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What are Medicare income limits?
Medicare beneficiaries with incomes above a certain threshold are charged higher premiums for Medicare Part B and Part D. The premium surcharge is called an Income-Related Monthly Adjustment Amount, or IRMAA. Here’s our overview of how IRMAA works.
In 2021, IRMAA surcharges apply to individual Medicare beneficiaries who earn more than $88,000, and to couples who earn more than $176,000. For 2022, these limits are projected to increase to $91,000 and $182,000, respectively.
The IRMAA limits are based on income earned two years prior to the coverage year in question, since that’s the last income tax return that the IRS has on file. So a person enrolling in Part D coverage for 2022 would pay an IRMAA surcharge if their 2020 tax return shows an income in the surcharge range (but there’s an appeals process people can use if they have experienced a life change that has reduced their income since then).
Although very few Medicare beneficiaries pay IRMAA surcharges, the effect on premiums is significant for those who do. The standard Part B premium in 2021 is $148.50/month. But for those subject to IRMAA, the Part B premium ranges from $207.90/month to $504.90/month. And for Part D, the IRMAA surcharge amounts to an extra $12.30/month to $77.10/month, in addition to the regular premium for the plan you select.
Why does Medicare impose income limits?
The higher premiums for Part B took effect in 2007, under the Medicare Modernization Act. And for Part D, they took effect in 2011, under the Affordable Care Act. Medicare premiums cover only a small fraction of the cost of providing coverage, and the IRMAA rules were created to ensure that beneficiaries with the means to do so are required to pay a larger share of the cost of their coverage.
Beneficiaries’ premiums only cover about 26% of the cost of Part B, and about 17% of the cost of Part D (and that’s with IRMAA surcharges in effect for beneficiaries with high incomes). Most of the cost of Part B and Part D is covered by general revenues, and the IRMAA surcharges help to spread that cost to beneficiaries who can afford to pay a larger share of the cost of their coverage.
Who is affected by the IRMAA surcharges and how does this change over time?
There have been a few recent changes that affect high-income Medicare beneficiaries:
- In 2019, a new income bracket was added at the high end of the scale, for people earning $500,000 or more ($750,000 for a married couple). Prior to 2019, the highest income bracket was $160,000+ ($320,000+ for a married couple). But in 2019, the new income bracket meant that a beneficiary earning $500,000+ would be paying a larger premium than someone earning $160,000.
- 2020 was the first year that the income thresholds for IRMAA surcharges were adjusted for inflation. Prior to that, it started at $85,000 and that number had been unchanged since the program began. But starting in 2020, the thresholds were adjusted for inflation, with the low-end threshold increasing to $87,000 for a single person.
- In 2021, the IRMAA thresholds were indexed again, with the low-end threshold increasing to $88,000 for a single person. So a Medicare beneficiary whose 2019 tax return showed an income above $88,000 would be paying the IRMAA surcharge for Part B and Part D in 2021.
- For 2022, the projection is that the IRMAA thresholds will start at $91,000 for a single person and $182,000 for a married couple.
Will there be a rate increase in 2022?
We don’t yet have concrete details from CMS. But the Medicare Trustees Report, which was published in late August, projects that the standard Part B premium will be $158.50/month in 2022. (People subject to IRMAA will pay more).
CMS has projected that the average Part D premium will increase slightly, to $33/month, in 2022. But there is always significant variation in Part D premiums from one plan to another, so there are a wide range of options for enrollees.