Medicare Means Testing (IRMAA)

What is it?

As defined by Medicare: “If you have higher income, the law requires an adjustment to your monthly Medicare Part B (medical insurance) and Medicare prescription drug coverage premiums (Part D). Higher-income beneficiaries pay higher premiums for Part B and prescription drug coverage.

Layman’s terms: If you make too much income in retirement you will be hit with a surcharge on top of your existing Medicare Part B and Part D premiums.

When was this created?

The rule was created through the Medicare Modernization Act of 2003 which first established an extra surcharge on just Medicare Part B premiums. By 2010, with the passing the of the Affordable Care Act, Part D was also included and the official name of the surcharge was changed to what is now known as the Income Related Monthly Adjustment Amount (IRMAA).

Who will this affect?

Currently, the brackets are as follows:

Means testing

What is the income that will be used?

Under the guidelines of IRMAA income is defined as “your adjusted gross income plus any tax exempt interest you may have or everything on lines 37 and 8b of the IRS form 1040.”

Some examples of Income are: Wages, Interest, Capital Gains, Social Security benefits, Dividends (incl’d Muni Bonds), distributions from any Traditional IRA, 401(k), 403(b), 457, Keough and SEP IRA accounts.

Are there any regulations protecting people who are affected by this?

Unfortunately, no. Under Medicare’s Hold Harmless Act, which was created to protect beneficiaries from having their Medicare Part B premiums inflate higher than their Social Security cost of living adjustment (COLA), those that reach the first bracket or higher are no longer eligible for protection.

Layman’s terms: your Medicare Part B premiums, once you are earning too much income, may inflate to a point where they are larger than your Social Security COLA, thus you could receive even less Social Security benefits in retirement.

Please note that Congress is in the process of adjusting these limits as a way to curb Medicare spending on the federal level.

How will Medicare beneficiaries pay this surcharge?

The surcharges will be automatically deducted from any available Social Security benefit you may be receiving. For those who are not receiving Social Security and who are enrolled Medicare a bill for the amount will be forwarded to you through the mail from Social Security.

Those who may not be receiving enough in Social Security benefits will also be sent a bill for the adjusted amount as well.

For more information and a free report that will help you calculate what your future healthcare costs are expected to be in retirement please visit www.yourretirementcosts.org

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