[Update on Sept. 13, 2019: The latest CPI release confirmed the earlier projections.]
Seniors age 65 or older can sign up for Medicare. Medicare calls people who receive it beneficiaries. Medicare beneficiaries must pay a premium for Medicare Part B that covers doctors’ services and Medicare Part D that covers prescription drugs. The premiums paid by Medicare beneficiaries cover about 25% of the program costs for Part B and Part D. The government pays the other 75%.
Medicare imposes surcharges on higher-income beneficiaries. The theory is that higher-income beneficiaries can afford to pay more for their healthcare. Instead of doing a 25:75 split with the government, they must pay a higher share of the program costs.
The surcharge is called IRMAA, which stands for Income-Related Monthly Adjustment Amount.
I haven’t seen any numbers that show how much collecting IRMAA really helps the government in the grand scheme. I’m guessing very little. One report said 5% of all Medicare beneficiaries pay IRMAA. Suppose the 5% pay double the standard premium, it changes the overall split between the beneficiaries and the government from 25:75 to 26:74. Big deal?
The income used to determine IRMAA is your AGI plus muni bond interest from two years ago. Your 2018 income determines your IRMAA in 2020. Your 2019 income determines your IRMAA in 2021.
As if it’s not complicated enough for not moving the needle much, IRMAA is divided into five income brackets. Depending on the income, higher-income beneficiaries pay 35%, 50%, 65%, 80%, or 85% of the program costs instead of 25%. The lines drawn for each bracket can cause a sudden jump in the premiums you pay. If your income crosses over to the next bracket by $1, all of a sudden your Medicare premiums can jump by over $1,000/year. If you are married and both of you are on Medicare, $1 more in income can make the Medicare premiums jump by over $1,000/year for each of you.
* The last bracket on the far right isn’t displayed in the chart.
So if your income is near a bracket cutoff, see if you can manage to keep it down and make it stay in a lower bracket. Using the income from two years ago makes a little harder. Now in 2019 you don’t know where exactly the brackets will be for 2021. Still, you can make reasonable estimates and give yourself some margin to stay clear of the cutoff points.
The IRMAA income brackets (except the very last one) will start adjusting for inflation in 2020. Here are the IRMAA income brackets for 2019 and the new brackets for 2020. Remember the income on your 2018 tax return (AGI plus muni interest) determines the IRMAA you pay in 2020. The income on your 2019 tax return (to be filed in 2020) determines the IRMAA you pay in 2021.
| Part B Premium | 2019 | 2020 |
|---|---|---|
| Standard | Single: <= $85,000 Married Filing Jointly: <= $170,000 |
Single: <= $87,000 Married Filing Jointly: <= $174,000 |
| Standard * 1.4 | Single: > $85,000 Married Filing Jointly: > $170,000 |
Single: > $87,000 Married Filing Jointly: > $174,000 |
| Standard * 2.0 | Single: > $107,000 Married Filing Jointly: > $214,000 |
Single: > $109,000 Married Filing Jointly: > $218,000 |
| Standard * 2.6 | Single: > $133,500 Married Filing Jointly: > $267,000 |
Single: > $136,000 Married Filing Jointly: > $272,000 |
| Standard * 3.2 | Single: > $160,000 Married Filing Jointly: > $320,000 |
Single: > $163,000 Married Filing Jointly: > $326,000 |
| Standard * 3.4 | Single: > $500,000 Married Filing Jointly: > $750,000 |
Single: > $500,000 Married Filing Jointly: > $750,000 |
Higher-income Medicare beneficiaries also pay a surcharge for Part D. The income brackets are the same. The surcharges are relatively smaller in dollars.
The standard Medicare Part B premium is $135.50/month in 2019. A 40% surcharge on the Medicare Part B premium is about $650/year per person, or about $1,300/year for a married couple both on Medicare. In the grand scheme, when a couple on Medicare have over $170k in income, they are probably already paying a large amount in taxes. Does making them pay another $1,300/year make that much difference? Nickel-and-diming just annoys people. People caught by surprise when their income crosses over to a higher bracket by just a small amount get mad at the government. Rolling it all into the income tax would be much more effective.
Oh well, if you are on Medicare, watch your income and don’t accidentally cross a line for IRMAA.
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FinancialDave says
Harry,
Nice article.
One of the major reasons for many investors problem with IRMAA resides with the size of their taxable account and the investing strategy they use there. Also, in most cases, the first time this shows up is 2 years after they decided (or someone decided for them) it was a good idea to put all their high dividend-paying stocks in the Brokerage account not even realizing that there is an “IRMAA,” let alone that it will add thousands of dollars to their expenses if they go over it.
Luis says
This IRMMA stuff is one of the most infuriating thing I have seem: if you are high income you pay more while working 2.9 % in all your income( no cap like social security), but then double penalized in medicare premium AND medicare part D, when begins in the Medicare plan, the final number could be incredibly high.Besides they go back two years( by contrast in Obamacare is enough your word regarding income). Good look when you call social security and medicare to explain that you retire and your income is well low. Everything thanks to the liberal politics to penalized the successful people.
Harry Sit says
If your income two years ago was higher because you were working at that time and now your income is significantly lower because you retired, you can appeal the IRMAA assessment.
“You had a major life-changing event that significantly reduced your income” is listed as one of the reasons for appealing, and “work reduction” and “work stoppage” are two life-changing events among others.
https://www.hhs.gov/about/agencies/omha/the-appeals-process/part-b-premium-appeals/index.html
Jon says
IRMAA is pathetically complicated. Only by raising awareness can the public learn what is being done to our elderly who have worked hard to save and invest in order to fund their retirement. IRMAA is a well hidden cost to until one approaches retirement. Each Presidential candidate should be individually questioned and tested on their detailed knowledge of what IRMAA is and how it is calculated. That way voters can determine if each candidate understands what the policies of liberal politics have done…or if the candidate is simply ignorant which is the likely situation. What a wake up call this would be!
Lucy Yore says
This is a great article and I wish I’d had this information available to me when I started challenging my own IRMAA. The IRMAA premium “adjustment” came as a surprise to me, too. After working for fifty years, paying taxes, and never using unemployment insurance or disability benefits, I never expected that my reward for paying my way was to be assessed higher Medicare Part B premiums. I retired in 2018 and became eligible for Medicare in July 2019. In 2019, the “look back” income used to determine whether or not I would owe IRMAA was my adjusted gross income on my 2017 tax returns. Because I retired in 2018 and my 2019 adjusted gross income would be significantly less than it was in 2017, I appealed the original decision to raise my Medicare Part B premium. I am a firm believer in dealing, whenever possible, with matters like this face to face. I skipped asking for help by phone and went to my local Social Security office. The first person I met with didn’t use the correct amount of after-retirement income I expect in 2019, and my first appeal was denied. So I made a second trip to re-submit my appeal. The person I met with the second time recognized immediately the mistake the first person had made, corrected it and re-submitted the appeal. Within a week I received a letter from Medicare notifying me that my appeal had been accepted and that I would only owe the ordinary Medicare Part B premium. My perseverance has saved me over $200 a month. If you have been unfairly assessed an IRMAA increase in your premium, appeal the decision in person, and don’t give up until your appeal has been granted.
IRMAA Needs to Go says
To be excruciatingly precise, can we state that the bracket amounts (when finalized) for calendar year 2020 will be used with the calendar year 2018 income amount to determine the amount of IRMAA, if any, a medicare recipient would be assessed by CMS/SS during calendar year 2020? Similarly, the CY 2021 bracket amounts would be used with CY 2019 income to determine IRMAA to be assessed/paid during CY 2021?
Harry Sit says
Yes your AGI plus tax-exempt interest reported on your 2018 tax return (filed in 2019) will be checked against the bracket numbers in the 2020 column to determine the Medicare Part B and Part D premiums you will pay starting in January 2020. My table only showed Part B. Part D uses the same brackets but different surcharges.
sscrla says
Since the August, 2019 CPI numbers were announced on September 12 and the law says the inflation adjustment is based on “the percentage (if any) by which the average of the Consumer Price Index for all urban consumers (United States city average) for the 12-month period ending with August of the preceding calendar year exceeds such average for the 12-month period ending with August 2006 (or, in the case of a calendar year beginning with 2020, August 2018),” you now know all the numbers. Therefore, there is no need to use the word projected, unless you expect the BLS to revise an already published CPI figure.
Harry Sit says
This was posted on September 3, before the latest CPI release, which now confirmed all the numbers in the table.