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For high-income Medicare beneficiaries, Part B and Part D premiums will include an additional charge based on your modified adjusted gross income.
Reviewed by our health policy panel.
What does Original Medicare cost?
Q: What does Original Medicare cost the beneficiary? A: Medicare Part A (hospital insurance) is free for most seniors. If you or your spouse worked at least 10 years in a job where you paid Medicare taxes, you're eligible for free Medicare Part A when you turn 65. But Medicare Part B has a premium; most beneficiaries pay $170.10/month for Part B in 2022.
What does Medicare Advantage cost?
Q: What does Medicare Advantage cost? A: Those who enroll in Medicare Part C (Medicare Advantage, sold through private insurers) pay premiums in addition to the $135.50/month that most enrollees pay for Part B in 2019. According to CMS, the average Medicare Advantage plan premium is $28/month in 2019 — the lowest it's been in three years, and is projected to drop to $23/month in 2020. But most Medicare Advantage plans include prescription drug (Part D) coverage, and those plans average $40/month in premiums in 2019.
How do I qualify for Medicare’s Extra Help?
Lower-income Medicare beneficiaries may receive financial assistance through Medicare’s Extra Help program. If you have difficulty paying for prescriptions, the Extra Help program can make prescriptions more affordable than they would be with Medicare Part D alone.
For Medicare beneficiaries who earn over $91,000 a year – and who are enrolled in Medicare Part B and/or Medicare Part D – it’s important to understand the income-related monthly adjusted amount (IRMAA), which is a surcharge added to the Part B and Part D premiums.
IRMAA is determined by income from your income tax returns two years prior. This means that for your 2022 Medicare premiums, your 2020 income tax return is used. This amount is recalculated annually.
You will receive notice from the Social Security Administration to inform you if you are being assessed IRMAA.
The income used to determine IRMAA is a form of Modified Adjusted Gross Income (MAGI), but it’s specific to Medicare. The Modified Adjusted Gross Income is different from your Adjusted Gross Income, because some people have additional income sources that have to be added to their AGI in order to determine their IRMAA-specific MAGI.
It’s important to understand that MAGI for calculating IRMAA isn’t the same as the normal MAGI that you might be accustomed to for non-healthcare purposes, nor is it exactly the same as MAGI for calculating premium tax credits and Medicaid/CHIP eligibility under the Affordable Care Act. Table 1 in this Congressional Research Service brief is useful in seeing how MAGI is determined for IRMAA calculations.
If an individual makes $91,000 or more – or a jointly filing household makes $182,000 or more – then the IRMAA assessment increases the 2022 Part B premium to the amounts shows in Table 1.
|Table 1. Part B – 2022 IRMAA|
|$91,000 or less||$182,000 or less||$170.10|
|$91,000 – $114,000||$182,000 – $228,000||$238.10|
|$114,000 – $142,000||$228,000 -$284,000||$340.20|
|$142,000 – $170,000||$284,000 – $340,000||$442.30|
|$170,000 – $500,000||$340,000 – $750,000||$544.30|
|Greater than $500,000||Greater than $750,000||$578.30|
This level has risen from 2019, when the income requirements were $85,000 and $170,000 respectively. 2020 was the first year that these MAGI income requirements were adjusted for inflation. Going forward, the Modified Adjusted Income requirements will continue to be adjusted by inflation (CPI).
For Part D, the IRMAA amounts are added to the regular premium for the enrollee’s plan (Part D plans have varying prices, so the full amount, after the IRMAA surcharge, will depend on the plan). Note that if you are a Medicare Advantage policy member – and that plan includes prescription drug benefits – then both Part B and Part D IRMAAs are added to the plan premium. (Medicare Advantage enrollees always pay the Part B premium in addition to any premium charged by their Advantage plan.)
The following income levels (based on 2020 tax returns) trigger the associated IRMAA surcharges in 2022:
|Table 2. Part D – 2022 IRMAA|
|$91,000 or less||$182,000 or less||Plan Premium|
|$91,000 – $114,000||$182,000 – $228,000||$12.40 + Plan Premium|
|$114,000 – $142,000||$228,000 -$284,000||$32.10 + Plan Premium|
|$142,000 – $170,000||$284,000 – $340,000||$51.70 + Plan Premium|
|$170,000 – $500,000||$340,000 – $750,000||$71.30 + Plan Premium|
|Greater than $500,000||Greater than $750,000||$77.90 + Plan Premium|
You can appeal the IRMAA determination – filing for a redetermination – if you believe that your calculation is erroneous. In addition, if you have had a life-changing event such as a loss of income or divorce, then you can refile or you can file for a redetermination using Form SSA-44.
If you do not agree with a redetermination, there is a formalized appeal process – the third level of appeal – technically called the Decision by Office of Medicare Hearings and Appeals (OMHA). (Note that this a different procedure from the appeal or grievance procedure when you receive denials of service from Medicare Parts A, B, or D.)
Further complications have been introduced as a result of the newly enacted SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) which was enacted in late 2019. The SECURE Act has a number of different features – such as allowing IRA contributions after age 70½ if you’re still earning an income – and it extends the minimum age that one must receive RMDs (Required Minimum Distributions) from 70½ to 72. Note that those who are already at least 70½ must continue to receive RMDs.
The reason this may be important is that it is possible that delaying receiving RMDs may also reduce IRMAA if your Modified Adjusted Gross Income is close to the limits stated in Tables 1 and 2.
The reason this is important is that people withdraw from qualified funds such as a 401(k), IRA, or 403(b), and these funds are taxable, once they are transferred to your individual checking, savings or brokerage account (assuming the account wasn’t a Roth). The amount distributed is added to your taxable income, so exercise caution when you’re receiving distributions from qualified funds. This additional income will increase your Modified Adjusted Gross Income, and may subject you to higher Medicare Part B and Medicare Part D premiums.
Further, non-qualified funds must also be tracked because of the way that mutual funds capital gains and dividend distributions are made. At the end of every year, many mutual funds distribute capital gains or dividends to those with mutual fund holdings. As a result, people can unknowingly earn more income as a result of investments, and the result can be higher Medicare premiums.
The inverse is also true and now may be more applicable to you: realized capital losses can reduce your MAGI, and could potentially reduce your Medicare Part B and Part D premiums.
We recommend that you speak with a tax planner or financial advisor if you have questions about your specific circumstances, including investment income or your plans to withdraw money from your retirement accounts.
If your income exceeds $91,000 in 2020, your Medicare Part D and Part B premiums depend on your income. And as you can see in the tables above, the additional premiums can be substantial.
Understanding how this works – including what counts as income as far as Medicare is concerned – is a key part of your financial planning. And since the government will base your premiums on your income from two years ago, you’ll also want to have a good understanding of how to appeal an IRMAA determination, in case you experience a life change that reduces your income.
Jae W. Oh is a nationally recognized Medicare expert, frequently quoted in the national press, including on USA Today, Dow Jones, CNBC, and Nasdaq.com, as well as on radio talk shows nationwide. His book, Maximize Your Medicare, is available in print and ebook formats. Jae has appeared as a speaker in front of libraries, companies, as part of college-sponsored programs. The Managing Principal of GH2 Benefits, LLC, Jae is a Certified Financial Planner, Chartered Life Underwriter, a Chartered Financial Consultant, and a licensed insurance producer in multiple states.