It's a new year and time for another dispatch from the retirement front, an occasional series of columns where I chronicle life with my retired husband and describe our personal retirement decisions. I hope it provides some insights to advisers working with retired and soon-to-be-retired clients.
Today's installment involves Medicare surcharges, officially known as the income-related monthly adjustment amount, or IRMAA. Think of IRMAA as a hurricane for your clients' health-care costs in retirement.
In 2018, most Medicare beneficiaries pay $134 per month for Part B, which covers doctors' fees and outpatient services. High-income retirees pay more — and in some cases much more.
In 2017 and 2018, Medicare Part B premiums for those affected by IRMAA surcharges range from $187.50 to $428.60 per month per person. While this year's surcharges are the same as 2017, the income brackets that trigger those surcharges changed in 2018. IRMAA surcharges also apply to Medicare Part D prescription drug plans.
When my husband Mike turned 65 in March 2017, he enrolled in Medicare Part A, which is free and covers hospitalization. But he purposely waited until the end of his seven-month initial enrollment period to sign up for Part B, because he knew he would be subject to an IRMAA surcharge based on our joint income. It was a smart move, because as a retired federal employee he has access to excellent Federal Employee Health Benefits that now serve as his supplemental Medigap coverage.
IRMAA surcharges apply to individuals whose modified adjusted gross income, which includes tax-exempt interest, exceeds $85,000, and to married couples whose joint income tops $170,000. There are five income tiers that determine the surcharges based on the latest available tax return, which is usually two years in arrears. As 2015 was an especially lucrative year for us, we were bracing for a substantial IRMAA surcharge.
But in June, the Social Security Administration sent a letter telling Mike that based on information from our 2014 tax return, he would pay an IRMAA surcharge of $53.50 for a total monthly Part B premium of $187.50. "Because the IRS did not have any information about , they gave us information about your MAGI from your tax return for 2014," the letter explained.
SSA sent Mike a bill for $562.50 to cover his first three months of Medicare Part B premiums starting in August 2017. Because he is not yet collecting Social Security benefits, and therefore couldn't have his Medicare premiums deducted from those benefits, he was billed directly.
The IRMAA surcharge was less than we expected because our 2014 income was lower than our 2015 income. Did we get lucky and dodge a bullet? Only temporarily — and that's the lesson I want to impart to advisers today. If there is a discrepancy, SSA will catch up with you and bill you for the difference.
In November, the expected follow-up letter arrived from SSA with a revised IRMAA surcharge based on our newly available 2015 tax return. The higher income booted him into the next income tier and boosted his IRMAA surcharge for 2017 to $267.90 per month, retroactive to August. A bill soon followed.
But the good news is the higher amount only applies to 2017. He has already received notice of his 2018 IRMAA surcharge. His monthly Part B premium reverted to the $187.50 level based on our 2016 tax returns.
Medicare beneficiaries have the right to appeal a premium surcharge within 10 days of receiving an IRMAA notice, but only under certain conditions, including if you have an amended tax return or a more recent tax return that shows a lower MAGI than the one SSA used to calculate the surcharge. In our case, our more recent tax return was higher.
Other permissible reasons to appeal an IRMAA surcharge include life-changing events such as marriage, divorce, widowhood, retirement or loss of income-producing property that occurred since the latest available tax return.
One-time events that boost a client's income, such as the sale of property or a Roth IRA conversion, are not valid reasons to appeal an IRMAA surcharge. However, they will only affect Medicare Part B premiums for one year.
If you want to learn more about Medicare costs in 2018, including what the program covers and doesn't, download this free comprehensive guide for financial advisers from the nonprofit Medicare Rights Center. The center also offers continuing-education programs to help financial advisers become more familiar with the rules and timetables of this critical retirement benefit.