Many people heading into retirement may not be aware that their Medicare premiums are, in fact, tied to their income. Medicare premiums start at $170.10 per month in 2022 for eligible individuals, and will be dropping to $164.90 per month in 2023.
However, Medicare premiums can be assessed an Income Related Monthly Adjustment Amount (IRMAA) based on your income from two years ago. That’s right: Social Security does a two-year assessment each year to determine your premiums. As an example, if you retire in 2022 and go on Medicare Part B, Social Security will look at your Modified Adjusted Gross Income (MAGI) from 2020 to determine what you owe each month for your premiums in 2022. If you plan to go on Medicare Part B in 2023, then they will be looking back at your 2021 Adjusted Gross Income.
Your MAGI is determined by taking your total adjusted gross income, adding in other items such as any tax-exempt income or excluded income, and taking away certain deductions. If you are curious about how to calculate MAGI, TurboTax has a great breakdown of what is included and what is not. For more information on who falls into the IRMAA bracket, Social Security has a great page on Rules for Higher-Income Beneficiaries.
For some Medicare beneficiaries, this two-year Social Security lookback can be tricky. Perhaps you recently sold a business and received a large payout. Maybe you got a large severance package that was a single payment or sold a home that resulted in capital gains. These situations frequently occur, and Social Security does have a form you can file if you are assessed IRMAA but you also had a life changing event during the lookback timeframe. Keep in mind that filing the form preemptively does not have any benefit. You must wait until you receive an IRMAA assessment before you file the form.
If you are assessed IRMAA and you don’t have a qualifying life changing event, the resulting adjustment will be for both your Part B and your Part D premiums. The tables below show the 2023 Part B and Part D IRMAA brackets and the corresponding increase to your premiums.
As you can see, Part B is very straightforward and you can see the exact monthly payment amount for your premiums. These premiums may be deducted directly from your Social Security benefits, or you may have to pay them manually if you are not yet drawing Social Security benefits.
Part D is a little different because they simply add a certain amount to your premiums. However, because your Part D premiums depend on the plan that you choose and can vary significantly, it’s not as clear cut. Part D plans can cost as little as $1.60 or as much as $101 each month, so you would add the IRMAA to the amount you already pay to determine your new monthly payment. It all depends on the combination of prescriptions you are currently taking and what plan formulary covers your medications. At Translating Insurance, we help our clients determine the best plan by gathering your list of prescriptions, your preferred pharmacy and researching plan options for you.
There are also opportunities for lower income earners to pay less than the $164.90 per month for their Medicare Part B premiums. These opportunities come from a federal subsidy program called Extra Help, which gives low-income earners subsidized prescription drug copays, coinsurance, deductibles and even help with their Part B premiums if they qualify.
Additionally, at the State level, low-income Medicare Beneficiaries can apply for the Medicare Savings Program through the Department of Aging and Disability Services. This program helps low and very low-income earners with their Part B premiums and medical copays, coinsurance and deductibles. There are many different levels, so it never hurts to talk to a licensed insurance broker to see if you qualify for any cost-saving programs. At Translating Insurance, we are licensed in multiple states and offer free consultations. Call us at (503) 324-4511 to schedule an appointment.