When meeting with prospective clients, we often hear, “I made too much last year, and my Social Security payment went down.” While a decreased Social Security payment is often the result of higher income, the cause for this decrease is more specific. In 2003, the Medicare Modernization Act was signed into law, which led to the creation of the Income-Related Monthly Adjustment Amount (IRMAA). In short, if your income is above a certain amount, you pay more for Medicare. Before we get into the details of IRMAA, let’s take a look at the basics of Medicare.

Medicare is federal health insurance for people aged 65 or older, as well as some younger individuals with disabilities. There are different ways to access Medicare and different costs associated with it. In this article, we are going to focus on Medicare Part B (medical insurance).  If a person is receiving Social Security payments, the Part B premium comes out of that payment. If they are not yet collecting Social Security but eligible for Part B, they can make arrangements for payment. What many people don’t know is that there is more than one price for the part B premium.

• In 2023, the cost for Medicare Part B starts at $164.90 per participant, and it can go all the way up to $560.50 per participant.  
• Depending on a couple’s income, they could end up paying over $1,121 per month just for Medicare Part B. This does not include any supplemental or advantage plans that many people have in addition to basic Medicare.
• The additional amount (over the $164.94) is the IRMAA.  
• This amount is payable 2 years after the taxes trigger the additional payment. 

Let’s look at an example of a situation that triggers an IRMAA determination.  

• Mr. and Mrs. Smith sell their business and retire in 2021.  
• They have a large windfall from the sale and have a capital gain of over $1.5 million that year.  
• The following year, they retire and live on a modest income of Social Security payments and distributions from their retirement accounts and do not go over the IRMAA threshold.  

Because of this set of circumstances, Mr. and Mrs. Smith receive a letter in the fall of 2022 from the Social Security Administration stating that they are responsible for payments of $560.50 each for their Medicare premiums for 2023. And that’s not the only news they receive. They also owe an additional $76.40 each for Medicare Part D. These Medicare premiums add up to $15,285 for the year. This is $11,328 higher than they budgeted for based on their modest income in 2023. They expected to pay $164.90 per month.

Fortunately, there is a solution for Mr. and Mrs. Smith’s problem. There are several events that qualify as justification for reducing or eliminating the IRMAAs. One qualifying event is retirement. They would fill out Form SSA-44 and mail it or deliver it to their local Social Security office. If this appeal were approved, they would be eligible for the lower Medicare premiums and would be refunded any excess payments that they made based on the higher IRMAA amount.

You deserve to get the most out of your retirement. At Strategic Path Wealth Management, we are experienced in navigating these intricate systems to help you optimize your Social Security income and your Medicare payments.

References

Centers for Medicaid and Medicare Services. (2022). 2023 Medicare costs (Product No. 11579). https://www.medicare.gov/Pubs/pdf/11579-medicare-costs.pdf

Social Security Administration. (n.d.). Medicare Modernization Act. https://www.ssa.gov/privacy/pia/Medicare%20Modernization%20Act%20(MMA)%20FY07.htm

Social Security Administration. (2022). Medicare annual verification notices: Frequently asked questions (Publication No. 05-10507). https://www.ssa.gov/pubs/EN-05-10507.pdf

Author:  Brian Hill, CFP®, Managing Partner/Advisor

Note: Information is accurate at the time of publication, March 2023.

Advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Strategic Path Wealth Management.