TN 22 (11-01)

HI 01001.041 Collection from Beneficiaries When the Amount of the Benefit Payment is Less than the Amount of the Premium

A. Process - General

When a beneficiary entitled to Supplementary Medical Insurance (SMI) receives a monthly Social Security check, the premium is deducted from the check for each month of coverage. In some instances, however, the amount of the monthly benefit may be lower than the amount of the monthly premium. Thus, even after offsetting the monthly benefit for premium collection purposes, a premium liability amount remains. In this situation, the program service center (PSC) will bill the beneficiary directly for the remaining liability amount. This billing is done once a year. (See SM 00850.475.)

B. Procedures - Collection

When the SMI premium exceeds the amount of the benefit, the PSC must process these cases. (See SM 00850.475.) The PSC should take the following actions:

  1. The monthly benefit (before rounding down) is applied toward the premium owed by placing benefits in suspense. An estimate is made of the monthly benefit due for the balance of the year; the amount of the SMI premiums owed for the balance of the year will be known at this time so that the entire premium liability can be calculated. The amount of premiums collectible by direct remittance is the difference between the benefits payable and the premium liability.

  2. Send a letter to the beneficiary explaining the reason why his/her benefits are suspended, an explanation of the estimated amount of benefits and premiums due for the year, and requesting the balance of premiums by direct remittance. A premium billing notice (CMS-500) is prepared and enclosed with the letter.

  3. The case is diaried for the end of the year. No action is taken to terminate SMI or to follow up on the premium bill during this time. When the diary matures, the claim folder is examined. The actual benefits due for the year are then known (an increase may have occurred during the year).

    (NOTE: The direct billing system (DBS) will accrue and maintain the premium liability but the system will not automatically bill the beneficiary.)

    1. If the premium bill sent out the previous year has been paid in full, any balance of monthly benefits payable due to an increase in benefit rates will be added to the benefits estimated to be due for the new year. The individual will again be billed for the balance of the new year's premiums with an explanation sent of how the amount was calculated. The case is again diaried for the end of the new year.

    2. If the premium bill for the previous year has not been paid in full, the amount of any benefit increase due will be used to reduce the premium arrearage owed. In any case, if the premium arrearage is less than the equivalent of 3 months premiums at the rate in effect when the record is examined, the action steps 1., 2., and 3. will be repeated. In addition, an explanation will be given if there was an increased benefit amount used to offset, in part or in full the prior year's premium arrearage. That amount must be included in the new bill and the notice will tell the beneficiary that the arrearage is still due along with the new year's premiums.

    3. If the premium remittance was not paid in full and the amount owed for the prior months (after recalculation of the exact amount of benefits with any benefits owed applied toward the arrearage) equals or exceeds 3 months premiums at the rate in effect when the record is examined, a bill is sent. A letter is included with the bill warning that if the remittance due for the prior year is not received by the end of the third month after the month of the notice, SMI entitlement will end at that point.

C. Procedure - Termination of coverage for nonpayment of premiums

As indicated in HI 01001.041B.3.c., coverage is subject to termination if the equivalent of 3 months premiums is owed at the time the record is examined. In cases where the monthly benefit amount is close to the amount of the premium, the premium arrearage may accumulate for months before the amount owed equals 3 months premiums. For example, if the premium amount billed for a year (the difference between the benefit due and total amount of the premiums) were $10.00, it would be over a year before the individual would owe the equivalent of 3 months premiums. If coverage must be terminated because the arrearage is excessive, future monthly benefit checks will be used to recover the amount of the premium owed through the last month of coverage.