What is IRMAA?

IRMAA

What is IRMAA? 

In Medicare, IRMAA is an acronym for Income Related Monthly Adjustment Amount.
In Medicare, the IRMAA monthly charge is an extra premium charged to higher income earners for their Medicare Part B (outpatient) and Medicare Part D (prescription drug) coverage.

IRMAA was enacted in 2003 in order strengthen and extend the life of the Medicare program.  The standard premium for Medicare Part B only covers a fraction of the actual cost of the program.  For example, according to usafacts.org, the total cost of Medicare Part B in 2021 was $7,575 per year, per recipient.  This breaks down to $631.25 per month for  each Medicare recipient.  However, the standard monthly premium for Medicare Part B is just $170.10 per month.  The difference is paid for by taxpayers, funded from general revenues. 

The 2002 Medicare Modernization Act set-up the IRMAA requirements so that those individuals with higher incomes can pay a greater percentage of their full Medicare costs.

How Is IRMAA Calculated?

The Centers for Medicare & Medicaid Services (CMS) and Social Security determine your eligibility for
IRMAA payments by calculating your annual Modified Adjusted Gross Income (MAGI).  This is simply your Adjusted Gross Income from your tax return with some deductions added back to your income.  The MAGI used is as of two years ago.  In other words, CMS recalculates your MAGI on a rolling two-year lookback.  CMS then informs Social Security of their determination.

Some of the deductions added back to your income to determine your MAGI include:

  • Taxable Social Security payments
  • IRA Contributions
  • Any passive income loss
  • Deductions for tuitions and fees

Your MAGI is then matched with tax filing status and income levels in the table below to determine the amount due.  For 2022 the Part B premium ranges from $170.10 per month (standard) to a high of $578.30 per month for those in the highest income bracket.

IRMAA

It is important to stress that your IRMAA status can change each calendar year.  This may be due to a change in your income and / or a change in the income table.

Legislation enacted in 2020 linked the above IRMAA income brackets to the Consumer Price Index for Urban Consumers (CPI-U).  This is good news because it can reduce the impact of rising incomes due to higher inflation. 

Can I Avoid an IRMAA Surcharge
with Medicare Advantage Plans?

The short answer is no.  IRMAA charges are based on your income and will be assessed regardless of how you get your Medicare.  IRMAA charges for both Medicare Part B and Medicare Part D will be charged even if you get a Medicare Advantage Plan.

How To Appeal an IRMAA
Surcharge

If it is determined that you should pay an IRMAA surcharge, you will receive an Initial Determination notice from Social Security.  The notice will include information on how to request a new initial determination.   

You will want to appeal the IRMAA decision if you believe the was incorrect.
For example, if you had corrected or amended a previous tax return resulting in a lower reported income.  Also, there are certain life-changing events that will be considered in
reevaluating your IRMAA status.

Social Security will consider these life changing events when re-examining your IRMAA status

  • The death of spouse
  • Marriage
  • Divorce or annulment
  • You or your spouse stopped working or reduced
    the hours worked.
  • Loss of pension
  • Involuntary loss of income-producing property
  • Receipt of settlement payment from a former or
    current employer due to closure or bankruptcy

To request a new determination you will use form SSA-44 “Medicare IRMAA Life-Changing Event” or schedule an appointment at a Social Security office. 

How to Avoid an IRMAA Surcharge

Of course, appealing the IRMAA surcharge is something you can do after-the-fact.  We encourage our clients to, where possible, avoid IRMAA surcharges in the first place.

Below are a list of ways a person can avoid the IRMAA surcharge.

1.    Plan ahead.   Now that you know the IRMAA calculation uses your income as of two years ago, avoid actions that will influence your income up to two years prior to starting Medicare.   For example, we often come across people who have sold a home and downsized to prepare for retirement.  That downsizing can result in a capital gain that catapults your income into the IRMAA status.  If you plan to downsize, do it early.  Downsize before the two-year window prior to
starting Medicare. 

2.    Be careful with Roth Conversions.  Because the prevailing belief is that tax rates will increase in the future, many people are converting their traditional IRA’s to Roth IRA’s.  The benefit would be to pay the current tax rate on the distribution now so as not to pay a higher rate later.  When making that calculation, consider the
impact on your Part B premium.   You can accidentally push your Part B premium from $170 a month to nearly $600 a month. 

3.    Required Minimum Distributions (RMDs) – If you are close to the next higher bracket for IRMAA costs, look at the impact of RMDs.  If an RMD will push you into a higher bracket you can use charitable contributions to lower your income.  If you don’t need the income from your RMD, your philanthropy can benefit you as well as your favorite charity.

4.    Consider the tax advantaged income of annuities and life insurance.   Instead of automatically taking taxable income from deferred income accounts, you can structure your portfolio towards guaranteed tax advantaged income.  The result will be a more secure income, lower taxes and possible IRMAA avoidance. 

 Conclusion

IRMAA surcharges are a frustrating but necessary feature of Medicare.
Even with the surcharges, in all but the highest level of income the consumer is sharing the cost of Medicare with the U.S. Government.  IRMAA surcharges help keep the Medicare program active and extend its life expectancy.

With planning, you may be able to avoid the IRMAA surcharge or reduce it. 

Medicare does not intend to charge an IRMAA to those whose who cannot afford it.  As such, there is an appeals process to reduce or eliminate the IRMAA surcharge if life changing events have impacted
you’re your income.  

Summary
IRMAA
Article Name
What is IRMAA?
Description
In Medicare, IRMAA is an acronym for Income Related Monthly Adjustment Amount. In Medicare, the IRMAA monthly charge is an extra premium charged to higher income earners for their Medicare Part B (outpatient) and Medicare Part D (prescription drug) coverage.
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Publisher Name
Medigap Seminars, LLC
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