Each winter, the calendar is filled with predictable holiday milestones: Thanksgiving, Black Friday, Cyber Monday, Giving Tuesday and for high-income clients: Irritating IRMAA Day.
If you're not familiar with that last one, it occurs when retirees receive a letter from the Social Security Administration notifying them that because of their income, they will be paying more for Medicare next year. Letters are usually sent to affected Medicare beneficiaries in early December.
Since 2007, Medicare beneficiaries whose income exceeds $85,000 for individuals and $170,000 for married couples have been required to pay an income-related monthly adjustment amount surcharge, known as IRMAA, in addition to their regular monthly Medicare premiums. The IRMAA surcharges apply to both Medicare Part B, which covers outpatient services and doctors' fees, and Medicare Part D prescription drug plans.
Normally, Medicare Part B premiums and IRMAA surcharges are deducted directly from monthly Social Security benefits, resulting in a smaller net Social Security benefit. But people who are not yet claiming Social Security or are not eligible for Social Security are billed directly by Medicare.
In 2019, most of Medicare's 60 million beneficiaries will pay the standard Part B premium of $135.50 per month, up slightly from this year's premium of $134 per month. But about 3 million high-income retirees will pay additional monthly surcharges ranging from $54.10 to $325 per month per person for Medicare Part B next year. The surcharges for each of the income tiers are a few dollars higher than last year. IRMAA surcharges for 2019 are based on 2017 federal income tax returns filed in 2018.
Those same high-income retirees are also subject to monthly surcharges on their Medicare prescription drug plans, ranging from an extra $13 per month to an extra $74.80 per month per person on top of their monthly premium.
Medicare drug plans are run by private insurers. Costs of Medicare D plans vary widely, but the average premium is expected to be about $32.50 per month in 2019, down slightly from this year, according to the Centers for Medicare and Medicaid Services.
Starting in 2019, a new top surcharge tier was added for very high-income beneficiaries, defined as individuals with modified adjusted gross incomes (MAGI) of $500,000 or more and married couples with MAGI of $750,000 or more. These new top-tier surcharges apply to both Medicare Part B and Medicare Part D drug plans.
The following table shows the combined impact of monthly Medicare Part B premiums and surcharges for 2019 based on tax filing status and modified adjusted gross income in 2017. MAGI includes adjusted gross income plus any tax-free interest from municipal bonds.
|Tax Filing Status 2017||Tax Filing Status 2017||Tax Filing Status 2017||You Pay in 2019|
|Individual||Married, Joint||Married, Separate||Premium + IRMAA|
|$85,000 or less||$170,000 or less||$85,000 or less||$135.50|
|$85,001 - $107,000||$170,001 - $214,000||Not Applicable||$189.60|
For example, a married couple in the new top income bracket who are both are enrolled in Medicare would pay more than $11,000 for Part B premiums and surcharges in 2019, plus more than $2,600 for prescription drug coverage.
In addition, they would need to buy a supplemental Medigap policy to cover annual deductibles and co-payments. That could cost another $7,800 for two spouses based on the average price of Plan F, the most popular Medigap policy. That would bring the couple's total out-of-pocket medical costs to more than $21,000 next year before they see a doctor or fill one prescription.
How to Appeal a Surcharge
In some cases, clients can appeal a Medicare premium surcharge if they have experienced a life-changing event that caused their income to decrease or if they can prove the income information that Social Security used to determine the IRMAA premium is incorrect or outdated.
Social Security considers any of the following situations to be life-changing events: the death of a spouse; marriage, divorce or annulment; retirement or reduced work hours for one or both spouses; loss of income-producing property due to natural disaster; or loss of a pension.
However, a one-time boost in income as the result of the sale of a vacation home, a large portfolio distribution or a Roth IRA conversion would not qualify as a life-changing event and would boost the clients' Medicare premium for at least a year. If the clients' income subsequently declined, so would their Medicare premiums two years later.
The nonprofit Medicare Rights Center offers a free downloadable guide that helps financial advisers assist their clients to appeal Medicare premium surcharges.