What to Know - Social Security & Medicare IRMAA

It is that time of year again when the Social Security Administration reviews your Medicare premium costs and alerts you of any changes.

Certain income levels allow an adjustment to your Medicare premium(s), called an “Income-Related Monthly Adjustment Amount” (IRMAA). According to HHS.gov around 4-5% of all Medicare beneficiaries are subject to an adjustment.

If there is a new adjustment, you will be notified near the end of this current year for your premium costs in the upcoming year.

Surprised to receive an IRMAA letter? 

If you're surprised to receive this letter, you're not alone. Premium adjustments can arrive unsolicited by mail.

The Social Security Administration uses the data you've submitted to the Internal Revenue Service on your tax return. They run your information through a computer and then apply whatever comes out to a government form letter notifying you of a premium adjustment. The letter can be vague while referring to potentially higher costs. No one likes uncertainty in that regard!

Premium adjustments are two years behind

The income used to determine an IRMAA is your adjusted gross income plus municipal bond interest, all from two years ago. 

Your 2020 income determines your IRMAA in 2022. Your 2021 income determines your IRMAA in 2023, etc.

IRMAA brackets

Current IRMAA brackets are published by the Centers for Medicare & Medicaid Services.

Just as your income can be taxed at different levels, there is a tiered system of income brackets used for determining a Medicare premium adjustment.

IRMAA premium adjustments are divided into five additional income brackets. Each bracket can adjust your Part B (hospital) premium and your Part D (prescription drug) premium. 

In addition to Medicare's mandatory Part B premium of $1,978.80 yearly ($164.90 monthly) and Medicare's "free" Part D premium of $0.00, premiums for higher-income individuals can potentially increase the total cost of Medicare premiums by 47%, 119%, 191%, 262%, or 286%. 

2023 Medicare Brackets (for IRMAA Adjustments)

2023 Premiums are based on 2021 Modified Adjusted Gross Income [MAGI]

[Table updated October 24, 2022, with Part B and Part D premiums announced by the Centers for Medicare & Medicaid Services]

Planning around IRMAA

The key to IRMAA planning is awareness of the IRMAA brackets. 

Most of all, make sure you don't run over the cliff into a higher bracket. Unlike income tax brackets, where only the dollars in the next bracket are taxed at that higher bracket, the lines between IRMAA brackets represent an "all or nothing" line in the sand. If you cross into a new bracket by just $1.00 you face a sudden jump in the entire premium you pay for the entire year.

INTENTIONALLY PAYING a higher premium for Medicare?

There are many reasons why intentionally paying a higher IRMAA  makes perfect sense. The reason we most often see is due to a Roth conversion. 

A well-executed Roth conversion raises your income and can push you into a higher IRMAA bracket. In exchange, you can receive a number of benefits, especially when conversions are planned over many years, even decades. These include the potential for lower required distributions, higher-quality inheritances, higher Social Security benefits, and lower Medicare premiums (when planned correctly). 

Read more of our thoughts on the benefits of Roth conversions here.

Appealing an IRMAA decision

If you disagree with a premium adjustment you have the right to appeal the decision. For additional information on appeals, go to HHS.gov: Medicare Part B Premium Appeals.

You might be successful in appealing a premium adjustment decision if you believe that there was an error in the IRS data, or perhaps you filed an amended tax return and the IRS is using older or incomplete data.

Otherwise, appeals must be related to several qualifying "life-changing events", including:

• Work reduction
• Work stoppage
• Death of spouse
• Marriage
• Divorce or annulment
• Loss of income from income-producing property
• Loss or reduction of certain kinds of pension income

Your appeal options are worth reviewing with us here: www.openwindowFS.com/connect.

Many eligible appeals tend to occur in the initial years of retirement (or after a break from employment) when your income reported to the IRS declines compared to the previous. For example, if your income was higher two years ago because you were working and today your income is significantly lower you can appeal the IRMAA assessment due to "Work reduction" or "Work stoppage".  

To appeal the decision, first, you must request a reconsideration of the initial determination. A request for reconsideration can be done by calling the Social Security Administration 1-800 number (800-772-1213) as well as by writing to the Social Security Administration.

Next, file an appeal by filling out form SSA-44. In the example above, you'll show that although your income was higher two years ago, your income is now reduced due to a "life-changing event". 

IRMAA is re-evaluated each year

Are you stuck with an IRMAA premium increase? If you aren't granted an appeal, you will pay the higher Medicare premium(s) for one year. Fortunately, IRMAA is re-evaluated each year. 

Concerned about your IRMAA exposure?

If you're concerned about your IRMAA exposure, contact us today. We are well aware of these brackets, their potential impact, when you might intentionally pursue an adjustment, and the tools available to plan for these costs.

If you received an IRMAA letter, feel free to share your letter with us for discussion, or if you have any questions. 

You can securely share your IRMAA letter with us here: www.openwindowFS.com/share.