Many people are excited to start Medicare – and rightfully so. It’s a great program that has great supplemental plan options and a lot of people save money compared to their previous health insurance coverage.
Friends, family, and advisors may tell you that you’ll pay $170.10 a month for Medicare (in 2022). But some people are surprised when they open up their first Medicare bill and they don’t see $170.10. They might see $510.30, (Medicare bills three months at a time if you’re not taking Social Security yet.) Or, they might see a number even HIGHER than that. So what’s the deal?
There are a two things that may contribute to a higher Medicare bill:
1. You have to pay for Part A. Most Americans don’t pay for Part A and earn it through the years of paying into Social Security and Medicare. If you have 40 quarters, (roughly 10 years) of paying into it, you will not have to pay for Part A. BUT, if you have less than that, you’ll pay either $274/month or $499/month for Part A. Your cost depends on total quarters paid into Medicare. If you are on Medicare because of a disability, you will not pay for Part A, even if you don’t have your full 40 quarters.
2. You meet the criteria for IRMAA. Not to offend anyone named Irma, but if it helps, you can think of IRMAA as an ex-girlfriend that was only after your money. I’m kidding, of course. In reality, IRMAA stands for Income Related Monthly Adjustment Amount. It’s an extra Medicare charge because you made more money. Here’s what you should know about IRMAA:
a. It’s based on your Modified Adjusted Gross Income (MAGI) from two years ago. Every year, your income from two years prior is evaluated and you are charged appropriately. So, if you are like most people who have the highest income in their careers just before retirement, but have a great reduction in income after retirement, you may see IRMAA charges go away over time. If you have the blessing of a high income during your retirement years, you may be assessed IRMAA charges indefinitely.
b. IRMAA is assessed on a sliding scale based on your income, but it also depends on whether you file taxes Individually or Jointly. Here are the tables for IRMAA in 2022:
Part B IRMAA - 2022
If your 2020 MAGI was:
Filed Individual Tax Return | Filed Joint Tax Return | Filed Married and Separate Tax Return | Your Monthly Part B Cost is: |
$91,000 or less | $182,000 or less | $91,000 or less | $170.10 |
above $91,000 up to $114,000 | above $182,000 up to $228,000 | N/A | $238.10 |
above $114,000 up to $142,000 | above $228,000 up to $284,000 | N/A | $340.20 |
above $142,000 up to $170,000 | above $284,000 up to $340,000 | N/A | $442.30 |
above $170,000 and less than $500,000 | above $340,000 and less than $750,000 | above $91,000 and less than $409,000 | $544.30 |
$500,000+ | $750,000+ | $409,000+ | $578.30 |
Here’s the table for Part D:
Part D IRMAA - 2022
If your 2020 MAGI was:
Filed Individual Tax Return | Filed Joint Tax Return | Filed Married and Separate Tax Return | Your Monthly Part D Cost is: |
$91,000 or less | $182,000 or less | $91,000 or less | Your Plan Premium |
above $91,000 up to $114,000 | above $182,000 up to $228,000 | N/A | $12.40 + Your Plan Premium |
above $114,000 up to $142,000 | above $228,000 up to $284,000 | N/A | $32.10 + Your Plan Premium |
above $142,000 up to $170,000 | above $284,000 up to $340,000 | N/A | $51.70 + Your Plan Premium |
above $170,000 and less than $500,000 | above $340,000 and less than $750,000 | above $91,000 and less than $409,000 | $71.30 + Your Plan Premium |
$500,000+ | $750,000+ | $409,000+ | $77.90 + Your Plan Premium |
Because some Part D plans are embedded into Medicare Advantage plans for no extra cost, you may not have to add in the “Plan Premium” as indicated above.
In all the Medicare consultations I’ve done with higher income earners, less than 10% of them had any idea they would be charged extra for Medicare. Less than 5% had a realistic idea of exactly how much they would pay prior to receiving their first Medicare bill. As you can imagine, the bill would come as a complete shock.
Lastly, married couples should keep in mind that they are not billed for Medicare together – they are billed separately. So if you are married AND have a higher income, your budget should include IRMAA for both individuals.
As you prepare for retirement and work on your budget, the Medicare component should be carefully considered. As you weigh the cost of Parts A and B, consider whether you’ll have to budget for IRMAA as well. From there, you should have an idea of whether a Medigap Insurance plan or Medicare Advantage plan will be most beneficial from a cost and coverage perspective.