Medicare Income-Indexed Premiums or IRMAA

This week’s video addresses Medicare Income Indexed Premiums, also called IRMAA (Income Related Monthly Adjustment Amounts). According to information from Medicare, only about 5% of the population pay Medicare income-indexed premiums and, as a result, many don’t pay attention to this issue. We believe that is unfortunate because one-time income, like the sale of a residence, is factored into how these amounts are calculated. As a result, IRMAA will ultimately affect more than 5% of the population on Medicare. In our opinion most people on Medicare should understand how this works.

Background:

From 1966 when original Medicare began and through 2006, everyone paid the same for Medicare Part B. In 2007, Part B became income indexed. Remember, Medicare Part D did not begin until January 1, 2006. In 2011, Part D also became income indexed.

How does it work?

As of 2007, the IRS began reporting income information to Social Security. The income information used is from two years prior, so the income-indexed premiums for 2022 will be based on the tax return filed for 2020. The IRMAA includes adjusted gross income from line 37 and tax-exempt interest income from line 8b of IRS Form 1040, and one-time-only income like capital gains, IRA withdrawals, or 401k distributions. The sale of a residence may result in a significant capital gain which may move you into a higher category for the purpose of income-indexed premiums. That is how the government structured the program to work. The IRS reports this income information each year to Social Security and Social Security informs you via U.S. mail what they believe you owe.

If you are receiving Social Security benefits, the base Part B premium, the income-indexed Part B premium and the Part D income-indexed premium, if applicable, are withheld from your payment. If you are not yet receiving Social Security benefits, you will receive a bill from Medicare.

What are the amounts?

Most people will pay the base Part B premium which is $170.10 per month in 2022. This is a substantial increase from 2021 when the base Part B premium was $148.50. You will pay the base premium if, as an individual, your income as calculated above is $91,000 or less or $182,000 or less as a couple filing a joint return. When income is higher, as shown on the attached chart, you’ll pay from $238.10 to $578.30 per month per person for Part B. The IRMAA for Part D is between $12.40 and $77.90 per person per month. High-income Americans can find themselves paying much more for their Part D IRMAA than the cost of the drug Plan premium.

When income indexing began in 2007, there were five income brackets and the income indexed premiums owed went up incrementally. In 2019, a new bracket was added for the highest income Americans, those making $500,000 and higher for an individual or $750,000 and higher for a couple filing a joint return. As you can see from the chart, this made the second-highest income bracket much larger than it had been in the past. As a result, people with very different income levels can pay the same income-indexed premiums.

Life-Changing Events

SSA-44 is a form one can use to petition Social Security if you experienced a life-changing event such as work reduction, retirement, death of a spouse or divorce which puts you in a lower income bracket than you were in two years prior. You can find this form online and download it. If you can demonstrate that you had one of the listed life-changing events and that it affected your income, Social Security should base your income-indexed premiums on current projected income rather than two years prior. After two years, however, Social Security will use the tax information from two years prior to calculate income-indexed amounts.

Administration

Although income-indexed Medicare premiums have been with us for many years at this point, the administration of this process, especially when one initially transitions to Medicare, can be inelegant. However, the government usually catches up and charges the correct amounts for the income-indexed premiums higher Americans pay. There is often a delay, however, between going onto Medicare and receiving notice of one’s IRMAA amount. Catch-up bills if you are not yet receiving Social Security benefits or varied amounts being withheld from your Social Security payments are common. If you don’t believe you are being charged the correct amount, you should contact your local Social Security office.

Summary

Income-indexed Medicare Part B and D premiums are here to stay. Please learn how this might affect you. Download the PDF.