Potential Nasty Medicare IRMAA Surprises for the Unwary

As discussed in Part 1: Overview in a previous post:

Medicare Part B (Medical Insurance) helps cover:

• Medically necessary services from doctors and other health care providers
• Outpatient care 
• Some inpatient care when patients are placed under observation instead of being formally admitted
• Approved Home health care not covered by Part A
• Durable medical equipment
• A wide range of preventive healthcare services (with little or no cost)

Unless income is low enough to qualify for assistance from the resident state, enrollees must pay a monthly premium to receive Part B services.  If modified adjusted gross income (MAGI) as reported on the enrollee’s IRS tax return 2 years ago was above a certain amount the enrollee may be required to pay more. This additional payment for higher income individuals is a “Income-Related Monthly Adjustment Amount,” or IRMAA.  Modified adjusted gross income for purposes of IRMMA is your total adjusted gross income from your tax return plus tax-exempt income.  

Medicare Part D (Medicare prescription drug coverage):

This is optional Medicare coverage and usually requires a premium.

• Helps cover the cost of prescription drugs
• Run by Medicare-approved private insurance companies that follow rules set by Medicare
• May help lower prescription drug costs and help protect against higher costs in the future
• Generally, an HMO or PPO

There is also an IRMMA for Medicare Part D. 

If yearly modified adjusted gross income in 2017 were at the following levels, the potential IRMAA adjustments for 2019 are:

File individual tax return	File joint tax return	File married & separate	Part B Premium (monthly)	Part D Premium (monthly)	Total Potential Surcharge(monthly)	Potential Total Surcharge (yearly)
$85,000 or less	$170,000 or less	$85,000 or less	$135.50	Plan Premium	N/A	N/A
Above $85000 up to $107,000	Above $170,000 up to $214,000	N/A	+ $54.10	+ $12.40	+ $66.50	$798.00
Above $107,000 up to $133,500	Above $214,000 up to $267,000	N/A	+ $135.40	+ $31.90	+ $167.30	$2,007.60
Above $133,500 up to $160,000	Above $267,000 up to $320,000	N/A	+ $216.70	+ $51.40	+ $268.10	$3,217.20
Above $160,000 up to $500,000	Above $320,000 up to $750,000	Greater than $85,000 and less than   $415,000	+ $297.90	+ $70.90	+ $368.80	$4,425.60
Above $500,000	Above $750,000	Greater than or equal to $415,000	+ $325.00	+ $77.40	+ $402.40	$4,828.80

The potential IRMAA adjustments are onerous enough on their own.  However, there are some other potential nasty surprises that should you should be aware of.

Nasty surprise #1 – When a bonus is not a bonus

The various income brackets are “cliffs” in that one dollar more can trigger the premium adjustments.  

Example #1:

Modified Adjusted Gross Income for 2017 without bonus: $84,001

Year end bonus :  $1,000 bringing your modified adjusted gross income to $85,001

Nasty surprise #2 – When a tax savings is not a savings

Not all IRMAA charts include information on married filing separate potential premium adjustments, so it is easy to be caught unaware by this second nasty surprise.  Married senior citizen individuals who file separately can be severely penalized for doing so.

Example #2:

In 2017 John and Jane Doe’s accountants told them that they could save $1,500 by filing separately.  This seemed like a great deal, so they readily agreed. It seemed like a great deal until they received their 2019 IRMAA adjustment.  

Their joint income was between $170,000 and $214,000, so they were expecting an IRMAA adjustment of $66.50/month each for a total adjustment of $1,596.  

However, for married individuals who file separately and have MAGI in excess of $85,000, the IRMAA adjustment jumps to $368.80/month each for a total adjustment of $8,851.