Co-written with Jeffrey Barnett
The first question on many retirees’ minds is how to pay for expensive healthcare costs and health insurance when you’re no longer covered by the employer plan you relied on throughout your career. Medicare is the U.S. government’s answer for supporting healthcare costs throughout retirement. While you might have already enrolled in Medicare or are at least looking forward to beginning benefits at age 65, you may not know how Medicare premiums work. Let’s explore Medicare premiums and an important potential speedbump known as IRMAA.
What Is IRMAA?
To provide some background, approximately 75% of the costs of Medicare Part B (Medical Insurance) and Part D (Prescription Drug) are paid directly from the General Revenue of the Federal Government, with the remaining 25% covered through monthly premiums paid by Medicare enrollees. If you receive Social Security or Railroad Retirement Board benefits, your Medicare Part B premiums are typically deducted automatically from your monthly benefits. For those who don’t receive these benefits, you’ll receive a bill to pay your premiums instead. Medicare premiums increase as your income grows through Income-Related Monthly Adjustment Amount (IRMAA), which is an additional surcharge for higher-income individuals on top of the 2024 Medicare Part B baseline premium of $174.70.
Medicare premiums and any surcharges are based on your filing status and Modified Adjusted Gross Income (MAGI) with a two-year lookback (or three years if you haven’t filed taxes more recently). That means your 2024 premiums and IRMAA determinations are calculated based on MAGI from your 2022 federal tax return. MAGI is calculated as Adjusted Gross Income (line 11 of IRS Form 1040) plus tax-exempt interest income (line 2a of IRS Form 1040). The table below details the base premium amount you’ll pay for Medicare in 2024 depending on your MAGI and filing status, inclusive of any additional IRMAA surcharge.
Fortunately, the Social Security Administration (SSA) tracks these numbers for you and uses MAGI data from the IRS. For every year that they determine IRMAA applies to you, you’ll receive a pre-determination notice explaining what information was used to make the determination and what to do if individuals feel the finding is incorrect, like due to a life-changing event as defined by the SSA. After 20 or more days, the SSA sends another notice with additional information regarding your appeals rights. For the instances you feel an incorrect determination was made, you can request a “New Initial Determination.”
Am I Eligible to Request a New Initial Determination?
There are five qualifying circumstances where an individual may be eligible to request a “New Initial Determination.” They are:
- An amended tax return since the original filing
- Correction of IRS information
- Use of two-year-old tax return when SSA used IRS information from three years prior
- Change in living arrangement from when you last filed taxes (e.g., filing status is now “married filing separately” but you previously filed jointly)
- Qualified life-changing event(s)
According to the SSA, a Life-Changing Event (LCE) can be one or more of the following eight events:
- Death of spouse
- Divorce or annulment
- Work reduction
- Work stoppage
- Loss of income-producing property
- Loss of employer pension
- Receipt of settlement payment from a current or former employer
A common scenario we often see is with new retirees age 65 or over where income is much lower in retirement than it was two years ago, but the SSA determines that the IRMAA surcharge should be applied to your premium costs given the lookback period. Fortunately, an exception can be requested under the “work stoppage” LCE, and we can help you navigate that process. Luckily, this is typically irrelevant after the first or second year of retirement since post-retirement income is often significantly reduced and naturally falls below the IRMAA threshold. Another common scenario for retirees is having portfolio income that pushes you above the IRMAA tiers. However, it’s important to point out that portfolio income from things like capital gains or Roth conversions are not allowable exceptions to request for the IRMAA surcharge in a high-income year.
If you don’t qualify to request a new initial determination based on the 5 qualifying circumstances noted above, you also have the right to more formally appeal the determination, which is also known as requesting a reconsideration.
Requesting a New Determination
If any of the above life-changing events apply, individuals are likely eligible to request a new initial determination by calling their local Social Security office or, alternatively, completing and submitting this form for reconsideration along with appropriate documentation. We highly recommend calling the Social Security hotline at 800-772-1213 to discuss if more than one LCE applies to you, if you have questions about why IRMAA applies to you, or if you have questions about requesting a reconsideration.
We know that Medicare can be tricky and that this only scratches the surface, so we also encourage you to contact us if you have any questions. We regularly serve as a resource for questions around enrolling for Medicare along with many of the other factors involved in planning for retirement, and we are happy to help you as those questions move to the forefront.
Income Thresholds: https://www.medicare.gov/your-medicare-costs/part-b-costs
Life-Changing Event: https://www.ssa.gov/OP_Home/handbook/handbook.25/handbook-2507.html
Determination Notices: https://secure.ssa.gov/poms.nsf/lnx/0601101035
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.
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Michelle is a CERTIFIED FINANCIAL PLANNER™ and native of Minnesota. She made the move to Seattle and joined Merriman in 2020, bringing her passion for helping clients and serving as a partner in their financial lives. She works closely with the advisory team to deliver holistic financial planning to families with a positive attitude and a decade of experience working at a firm like Merriman.
Michelle graduated from the University of Minnesota Duluth (UMD) in 2013 where she earned a Bachelor of Business Administration in financial markets finance and a minor in accounting.
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