Adjusted Gross Income

• Section 418.1201 explains when we will use modified adjusted gross income information for a more recent tax year to determine your income-related monthly adjustment amount.
• Section 418.1205 describes what is considered a major life-changing event that would justify using information from a more recent tax year.
• Section 418.1210 explains what is not considered a major life-changing event that would justify using information from a more recent tax year.
• Section 418.1215 explains what is a significant reduction in your income for the purpose of these rules.
• Section 418.1220 explains what is not a significant reduction in your income for the purpose of these rules.
• Section 418.1225 explains which more recent tax years we may use to determine whether you must pay an income-related monthly adjustment amount and the amount of that adjustment.
• Section 418.1230 explains the effective date of our income-related monthly adjustment amount determination based on your request to use a more recent tax year.
• Section 418.1235 explains when we will stop using your modified adjusted gross income from a more recent tax year for income-related monthly adjustment amount determinations.
• Section 418.1240 explains what you should do if your modified adjusted gross income for the more recent tax year changes.
• Section 418.1245 explains what will happen if you notify us of a change in your modified adjusted gross income for the more recent tax year.
• Section 418.1250 explains what evidence you will need to support your request for us to use a more recent tax year to determine your income-related monthly adjustment amount.
• Section 418.1255 describes what evidence of a major life-changing event you will need to provide to support your request to use a more recent tax year.
• Section 418.1260 describes the types of evidence of a major life-changing event that we will not accept.
• Section 418.1265 describes what evidence of a significant reduction in your modified adjusted gross income you will need to provide to support your request to use a more recent tax year.
• Section 418.1270 explains what evidence we will not accept of a significant reduction in your modified adjusted gross income.

Determinations and the Administrative Review Process

• Section 418.1301 explains what is an initial determination regarding your income-related monthly adjustment, and provides examples of determinations that are initial determinations for purposes of these rules.
• Section 418.1305 explains that administrative actions that are not initial determinations are not subject to the administrative review process.
• Section 418.1310 explains when you may request that we make a new initial determination.
• Section 418.1315 explains how we will notify you when we make an initial determination, and what information the notice will contain.
• Section 418.1320 explains the effect of the initial determination.
• Section 418.1325 explains when you may request a reconsideration.
• Section 418.1330 explains what will happen if you request a reconsideration because you believe that IRS information we used to make an initial determination about your income-related monthly adjustment amount is incorrect.
• Section 418.1335 explains what to do if you believe our initial determination is based on incorrect modified adjusted gross income information.
• Section 418.1340 tells you the rules for the administrative review process.
• Section 418.1345 tells you the rules we will use to decide if reopening a prior initial or reconsidered determination made by us is appropriate.
• Section 418.1350 explains that the HHS rules will apply for review of a reconsidered determination or ALJ decision.
• Section 418.1355 explains that the rules for reopening a prior decision made by an ALJ of the OMHA or by the MAC will follow the HHS rules governing reopening.

Public Comments

On March 3, 2006, we published proposed rules in the Federal Register at 71 FR 10926 and provided a 60-day period for interested persons to comment. We received comments from three organizations and four individuals. We have condensed, summarized or paraphrased the comments in the following discussion to facilitate comprehension of the issues. We have tried to present all views accurately and address carefully all of the issues raised by the commenters that are within the scope of the proposed rules.

In our proposed rules, we invited but received no comments on the issue of individuals for whom the IRS cannot supply income tax return information. The statute requires that we issue regulations that “provide for the treatment of the premium adjustment with respect to such individual[s]” when we have information that such individuals have income that exceeds the threshold. Consistent with the requirements of § 1839(i)(4)(B)(iii) of the Act, we have added § 418.1135(f) to these rules to clarify that if, after a premium effective year, we receive information from IRS that such an individual had modified adjusted gross income above the applicable threshold, we will apply the highest income-related adjustment percentage to such individual as required by the statute. When we receive such information, we will retroactively correct Medicare premiums for any affected effective year(s), as required by statute.

Introduction, General Provisions and Definitions

Comment: Four commenters expressed concerns over the concept that some higher income Medicare beneficiaries should receive a reduction in the Federal subsidy of their Medicare Part B premiums.

Response: The provision to reduce the amount of the subsidy based on your income levels was specifically legislated by Congress. Our responsibility is to implement section 811 of the MMA through these regulations in a manner consistent with the requirements of this law.

Comment: One commenter found the proposed rules confusing.

Response: We have reorganized the rules and changed some of the captions and wording of the regulation text in order to improve the clarity of the regulation.

We changed the order of §§ 418.1110 through 418.1120 by moving the section about the effective date of our initial determination so that it precedes the section that describes how we make our initial determination of your income-related monthly adjustment amount. This change provides a more logical progression of concepts related to income-related monthly adjustment amount determinations.

We renumbered the sections related to a determination using a more recent tax year's modified adjusted gross income because we created two new sections (§§ 418.1215 and 418.1220) to clarify what is a significant reduction in modified adjusted gross income. In the proposed regulation, the definition of a significant reduction in modified adjusted gross income was in § 418.1201(b). We have left that definition intact, but added further clarification in the new sections.

Comment: Several commenters raised concerns about confusion that may arise regarding the administrative review process.

Response: We agree with the comments and have added §§ 418.1340 and 418.1345 which clarify that we will apply our rules for administrative review by SSA and reopening of our determinations. Sections 418.1350 and 418.1355 clarify that HHS will apply its rules for administrative review and reopenings by ALJs from OMHA and by the MAC.

Comment: One commenter suggested that we define what we mean by “significant reduction” in income resulting from a major life-changing event. It was also requested that we add more information to the final rules about what evidence of life-changing events we will require, and how we will establish a causal link between the major life-changing event and the significant reduction in income.

Response: We agree with this suggestion and have added new sections to the regulations that explain what does and does not constitute a significant reduction in income resulting from a major life-changing event. Section 418.1215 defines a significant reduction in modified adjusted gross income, and § 418.1220 explains that we will not consider a reduction in income to be significant if it does not affect the amount of income-related monthly adjustment you must pay.

Section 418.1250 states that we will ask for evidence of the major life-changing event and how that event significantly reduced your modified adjusted gross income. We have also added explanations of what major life-changing event evidence we will not accept and what modified adjusted gross income information we will not accept. Section 418.1260 describes the types of evidence of major life-changing events that we will not accept, and § 418.1270 describes the types of modified adjusted gross income evidence we will not accept.

In § 418.1265(b) we expanded our description of the evidence that we will accept of reductions in your modified adjusted gross income. The revision clarifies that we will accept a copy of your filed Federal income tax return for a more recent taxable year. If you have amended your tax return for the more recent taxable year, you should provide a copy of the amended tax return. Finally, if you filed a tax return for the more recent taxable year, but have proof from IRS of a correction of your tax return information, you should provide evidence of the correction.

Comment: One commenter expressed concerns about privacy issues surrounding the modified adjusted gross income data that we will obtain from IRS.

Response: Section 811 of the MMA created a new provision of the Internal Revenue Code that authorizes IRS to disclose modified adjusted gross income information to us for the specific purpose of determining income-related monthly adjustments to Medicare Part B premiums. We have worked with the IRS under existing protocols and within the specifications of section 811 and other legislation to limit the information that IRS discloses to us and the information that we will supply to IRS for this purpose. The data exchange will be conducted in accordance with the provisions of section 1106 of the Act (42 U.S.C. 1306), the Privacy Act (5 U.S.C. 552a), and section 6103 of the Internal Revenue Code (26 U.S.C. 6103) to ensure safeguarding of any personally identifiable information that is exchanged. We added a statement in § 418.1350 to clarify that we will not disclose information that we have about your tax information for the purpose of a hearing with an ALJ, MAC review, or judicial review unless you authorize us to do so, and the IRS confirms that the authorization meets all legal requirements.

Comment: One commenter said that the regulations should address beneficiary education activities to inform the public about their appeal rights and how the different agencies involved will coordinate those activities.

Response: After careful consideration, we decided that including education plans in the final regulations would not be appropriate. We are working on the best methods to provide initial and continuing information to the public that explains their appeal rights and other information that the public may need and are coordinating our efforts with CMS. We will include information in notifications that we will send to affected beneficiaries and through other vehicles, such as Fact Sheets and Web page information published by both agencies.

Comment: One commenter addressed concerns about the timing of notifications to beneficiaries about income-related monthly adjustments to Medicare Part B premiums, suggesting that such notices be issued by October 31. The commenter also encouraged us to provide detailed information in those notifications.

Response: As we explained earlier in this preamble, generally we will use 2-year old modified adjusted gross income information from IRS to determine whether you are required to pay an income-related monthly adjustment amount. Section 811 of the MMA gives IRS until October 15 to provide us with 2-year old tax data to use in determining your adjustment amount for the next year. If we do not receive the information by October 15, the law allows us to use 3-year old data. Because we must wait until after October 15 to obtain the required information, it is not possible for us to process the data from IRS and issue notices by the suggested date.

We will send notices that will explain the basis of our decision and what you should do if you disagree with our decision or have better information than we do (such as a copy of a filed 2-year old tax return when we used 3-year old information to set a premium adjustment). The notices will provide information about which year's income tax return information we used to make our determination, and what information IRS gave us about your tax filing status and modified adjusted gross income for that year. The notices will also explain what you may do if there has been a major life-changing event(s) resulting in a significant reduction in income since the year we used to set your Medicare Part B premium.

Comment: One commenter urged us to publish the annual, updated modified adjusted gross income ranges at the same time as the Medicare Part B premium changes and for CMS to include projected amounts for a 5- to 10-year period in its Annual Trustees Report.

Response: We do not determine the annual modified adjusted gross income ranges, nor do we determine the standard Medicare Part B premium. CMS will determine the ranges annually as it does the standard Medicare Part B premium. We will include this information on our Web site http://www.socialsecurity.gov as it becomes available to us. We have shared with CMS the suggestion to include projected modified adjusted gross income ranges in CMS's Annual Trustees Report.

Determination of the Income-Related Monthly Adjustment Amount

Comment: Two commenters expressed concern about using information from IRS for a past period. One of those comments focused on the use of IRS information from more than 2 years before the year for which the Medicare Part B premiums will be effective. That commenter expressed hope that IRS would be able to provide appropriate electronic information about beneficiaries' modified adjusted gross income from the tax year 2 years before the premium year well in advance of October 15 each year. The other comment expressed a generalized concern about the coordination of data transfers between Federal agencies.

Response: Based on our discussions with IRS, we expect that the overwhelming majority of income tax returns from the tax year 2 years before the premium year will be processed and in electronic format by October 15 of each year. Although many taxpayers request filing extensions, almost all file a tax return by October 15. The language of the statute dictates the October 15 date and provides an exception for the temporary use of 3-year old data when 2-year old information is not available. We are working with IRS to minimize the temporary use of older data, and to ensure accurate data exchanges.

Determinations Using a More Recent Tax Year's Modified Adjusted Gross Income

Comment: Two commenters addressed the possibility of job loss or retirement affecting income in the past year while we use 2- or 3-year-old information from IRS.

Response: Reduction of work or work stoppage can be a major life-changing event for purposes of determining the income-related monthly adjustment amount. If you experience a significant reduction of income because of work reduction or stoppage, the final rules provide that you may request that we use information that you provide about your income for a more recent tax year to determine your income-related monthly adjustment amount. If you report a major life-changing event that significantly reduces your income, we will use that information to determine if an income-related monthly adjustment amount is applicable. When we determine that you have paid too much for your Medicare Part B premium, we will follow current processing procedures to refund excess amounts of Medicare Part B premiums that have been paid. If a Medicare beneficiary pays premiums through another Federal agency, we will convey the information that the agency needs to refund excess Medicare Part B premiums that have been paid.

Comment: One commenter thought that the impairment-related work expenses deduction from income for the disabled in other Social Security programs should be extended to the income-related monthly adjustments to Medicare Part B premiums.

Response: We have not adopted the comment. The statute clearly defines the method for determining whether an income-related monthly adjustment is applicable and the amount of such adjustment. The MMA requires us to use only the modified adjusted gross income as defined in section 1839(i)(4) of the Act and does not provide any authority for us to consider an individual's expenses or net income.

Comment: One commenter suggested that the list of significant life-changing events should be flexible. Another commenter suggested that the list of significant life-changing events should be expanded to include decreases in dividend income and requested clarification on whether interest income from financial securities (such as stocks and bonds) is considered the same as dividend income. The latter commenter also expressed concerns about the burden of documenting life-changing events, such as divorce that occurred several years earlier.

Response: We have given careful consideration to these comments but decided not to expand the list of significant life-changing events to include decreases in dividend income and loss of income from financial securities. The current list of significant life-changing events includes major events that have a direct and potentially permanent effect on an individual's income. Reductions in income that are unrelated to major life-changing events are not contemplated in the statute. Decreases in dividend income and loss of income from financial securities are not “events” but rather fluctuations in the financial markets and should not be considered as part of the list of events with a potentially permanent effect on income. Similarly, making the list more flexible would run counter to the statutory requirement that major life-changing events be “specified in regulations.”

When you have experienced a significant life-changing event, we will provide assistance to you when documentation is needed as we routinely do for Social Security claimants and beneficiaries. To the extent possible, when you need a document such as a divorce decree and do not know how to obtain it, we will provide the appropriate address and associated information so that you can secure it. Further, it is unlikely that a divorce that occurred several years ago will have caused a significant reduction in income in a more recent tax year.

Determinations and the Administrative Review Process

Comment: One commenter expressed concern about the process that we will use to make corrections of amounts of Part B premiums charged after we have decided that use of a more recent taxable year is appropriate when there has been a significant reduction in income because of a major life-changing event.

Response: The commenter asked about the process for making premium adjustments. When a beneficiary reports a major life-changing event and new information about his income in a more recent tax year that we use to make a new initial determination of the income-related monthly adjustment amount, we will follow current processing procedures to refund excess Medicare Part B premiums that have been paid. If a Medicare beneficiary pays premiums through another Federal agency, we will convey the information that agency needs to process an appropriate correction for the beneficiary.

Comment: One commenter asked for clarification of what is not subject to appeal, and when our rules and HHS rules will apply. The commenter also expressed concerns about the complexity of the administrative review process which spans two Federal agencies.

Response: We are responsible for reconsiderations of initial determinations made by us. Reconsiderations are the first step in the appeal process, and our rules are used for reconsiderations. When an individual is dissatisfied with our reconsideration determination, he may request a hearing before an ALJ. Section 931 of the MMA transferred responsibility for the functions of the ALJs responsible for hearing cases under title XVIII of the Act to HHS. HHS established regulations for Medicare appeals in 42 CFR part 405. Hearings related to income-related monthly adjustment amounts are hearings under title XVIII and are the responsibility of HHS. We have clarified this information in the regulations. Our regulations also explain what is and is not an initial determination for purposes of administrative review.

We agree with the concern that the commenter expressed about the complexity of the administrative review process for these cases. We have simplified our process for requesting a reconsidered determination of our decision about an income-related monthly adjustment amount. If you want us to reconsider our determination about your income-related monthly Medicare Part B premium adjustment, you will be able to request a reconsideration without requesting it in writing.

Comment: A commenter suggested that we should give beneficiaries more than 60 days after receipt of the notice of our initial determination to seek a reconsideration or a new determination because of likely confusion in the initial year or two of implementation.

Response: Our experience in administering the title II program has been that a 60-day period to file an appeal is reasonable. If you request your reconsideration later, we will follow our current rules in 20 CFR 404.911 to evaluate whether you have a good reason for us to extend the 60-day period, such as illness or a death in your immediate family.

A request for a new initial determination is not an appeal and is not tied to the 60-day period to file an appeal. A major life-changing event such as death of a spouse or divorce can happen any time during a year and may result in a significant reduction in income for that year or a subsequent year. If you have experienced a significant reduction in income because of a major life-changing event, you may request a new determination at any time during the year that the significant reduction in income has occurred. Further, if that reduction follows a major life-changing event in the last 3 months of the year, you may report the event and request a new initial determination within the first 3 months of the next year and we will determine if premiums should be adjusted for the preceding year.

In the proposed rule, we established a 60-day time limit for requesting a new initial determination based on a beneficiary correction of IRS information that we used to make an initial determination about the income-related monthly adjustment amount. After considering this comment, we eliminated the requirement that a beneficiary make a request for a new initial determination within 60 days following receipt of our notice of an income-related monthly adjustment amount when he believes that the IRS information we used is incorrect. Section 418.1310(a)(3) of the final rule states that an individual who believes that the IRS information we used in making an initial determination of the income-related monthly adjustment amount is incorrect may request a new initial determination at any time after he receives a notice from us about the determination.

Other Changes

In response to these comments and our further review of the structure and format of the proposed rule, we have restructured these regulations slightly. In this final rule, we have moved some sections and added new sections. We provide explanations below of the changes that were not explained under the “Public Comments” section of the preamble. These changes are consistent with the policies outlined in the proposed regulations and are intended to clarify and further explain the procedures that we will apply to compute the amount of any income-related monthly adjustment to the Medicare Part B premium.

In § 418.1010(a), we have added definitions for the Medicare Appeals Council (MAC), the Office of Medicare Hearings and Appeals (OMHA), and the Department of Health and Human Services (HHS). We added a definition of the term “Tax Year” to § 418.1010(b). In § 418.1205(c), we clarified that a marriage may end either through divorce or annulment.

We also added sections clarifying that we will apply our rules for the reconsideration of initial determinations that we have made, and HHS rules will apply for administrative review by the OMHA and the MAC. We have added language clarifying the process we will follow when a beneficiary who filed a Federal income tax return as Married Filing Separately informs us that the spouses lived apart throughout the year. In a new paragraph (e) in § 418.1140, we explain that if you request that we review your income-related premium adjustment for this reason, we will require you to attest that you lived apart from your spouse throughout the tax year we are using to set your premium, and to provide address information for your spouse and yourself for that year.

Regulatory Procedures

Executive Order 12866

We have consulted with the Office of Management and Budget (OMB) and determined that these final rules meet the criteria for an “economically significant” regulatory action under Executive Order 12866, as amended by Executive Order 13258. Thus, they were reviewed by OMB. We have also determined that these final rules meet the plain language requirement of Executive Order 12866, as amended by Executive Order 13258. In addition, these are major rules under the Congressional Review Act in 5 U.S.C. 801-808.

These final rules provide the implementing rules for the income-related premium calculation enacted as part of MMA. The legislative provision is expected to result in an overall savings to the Medicare Part B account in the SMI Trust Fund of roughly $7.7 billion over the period of fiscal years 2007-2011. The changes in this final rule from the notice of proposed rulemaking (NPRM) are not expected to affect the cost/savings projections for this rule. The following chart shows the estimated total savings in millions for each program year.

In addition, the process of determining the additional premiums will result in an increase in administrative expenses incurred by us in the amount of $200 million over that same 5-year period.

Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in the following table (Table 1) we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of these final rules. This table provides our best estimate of the increase in premium payments as a result of the changes to the Part B program presented in these final rules. All expenditures are classified as transfers to the SMI Trust Fund.

Regulatory Flexibility Act

We certify that these final rules will not have a significant economic impact on a substantial number of small entities as they affect individuals only. Therefore, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required for these final rules.

Paperwork Reduction Act

These final rules contain information collection requirements that require Office of Management and Budget clearance under the Paperwork Reduction Act of 1995 (PRA). As per PRA stipulations, we have submitted a clearance request to OMB for approval. Upon approval from OMB, we will publish a Federal Register notice indicating the OMB number and expiration date.

We published an NPRM on March 3, 2006 at 71 FR 10926. In the NPRM, we solicited comments under the PRA on the burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and on ways to minimize the burden on respondents, including the use of automated collection techniques or other forms of information technology.

Of the multiple comments the public submitted on these rules, only one pertained to the issues listed above. Specifically, one commenter expressed concerns about the burden of documenting life-changing events. However, the MMA states that when beneficiaries request that we use their income information about a more recent tax year, the reduction in modified adjusted gross income must be caused by a verifiable life-changing event. Therefore, we must ask Medicare beneficiaries to provide proof of the event.

One section containing a public reporting requirement, § 418.1140(e), is included in these final rules but was not included in the NPRM. This section states that spouses who have been living in separate homes for the past year must provide written certification, or attestation, that they have been living separately. This requirement was included here and not in the NPRM because at the time we published the NPRM, we were still investigating ways that we could confirm this living arrangement from agency data. However, this section will not impact the public burden reported in the NPRM, since the only additional requirement for respondents is to certify that their address is separate from their spouse's, and certifications are not generally covered by the PRA as per OMB rules in 5 CFR 1320.3(h)(1).

(Catalog of Federal Domestic Assistance Program Nos. 93.773, Medicare—Hospital Insurance and 93.774, Medicare—Supplementary Medical Insurance Program)

List of Subjects in 20 CFR Part 418

• Administrative practice and procedure
• Aged
• Blind
• Disability benefits
• Public assistance programs
• Reporting and recordkeeping requirements
• Supplemental Security Income (SSI)
• Medicare subsidies

For the reasons set out in the preamble, we are adding a new subpart B to part 418 of chapter III of title 20 of the Code of Federal Regulations as follows:

PART 418—[AMENDED]

Determination of the Income-Related Monthly Adjustment Amount

Determinations Using a More Recent Tax Year's Modified Adjusted Gross Income

Determinations and the Administrative Review Process

Subpart B—Medicare Part B Income-Related Monthly Adjustment Amount

Authority: Secs. 702(a)(5) and 1839(i) of the Social Security Act (42 U.S.C. 902(a)(5) and 1395r(i)).

Introduction, General Provisions, and Definitions