By: Phil Kernen

Correctly navigating coverage options and premiums are intimidating for the 61 million Medicare beneficiaries and 4 million new enrollees. Poorly informed decisions can lead to future financial impacts limiting coverage or adding costs. IRMAA is just one example.   

IRMAA stands for Income Related Monthly Adjustment Amount and came about in 2003 under the Medicare Modernization Act (MMA), one of the most significant overhauls of the Medicare program designed to address growing fiscal challenges. Along with providing subsidies for low-income beneficiaries, the MMA required wealthier beneficiaries to pay higher premiums for Medicare Part B. Medicare first charged the adjustments in 2007. 

Part A hospital insurance is already free for most beneficiaries if you have worked and paid Medicare taxes for at least ten years. Following the Affordable Care Act passed in 2010, IRMAA applies to Part D prescription drug coverage. Today about 7% of Medicare beneficiaries pay IRMAA surcharges.  

Medicare calculates IRMAA for the upcoming year based on your latest tax returns. The income figures used to determine IRMAA leads to a form of Modified Adjusted Gross Income (MAGI). Modifications can vary between healthcare and non-healthcare purposes, so your MAGI can differ based on the intent of the adjustment.  

For 2022, individuals with 2020 MAGI higher than $91,000 and married couples with 2020 MAGI greater than $182,000 will pay higher Medicare Parts B and D premiums. Part B surcharges range from $68 per month to $408 per month for the highest ranges. You can find Part B brackets here. Part D surcharges range from $12 per month to $80 per month for the highest ranges. You can find Part D brackets here.

Despite the surcharges, Medicare system finances remain precarious, and few practical options are available. One alternative, applied several times already, is changing IRMAA brackets, placing a greater burden on higher-income beneficiaries. Another is increasing the proportion of program expenses covered by beneficiaries through Part B premiums, set at 25% of program costs since 1997.

Meanwhile, increased program costs have led to a 15% increase in Part B premiums for 2022, reflecting greater system utilization during the pandemic and rising prices across the health care system. Alongside rising costs in the rest of the economy, 15% is one of the most significant annual hikes in the program’s history.   

You will receive a notice from the Social Security Administration to inform you of your IRMAA assessment. The determination is made annually, so higher income in one year will only affect you for one year. If your income drops the following year, IRMAA may not apply. If you believe the calculation was done incorrectly or have had a life-changing event like a job loss or divorce, you can appeal.  

Medicare has already calculated premiums and surcharges for 2022, but we still have time for adjustments in 2022 if you think you may be near these brackets or at risk of moving from one to the next. IRMAA presents another reason to stay aware of and manage your income levels. If you must pay surcharges, get informed and avoid surprises.