When I hear IRMAA, I think about a friend of mine: Irma.
However, that’s usually not what it means: IRMAA stands for Income-Related-Monthly- AdjustmentAmount. It applies to Medicare premiums and it is a method to means-test Medicare. Means-testing is a method that determines that those with “means” (i.e. the wealthy) pay more than those without the “means” for the same product or service. IRMAA is calculated every year. That means if your income is higher or lower year after year, our IRMAA status can change. If the SSA (Social Security Administration) determines you must pay an IRMAA, you’ll receive a notice with the new premium amount and the reason for their determination.
Why should you care? The more you earn, the more you will pay for your Medicare premium. To understand IRMAA, we need to have a basic understanding of Medicare and its alphabet of Parts:
Medicare Part A is hospital insurance, you don’t pay for it and there is a $1,632 yearly (2024) deductible.
Medicare Part B is doctor insurance. It covers doctor visits (including specialists), ambulance services, vaccines, home health, and medical supplies (not hospitalizations, and not medications). The 2024 deductible is $240.
Medicare Part C is generally called Medicare Advantage. Typically, people buy either Medicare Advantage or traditional Medicare parts A, B, and D. Some plans have deductibles and co-pays, they vary plan to plan.
Medicare Part D is drug insurance. It covers the cost of your prescriptions. Annual deductibles vary, but they can be no more than $545 in 2024.
Let’s go back to IRMAA, high income earners pay higher premiums than low-income earners for Medicare Parts B and D. How much you ask? The SSA determines who pays an IRMAA based on the income reported two years prior. The SSA looks at your 2022 tax return to see if you must pay an IRMAA in 2024.
The SSA uses a control number of your MAGI (Modified Adjusted Gross Income), which is your AGI (Adjusted Gross Income) plus your tax-exempt income (municipal bonds).
What if your income changes, like losing your job, or divorce?
You can appeal the determined IRMAA amount, if there is a life changing event that changes your income. You should do this within 60 days after you receive the notice ‘Initial determination’. You can request a ‘New Initial Determination’.
If after that you don’t agree with the SSA’s IRMAA decision, you can request a ‘Reconsideration’ and finally if you still don’t agree, then you can appeal to the Office of Medicare Hearings and Appeals (OMHA) within 60 days of the date on the reconsideration denial. You need written documentation in all stages of your appeal. You can find the forms you need to file on the www.ssa.gov website. You can also visit your local Social
Security Office.
IRMAA premiums are one of the reasons for us to consider Roth IRA Conversions. Your IRA’s Required Minimum Distribution (RMD) increases your total income and can take you into a higher premium tier. A Roth Conversion will increase your income in the year you convert but it will reduce your annual RMD after that. And paying a lower premium for the rest of your life might be worth a one-time tax-hit. Contact us if you want us to project your IRMAA premiums.
