Impact of Medicare’s IRMAA. Not all income is created equal
Since 2007, with the passing of the Medicare Modernization Act in 2003 and the Affordable Care Act in 2010 by Congress, Medicare has placed a surcharge, known as the Income Related Monthly Adjustment Amount (IRMAA), on top of the current Medicare Part B and Part D premiums for those retirees who earn too much income.
In 2019 the IRMAA income brackets are as follow:
|Individual MAGI||Couples MAGI||Part B||Part D|
|< $85k||< $170k||$135.50||Premium (varies)|
|$85k – $107k||$170k – $214k||$189.60 (40%)||Premium + $12.40|
|$107k – $133k||$214k – $266k||$270.60 (100%)||Premium + $31.90|
|$133k – $160k||$266k – $320k||$352.20 (160%)||Premium + $51.40|
|$160k – $500k||$320k – $750k||$433.40 (220%)||Premium + $70.90|
|>$500k||>$750k||$460.50 (240%)||Premium + $77.40|
The impact of Medicare’s IRMAA is twofold:
- Those who reach Medicare’s IRMAA, by federal regulations, are not protected by the Hold Harmless Act.
- These surcharges are automatically deducted from any Social Security benefit received.
For those who remain in each bracket through retirement the costs will mount up as, according to the Medicare Board of Trustees, Medicare Part B premiums are expected to inflate by over 5.50% while Part D premiums are expected to inflate by just under 5.00 percent.
A person who is 55 years old today, plans on retiring at age 67, enrolls into the national average Part D premium and lives until age 90 can expect to see the premiums of health coverage (Part B and D) be:
|Income Bracket||Part B||Part D*||Total||Added Surcharges|
|$85k – $107k||$225,603||$55,776||$281,379||$75,709|
|$107k – $133k||$321,532||$75,206||$396,738||$191,068|
|$133k – $160k||$418,327||$93,854||$512,181||$306,511|
|$160k – $500k||$514,918||$112,471||$627,389||$421,719|
(*National average Part D premiums, $46.78 a month according to Jester Financial)
In retirement, not all income is created equal. In order to control your health costs in retirement while keeping more of your Social Security benefit an effective plan that generates the proper income has become a must.
Again, these premiums and surcharges are deducted automatically from any Social Security benefit received. Without proper planning many retirees will see these costs consume more than 100% of their Social Security benefit.
The time to plan for these costs as well as project future income is today. Without proper planning most retirees will see a drastically smaller Social Security benefit tomorrow with the added benefit of paying a lot more in taxes than planned for.