New top tier added for ultra-high-income
retirees next year
Nov 20, 2018 @
11:03 am
Each winter, the
calendar is filled with predictable holiday milestones: Thanksgiving, Black
Friday, Cyber Monday, Giving Tuesday and for high-income clients, Irritating
IRMAA Day.
If you're not
familiar with that last one, you will be when your retired clients call to
complain that they just received a letter from the Social Security
Administration notifying them that because of their income, they will pay more
for Medicare next year. Letters were sent to affected Medicare beneficiaries
this week.
Since 2007,
Medicare beneficiaries whose income exceeds $85,000 for individuals and
$170,000 for married couples have been required to pay an income-related
monthly adjustment amount surcharge, known as IRMAA, in addition to their
regular monthly Medicare premiums. The IRMAA surcharges apply to both Medicare
Part B, which covers outpatient services and doctors' fees, and Medicare Part D
prescription drug plans.
Normally, Medicare
Part B premiums and IRMAA surcharges are deducted directly from monthly Social
Security benefits, resulting in a smaller net Social Security benefit. But
people who are not yet claiming Social Security or are not eligible for Social
Security are billed directly by Medicare.
In 2019, most of
Medicare's 60 million beneficiaries will pay the standard Part B premium of $135.50 per month, up
slightly from this year's premium of $134 per month. But about 3 million
high-income retirees will pay additional monthly surcharges ranging from $54.10
to $325 per month per person for Medicare Part B next year. The surcharges for
each of the income tiers are a few dollars higher than last year. IRMAA
surcharges for 2019 are based on 2017 federal income tax returns filed in 2018.
Those same
high-income retirees are also subject to monthly surcharges on their Medicare
prescription drug plans, ranging from an extra $13 per month to an extra $74.80
per month per person on top of their monthly premium.
Medicare drug plans
are run by private insurers. Costs of Medicare D plans vary widely, but the
average premium is expected to be about $32.50 per month in 2019, down slightly
from this year, according to the Centers for Medicare and Medicaid Services.
Starting in 2019, a
new top surcharge tier was added for very high-income beneficiaries, defined as
individuals with modified adjusted gross incomes (MAGI) of $500,000 or more and
married couples with MAGI of $750,000 or more. These new top-tier surcharges
apply to both Medicare Part B and Medicare Part D drug plans.
The following table
shows the combined impact of monthly Medicare Part B premiums and surcharges
for 2019 based on tax filing status and modified adjusted gross income in 2017.
MAGI includes adjusted gross income plus any tax-free interest from municipal
bonds.
2019 premium and
IRMAA surcharges for Medicare Part B
Income brackets based
on 2017 federal income tax returns
|
TAX
FILING STATUS 2017
|
TAX
FILING STATUS 2017
|
TAX
FILING STATUS 2017
|
YOU
PAY IN 2019
|
|
Individual
|
Married, Joint
|
Married, Separate
|
Premium + IRMAA
|
|
$85,000
or less
|
$170,000 or less
|
$85,000 or less
|
$135.50
|
|
$85,001 - $107,000
|
$170,001 - $214,000
|
Not Applicable
|
$189.60
|
|
$107,001-$133,500
|
$214,001-$267,000
|
Not Applicable
|
$270.90
|
|
$133,501-$160,000
|
$267,001-$320,000
|
Not Applicable
|
$352.20
|
|
$160,001-$500,000
|
$320,001-$750,000
|
$85,001-$415,000
|
$433.40
|
|
>$500,000
|
>$750,000
|
>$415,000
|
$460.50
|
For example, a married couple in the new top income
bracket who are both are enrolled in Medicare would pay more than $11,000 for
Part B premiums and surcharges in 2019, plus more than $2,600 for prescription
drug coverage.
In addition, they
would need to buy a supplemental Medigap policy to cover annual deductibles and co-payments. That
could cost another $7,800 for two spouses based on the average price of Plan F,
the most popular Medigap policy. That would bring the couple's total
out-of-pocket medical costs to more than $21,000 next year before they see a
doctor or fill one prescription.
How to Appeal a
Surcharge
In some cases,
clients can appeal a Medicare premium surcharge if they have
experienced a life-changing event that caused their income to decrease or if
they can prove the income information that Social Security used to determine
the IRMAA premium is incorrect or outdated.
Social Security
considers any of the following situations to be life-changing events: the death
of a spouse; marriage, divorce or annulment; retirement or reduced work hours
for one or both spouses; loss of income-producing property due to natural
disaster; or loss of a pension.
However, a one-time
boost in income as the result of the sale of a vacation home, a large portfolio
distribution or a Roth IRA conversion would not qualify as a life-changing
event and would boost the clients' Medicare premium for at least a year. If the
clients' income subsequently declined, so would their Medicare premiums two
years later.
The nonprofit
Medicare Rights Center offers a free downloadable guide that helps financial advisers
assist their clients to appeal Medicare premium surcharges.
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