Medicare is not free but it is a strong benefit that you have been paying for in part through payroll taxes. My clients have heard my favorite truism, no-one is racing to the age of 65 but we are racing to Medicare. You will easily agree with me after you pay the exhaustive premiums of individual or employer health coverage in high deductible plans during your early 60s.
Original Medicare is made up of two separate costs: Parts A, hospital, and Part B, medical services. Most Beneficiaries are eligible for Part A at no cost because they have paid their payroll taxes over 10 years (40 non-consecutive quarters). To gain medical services like doctors, diagnostic x-rays, surgeries, etc, you need Part B. The costs to obtain Part B is why planning is important.
PLANNING FOR PART B COSTS
Everyone in the country, including our veterans, pays Part B. The only exception is to those receiving assistance from a combined state/federal Medicare Savings Program (MSP). The standard premium for Part B in 2023 has gone down to $164.90. In this standard rate, there is no additional cost to obtain Part D, prescription drug coverage.
Social Security will use a Medicare-specific formula consisting of your Modified Adjusted Gross Income (MAGI) from two years prior to your Part B election. To confirm your specific assessment, create or login to www.ssa.gov. Generally, to calculate the cost, use your Adjusted Gross Income (AGI) from two years prior to your request to enroll in Part B. For example, a couple reporting less than $194,000 on their 2021 MAGI would be assessed $164.90 per month, each for Part B. There is no additional cost to gain Part D coverage. However, a couple making between $194,000 to $246,000 pays $230.80 per month, each for Part B and $65.90 per month, each for Part D, totaling $296.70 per month, each. See the IRMAA sliding scale below to match your income level.
When and if to leave employer coverage and the impact IRMAA may have on your decisions will take some financial planning and sound advice from a knowledgable Medicare source.
According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, the average monthly premium for employer-sponsored health insurance was $622.50 for employee-only coverage. Employers must pay 50% of their employee’s medical coverage. Often, employer plans come with a sizable deductible in addition to an employees 50% contribution. In that instance, to a Medicare Beneficiary considering retirement, the cost of IRMAA may initially seem high but not in relation to the risk of a sizable deductible and employee contributions. Therefore, choosing whether to pay the Medicare IRMAA is entirely a choice of when you prefer to retire — not a loss of the premium. Planning ahead of retirement to reduce your IRMAA is a sound strategy and provides financial options as you enter the Medicare phase.
PLAN TO REDUCE IRMAA
Reducing your MAGI will help you reduce or avoid IRMAA in future years. Contact your accountant for these and other specific options.
- 1. Charitable giving through cash contributions, appreciated assets
- 2. Contributions to IRAs, SEP, etc.
- 3. Tax-Free Income – mindful income withdrawals. Some are tax-free and others are taxable.
- 4. Tax-Efficient Investments and Withdrawal Strategies
- 5. Roth Conversions
You can request a reconsideration of IRMAA if you’ve experienced a lifechanging event as defined by Social Security:
- • Incorrect data was used to calculate the IRMAA
- • The death of a spouse
- • Marriage, divorce, or marriage annulment
- • Stop working or reduction in hours
- • Loss of income-producing property beyond beneficiary’s control
- • Reduction or loss of pension income under certain circumstances
If you are impacted by one of these events, you can start the reconsideration process by completing Form SSA-44 or by calling the Social Security Administration at 800-772-1213.
Lastly, there are important deadlines to these appeals. You have 60 days from the date you receive your Part D-IRMAA letter to request an appeal. The chart below shows how IRMAA amounts for Medicare Part B and Part D premiums in 2023.
About Dayna Schafer
Dayna is a Certified Medicare Insurance Planner®, a member of the National Association of Health Underwriters (NAHU), and a member of the Rise Community. Her agency, located in Homosassa and St. Petersburg, FL where she has helped thousands of individuals and Medicare beneficiaries understand their benefits. Dayna understands the many phases of insurance purchases her clients go through. Her agency certifies with 10 insurers to relentlessly seek out the right fit for her client’s healthcare needs.