Feeling overwhelmed by a high Medicare bill due to IRMAA? You’re not alone! The Income Related Monthly Adjustment Amount (or IRMAA) assessed on your monthly Medicare premium can significantly increase your healthcare costs.
Once IRMAA is assessed, you may think you’re stuck with it, but you have options. In this blog from Wandacare’s experts, we’ll give you strategies that can help you minimize the IRMAA surcharge and guide you through the appeal process.
What is Medicare IRMAA?
Medicare’s Income Related Monthly Adjustment Amount (IRMAA) is an income-based surcharge added on top of the standard monthly Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums.
IRMAA was implemented as part of the Medicare Prescription Drug, Improvement, and Modernization Act with the goal of offsetting some of Medicare’s expenses and helping the program’s financial stability by having higher-income beneficiaries contribute more to the cost of Medicare.
The IRMAA surcharge is determined by your Modified Adjusted Gross Income (MAGI) from two years prior (e.g., 2022 income is used to calculate 2024 IRMAA). Individuals with MAGI exceeding certain thresholds (set by the Social Security Administration) are assessed the IRMAA surcharge, which then increases in tiered income brackets depending on how much your income exceeds the thresholds. The higher the income bracket, the higher the IRMAA.
How Does IRMAA Affect Medicare Costs?
If you owe IRMAA, the Social Security Administration (SSA) will send you a letter explaining the surcharge and the amount. You’ll pay your IRMAA the same way you pay your Medicare premiums—either through automatic deduction from your monthly Social Security or other federal benefits check, or direct billing from Medicare if you’re not receiving Social Security/federal benefits. It’s important to keep track of your IRMAA payments, especially if you pay directly, to avoid any disruption in your Medicare coverage.
If you have to pay this additional income-based surcharge on top of the standard Medicare premiums, here’s how it affects the costs of your Medicare parts:
Part B IRMAA
The Part B premium, deductible, and coinsurance rates are set annually, based on income. For 2024, the monthly premium is $174.70. You’ll then pay a monthly IRMAA surcharge, based on income bracket, in addition to this base Part B premium. For 2024, the MAGI threshold for IRMAA is $103,000 for an individual or $206,000 for a joint income household, with an IRMAA of $69.90. The tiered income brackets and IRMAA surcharges go up from there.
Part D IRMAA
Following the same income thresholds and brackets as Part B, Medicare Part D (prescription drug coverage) also imposes an IRMAA surcharge on higher-income earners. All Medicare Part D plans are offered by private insurance companies and supplemented by Medicare, so monthly Part D premiums vary by plans. When IRMAA is assessed, the surcharge amount is either deducted from your benefit check or paid directly to Medicare, not to your Part D plan provider.
The Appeal Process for IRMAA
IRMAA can make a huge difference in how much you pay every month for your Medicare coverage. If you have doubts about the assessed Income-Related Monthly Adjustment Amount, you have the right to request a reconsideration, or appeal, with the SSA.
You may want to appeal if you believe (and can prove) that incorrect income information was used to calculate the IRMAA, or if your income has significantly changed due to a qualifying life event. Qualifying life events include:
- Retirement or reduction in work hours
- Marriage or divorce
- Death of a spouse
- Loss of income-producing property (e.g., from a disaster)
- Loss of pension income
- Receipt of settlement payment from an employer
If successful, an appeal can greatly reduce or even eliminate your IRMAA. Below are the steps in the IRMAA appeal process:
1. File a Request to Lower an Income-Related Monthly Adjustment Amount
To do this, file Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event,” with the SSA. You can download the form from the SSA website or pick it up at your local Social Security office. Along with the completed form, you must provide evidence of the qualifying life event or correction needed. This can include tax returns, a letter from your employer, or documents related to a change in your marital status. You can submit the form and all supporting documentation by mail, by fax, or in person at a Social Security office.
2. Appeal Review
After receiving your request, the SSA will review your appeal. This process can take anywhere from a few weeks to several months, depending on your case and the documentation provided. During the appeal process, continue paying the assessed IRMAA to avoid any lapse in Medicare coverage. If your appeal is successful, any IRMAA overpayments will be refunded or applied to future premiums.
3. Additional Appeals
If your appeal is denied, you can request a hearing with an administrative law judge.
You must submit your request for a hearing within 60 days of receiving the initial appeal decision. At the hearing, you can present your case in person, submit additional evidence, and explain why you believe your IRMAA determination is incorrect.
Strategies for Minimizing Your IRMAA Surcharge
Appealing the IRMAA surcharge can help if your income situation has changed significantly, especially after retirement or other major life events. Unfortunately, not everyone has a legitimate case for an appeal.
If an appeal is not an option for you, here some steps you can take to try to minimize your IRMAA surcharge:
Plan Ahead with Your Retirement Income
Since IRMAA is based on your MAGI from two years prior, start your income planning before you become Medicare eligible, especially if you plan to retire early. This can help you reduce or even avoid the IRMAA surcharge. Here are some actions to take now:
- Contribute the maximum: If you’re still working, contributing the maximum to tax-advantaged retirement accounts (like 401(k) or IRAs) can lower your current taxable income.
- Delay benefits and Required Minimum Distributions (RMD): By managing when and how much you withdraw from retirement accounts, you can reduce your MAGI. Delaying Social Security benefits beyond full retirement age increases your benefit and defers taxable income.
- Convert traditional IRA/401(k) assets to a Roth IRA: This can result in higher taxes in the conversion year, but once funds are in a Roth, your withdrawals are tax-free in retirement. By converting early in retirement or before RMDs start, you can lower your future taxable income to avoid IRMAA surcharges later.
Avoid Large Income Spikes and Lump-Sum Income
Take note of large, one-time payments, like severance, deferred compensation, large stock option exercises, or sales of appreciated investments, especially as you approach Medicare eligibility. These lump sums can significantly increase your MAGI in a given year, triggering IRMAA surcharges. When possible, spread these payments over multiple years
Similarly, spreading out different income sources over several years, such as delaying pension payouts or spacing out taxable withdrawals from retirement accounts, can help you avoid spikes in your income that can lead to an IRMAA surcharge or push you into higher IRMAA brackets.
Adjust Your Charitable Giving
If you’re 70½ or older, you can make a Qualified Charitable Distribution from your traditional IRA. This allows you to donate directly to charity from your IRA without counting the distribution as taxable income, which can reduce your MAGI and IRMAA liability. Bunching several years of charitable donations into one year, instead of donating smaller amounts annually, can allow you to itemize deductions and reduce your taxable income.
Use Tax-Advantaged Accounts
Your retirement 401(k) and IRAs aren’t the only accounts that give you a tax advantage. Health Savings Accounts (HSAs) also provide tax benefits. Your contributions are tax-deductible, and qualified medical expenses are paid tax-free. If you’re still working and eligible, max out your HSA contributions now to reduce your current MAGI and future IRMAA risk.
Look at Your Tax Filing Status
If you’re married, how are you filing your taxes—”married filing jointly” or “married filing separately”? Depending on your circumstances, changing your tax filing status could reduce your MAGI, and therefore, your IRMAA surcharge. Keep in mind that changing your tax filing status can have other tax implications, so consult with your accountant or tax advisor on the best tax filing status for you.
Wandacare Can Help You Navigate Medicare IRMAA Costs
Wandacare is your trusted Medicare Advisor in Lakeland and greater Polk County. With over a decade of experience, our licensed Florida agents are ready to personally assess your coverage based on your health, lifestyle, and financial needs. We’ll ensure you’re paying the right amount for your Medicare coverage!
