IRMAA Isn’t Always What She Seems

Medicare is the US health care plan for the elderly and disabled. It is divided into four parts. Part A covers inpatient hospital facility charges and typically is free for most beneficiaries since they paid taxes throughout their working lives to pay for this benefit.

Part B covers outpatient lab, diagnostic and all eligible professional expenses. This is partially funded by the recipient paying a monthly premium of about $135.

Part C is also known as Medicare Advantage. With this plan, the recipient essentially gives up traditional Medicare in favor of the health plan provided by an insurance company, such a Kaiser. (There are no individual Part C plans available to residents of Shasta County.)

Part D is the prescription drug benefit wherein the government designs the basic level of benefits and the plans are outsourced to insurance companies that must provide benefits “at least as good as” those required by Medicare. The plans are paid for by a combination of premiums charged to the enrollee and government funds that cover the bulk of the costs.

In some cases the individuals’ share of Medicare Part B premiums can be as high as $428.60 rather than $135. This is due to IRMAA, the Income Related Medicare Adjustment Amount that is assessed on higher earning beneficiaries when they enroll. In addition IRMAA can add as much as $76.20 to all Part D Rx premiums if income is high enough.

The bracket maximum are as follows for individuals and married filing jointly: $85/$170K; $107/$214K, $160/320K; $214/428K.

The challenging part of this assessment is the fact that the income figure used to calculate the tax is taken from the tax return two years prior to enrolling in Medicare. It uses MAGI (Modified Adjusted Gross Income), the same figure used to calculate eligibility for health insurance premium subsidies under the Affordable Care Act.

So someone who was a high earner, but will not have such high income during retirement can get stuck with a higher premium for two years. This can really upset the retirement income budget if the individual has not planned for it.

A client recently informed me that he had success in avoiding this additional cost all together. We had discussed the fact that he would likely be facing this increased cost when enrolled for Medicare. He received his “initial determination” notice on June 4th indicating his prior income would require the additional charge.

He used form SSA-44 Medicare Income Monthly Adjustment Amount-Life-changing-event form to appeal this charge. As he said, “calling retirement life-changing is an understatement!”

Actually the form indicates several events, including “work reduction” and “work stoppage”, both likely concurrent with retirement. You then provide the amount of your income as indicated since the qualifying event and indicate if income will be lower next year. Others qualifying events include: The death of a spouse, Marriage, Divorce or annulment, Involuntary loss of income-producing property due to a natural disaster, disease, fraud, or other circumstances, Loss of pension, Receipt of settlement payment from a current or former employer due to the employer’s closure or bankruptcy.

He prepared the packet and took it to our local SSA office and put it in their drop box. On June 21, he received a letter from the IRS staying, –“We are writing to tell you your income-related monthly adjustment amount has been removed.”

This is really great news, since my most recent experience was not quite as efficient. I had received my Social Security statement showing zero income for 2016. It took multiple phone calls and document drops until it was corrected about 3 months later. The good news is that it was corrected, but I wasn’t too excited about having to chase it down.

Since most people experience an income drop following retirement, this may be an important step in preparing for retirement. Following is the link to the form : https://www.ssa.gov/forms/ssa-44.pdf.

Margaret R. Beck
Margaret Beck  CLU, ChFC, CEBS started her insurance practice in Redding in 1978. As an insurance broker/consultant,  she represents businesses and individuals as their advocate.  She assists in choosing proper products, compliance with complex benefit laws and claims issues once coverage is placed. All information in her column is provided to the best of her knowledge, subject to final regulation by the respective agencies. Questions to be answered in this column can be submitted to info@insuranceredding.com. Beck's column is also published in the Redding Record Searchlight.
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3 Responses

  1. A. Jacoby says:

    I don’t envy tax accountants and tax preparers and all the rest who have to deal with all these formulae! Boggles the mind of we mere mortals!!as!

     

    Thanks for the info . . .

     

  2. Joanne Lobeski Snyder says:

    Thank you for this great article Margaret.  The fact that your client was successful with such a logical appeal is heartening.

  3. K. Beck says:

    Again, thanks for explaining everything in easy to understand form for we mortals! I often pass your information on to my friends, as I will with this article. You are the shining star in the health care fiasco!

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