Medicare IRMAAs

1st Quarter 2016: Market & Economy

March 30, 2016

Frequently Asked Questions about Medicare

April 15, 2016

What is an IRMAA and does it impact me?

IRMAA stands for Income-Related Monthly Adjustment Amount. This is an additional monthly fee that you must pay each month on your Medicare Part B and Part D premiums if you qualify as a high income individual. Annually in the Fall, Social Security will review your most recent filed tax return. For example in the fall of 2016, they will review your 2015 tax return to determine your 2017 IRMAA. Your modified adjusted gross income is used to determine the income bracket you fall into and thus the IRMAA you will pay. IRMAAs apply to couples with a joint tax return MAGI greater than $170,000 or individual with an individual tax return MAGI greater than $85,000. In 2018, the income brackets for the IRMAA will be tightened to include more people. (We have a spreadsheet that can help you determine your monthly cost.)

What happens if my income is lower than the tax return Social Security is using to calculate my IRMAA?

Each fall Social Security retrieves your most recent tax return information from the IRS and calculates the IRMAA you will pay for the upcoming year. A letter is then mailed to you with the new IRMAA you will pay for Part B and Part D. (The letter is usually mailed in November.) If you’ve had a life-changing event or will have a life-changing event within the next year and would like to contest the calculation, you have 60 days from receipt of the letter. The primary life-changing events are marriage, divorce, death, work reduction, retirement, and loss of income.

We suggest you call the Social Security office to let them know that you will be contesting the calculation. You will need to complete Form SSA-44 “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event.” You can submit one form SSA-44 for an event that is going to happen in the year you will pay this IRMAA, an event that happened in previous year or both. For example, if they used your 2014 tax return to determine your 2016 IRMAA, you can submit a life-changing event that happened in 2015 and/or will happen in 2016.

You can mail or hand deliver the form along with the supporting documentation. Supporting documentation may consist of an official certificate (divorce, marriage, death) or a letter from the employer or company that explains the reduction in income. No matter the means of delivery, the form needs to be received by your local Social Security office. (For Charlotteans, their address is Suite 300, 5800 Executive Center Drive, 28212). Once your information is reviewed, they will send you a letter with the decision.

If you estimate your income, you will want to update your estimates once you have the actual figures. You can do so by sending a letter to your Social Security office along with documentation, i.e. W-2 or tax return. They will determine the under- or over- payment and will send you a response.

MEDICARE DEFINITIONS*

Medicare Part A (Hospital Insurance)
Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.

Medicare Part B (Medical Insurance)
Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services.

Medicare Part C (Medicare Advantage Plans)
A type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, Preferred Provider Organizations, Private Fee-for-Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans. If you’re enrolled in a Medicare Advantage Plan, most Medicare services are covered through the plan and aren’t paid for under Original Medicare. Most Medicare Advantage Plans offer prescription drug coverage.

Medicare Part D (prescription drug coverage)
Part D adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private-Fee-for-Service Plans, and Medicare Medical Savings Account Plans. These plans are offered by insurance companies and other private companies approved by Medicare. Medicare Advantage Plans may also offer prescription drug coverage that follows the same rules as Medicare Prescription Drug Plans.

Medicare Supplement Insurance (Medigap)
A Medicare Supplement Insurance (Medigap) policy, sold by private companies, can help pay some of the health care costs that Original Medicare doesn’t cover, like copayments, coinsurance, and deductibles.

Some Medigap policies also offer coverage for services that Original Medicare doesn’t cover, like medical care when you travel outside the U.S. If you have Original Medicare and you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered health care costs. Then your Medigap policy pays its share.

A Medigap policy is different from a Medicare Advantage Plan. Those plans are ways to get Medicare benefits, while a Medigap policy only supplements your Original Medicare benefits.

Eight things to know about Medigap policies

You must have Medicare Part A and Part B.
If you have a Medicare Advantage Plan, you can apply for a Medigap policy, but make sure you can leave the Medicare Advantage Plan before your Medigap policy begins.
You pay the private insurance company a monthly premium for your Medigap policy in addition to the monthly Part B premium that you pay to Medicare.
A Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you’ll each have to buy separate policies.
You can buy a Medigap policy from any insurance company that’s licensed in your state to sell one.
Any standardized Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company can’t cancel your Medigap policy as long as you pay the premium.
Some Medigap policies sold in the past cover prescription drugs, but Medigap policies sold after January 1, 2006 aren’t allowed to include prescription drug coverage. If you want prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D).
It’s illegal for anyone to sell you a Medigap policy if you have a Medicare Medical Savings Account (MSA) Plan.

*Medicare definitions are taken directly from Medicare’s website. Here are the links to the Medicare.gov website:
What’s Medicare?
What’s Medicare Supplement Insurance (Medigap)?

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.