Medicare premiums turn out to be a big expense and a big worry for many in retirement. In 2003, the Medicare Modernization Act — easily the largest overhaul of Medicare in its history — was passed into law. While there were a couple big, obvious changes, tucked into this law was a large increase in Medicare premiums for many enrollees, including the IRMAA (income-related monthly adjustment amount).
Your Medicare Premiums
There is an additional cost for Medicare coverage based on your income levels. Medicare Part B and Part D premiums are made up of two separate costs. First, there is the standard premium that everyone must pay. The Part B standard monthly premium in 2019 is $135.50 per month. Part D Standard Premiums vary based on the particular plan you individually get. The second part of your Medicare premium is the Income Related Monthly Adjustment Amount, or IRMAA.
Your Modified Adjusted Gross Income
The goal of adding IRMAA in 2003 was to increase the cost sharing amount of “wealthier” enrollees. How does Medicare determine wealth levels that require some people to pay more? Medicare taps the IRS for help in this department. To determine if someone is “wealthy,” Medicare looks at an enrollee’s Modified Adjusted Gross Income, or MAGI, from 2 years prior.
MAGI is your Adjusted Gross Income with some of your deductions added back. Below are some of the common additions:
- Municipal Bond Interest
- Rental Losses
- Passive losses or income
- ½ of self-employment tax
IRMAA starts for an individual who earned more than $85,000, and $170,000 for a married couple. Your Medicare premiums will incrementally increase in tandem with your rising MAGI score based on two years prior. For example, let’s say that you are married. In 2017, your MAGI was $230,000. You will pay a combined $270.90/month for your Part B premium ($135.50 standard + $155.40 IRMAA). Your Part D premium would increase by $31.90 month.
Initial Determination of your Medicare Cost Bracket
Is there anything you can do about your IRMAA? Let’s do another example. This time, you are a single 66-year-old who just recently retired. Your income has dropped substantially, and you look at your 2017 MAGI and think “I’ll never make that kind of money ever again! I’m retired.”
You are absolutely right! The two-year MAGI look-back is an interesting quirk for Medicare. So much could happen in two years. For this reason, you can appeal this decision. After Medicare pulls your MAGI from the IRS, they will send you an “Initial Determination” if you will be subject to the IRMAA. This Initial Determination is a notice sent to you by postal mail that details your premium cost and how can you can appeal this decision.
You can successfully appeal an Initial Determination if you have had what Medicare considers a life changing event. Below is a list of common life changing events Medicare would consider in your appeal:
- Death of a spouse
- Working less hours
All the above can change your MAGI, or your IRMAA bracket. It is likely you can lower your Medicare premiums for any of the reasons above. Often people ask if they can successfully appeal if their MAGI was abnormally high one year, due to a sale of property, or unusually high portfolio income. These would not be accepted. A good rule of thumb is that you would have had to have lost money to win your appeal, not have made more.
If you have any questions on MAGI, IRMAA, or a possible appeal, please reach out to your financial advisor here at RegentAtlantic.
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