Medicare IRMAA Is it a Big Deal?
Retirees who generate too much income while in Medicare are learning about IRMAA the hard way, but is it a big deal?
IRMAA which is short for Medicare’s Income Related Monthly Adjustment Amount (IRMAA) is a surcharge on top of your Medicare Part B and/or Part D coverage if you happen to earn too much income during the year,
In simpler terms IRMAA is yet another tax on your income and the ramifications of it, if the federal government is too be believed, will be greater than what you may have planned for.
Now, before deciding if IRMAA is a big deal or not, maybe we should look at what the federal government is saying about it as the federal government is responsible for creating this tax in the first place.
The Federal Government and IRMAA:
IRMAA was created in 2003 through the passing of the Medicare Modernization Act. The passing of this tax was justified as a way to offset the loss of revenues attributable to the Hold-Harmless Provision.
The Hold-Harmless Provision states that no individual that is collecting Social Security while also being on Medicare can experience their Social Security benefit decreasing because of a too high of an increase in Medicare Part B premiums on an annual basis.
Simply put, the Hold-Harmless Provisions ensures that if your Social Security benefit doesn’t increase your Medicare Part B premiums can’t increase either.
Your Medicare premiums can only grow as high as your Social Security COLA annually and your Social Security benefit can not decrease..
Unfortunately, IRMAA changes all of this.
According to legislation that Congress enacted, those who reach IRMAA are no longer afforded the protection of the hold-harmless provision.
If you are in IRMAA and there is a little or no cost-of-living increase (COLA) to your Social Security benefit there is a distinct possibility that your benefit will decrease from the year before
Looking at the big picture, IRMAA helps the federal government in multiple ways and without it there is a good chance that both Medicare as well as Social Security will go insolvent at a much faster rate.
By placing an IRMAA surcharge on top of a person’s Medicare Part B and Part D premium annually the Medicare program can generate even more revenue to help offset the costs of running the program.
The other added benefit of IRMAA is that it also helps Social Security too, as all surcharges are automatically deducted from any Social Security benefit a retiree may be collecting.
As IRMAA increases your Medicare costs, Medicare gets to collect more money from you while Social Security gets to pay out less…this is known as a win-win for the government, but also a lose-lose for you if you have been heeding the advice from the financial industry.
Why IRMAA is a must have for the federal government:
According to the 2023 Medicare Board of Trustees Report in just a few more years, there will be more people enrolling into Medicare and Social Security than there will be people paying taxes to help fund both programs.
As the United States population is growing older the entitlements that retirees are depending on are running out of reserves. IRMAA is just one more way to ensure that these programs will be available.
The notion that IRMAA would just disappear is completely laughable if not criminal, especially if the person saying it is receiving a fee for financial advice.
The future of IRMAA according to the Federal Government:
Today, the costs of IRMAA could be defined by some as not being that big of a deal. On the surface the total annual surcharge amount, depending on which IRMAA threshold you reach, could result in you paying under $2,000.000 extra for your Medicare coverage for the year.
Too many this may be a small price to pay for the luxury of having access to Medicare, but for some others, the thought of having to pay more just because you have more is somewhat egregious at best.
The annual surcharges for a couple who reached IRMAA In 2023 are:
| 2023 IRMAA Surcharges | |||||
| 1st Bracket | 2nd Bracket | 3rd Bracket | 4th Bracket | 5th Bracket | |
| Couple | $1,876 | $4,714 | $7,623 | $10,488 | $11,442 |
As stated above and by many financial professionals these surcharge amounts may not be a major concern for those who enter IRMAA, but the question you have to ask your self is:
When was the last time the Federal Government, when t came to taxing your money, ever changed the rules to be in your favor?
Before you answer that question you may want to look at what the Medicare Board of Trustees are projecting for the future.
Medicare Board of Trustees future projections of IRMAA:
According to the Trustees in the 2023 Report the IRMAA surcharges will inflate by about 7.40% on average, annually, through 2032.
The Part B surcharges will grow on average per year, by 6.30% in each IRMAA Threshold while the Part D surcharges will grow by close to 8.50% and fluctuate within each Threshold.
For those of you reaching just the 1st IRMAA Threshold your Part D surcharge will wind up inflating by more than 11.00% while the next 4 Thresholds decrease to a point where the 5th IRMAA threshold will only inflate by 7.48%.
How expensive these IRMAA surcharges will be all comes down to two things:
- The amount of income you will have in retirement.
- Meaning, the more income you have the more you will pay for Medicare.
- And, the more you pay for Medicare the less Social Security you will get.
- How high the federal government must increase Medicare premiums to ensure the solvency of the program.
- Remember there will be more people on Medicare than there will be working and paying for Medicare.
- Now, ask yourself: “Which member of Congress will tell the public that Medicare is going insolvent because they wanted to protect retirees who have too much money?”
By 2032, according to the Trustees, the IRMAA surcharges, per bracket and per couple, will total:
| 2032 IRMAA Surcharges | |||||
| 1st Bracket | 2nd Bracket | 3rd Bracket | 4th Bracket | 5th Bracket | |
| Couple | $3,491 | $8,491 | $13,645 | $18,698 | $20,384 |
Again, for many financial professionals the thought of their clients paying an extra $13,645 if they reach the 3rd IRMAA threshold is not even registering, but how many people will actually care?
The answer to that question may be a few because everyone has an extra $13,000 to give to the government and no one really cares about their money…right?
This IRMAA problem compounds further as there are two other issues that must be addressed:
- The cost of healthcare is increasing, not decreasing, daily and demographics dictate this will remain the same for years to come.
- The Trustees are projecting that the Medicare inflation rates, on average, will remain constant for the foreseeable future.
In 2043 the projected costs for a couple reaching IRMAA, if everything remains constant, will total:
| 2042 IRMAA Surcharges | |||||
| 1st Bracket | 2nd Bracket | 3rd Bracket | 4th Bracket | 5th Bracket | |
| Couple | $6,807 | $16,572 | $26,627 | $36,491 | $39,781 |
If a couple, due to improper planning, generates enough income to be consistently in the 1st IRMAA bracket throughout retirement (ages 65 to 90) they will pay a total of over $123,000 in surcharges.
Here is a breakdown of the remaining IRMAA brackets and what a couple will pay in total through retirement if legislation remains constant (remember you pay IRMAA each year):
- The 1st IRMAA Bracket they will pay over $123,000 in IRMAA surcharges.
- The 2nd IRMAA Bracket they will pay over $300,000 in IRMAA surcharges.
- The 3rd IRMAA Bracket they will pay over $480,000 in IRMAA surcharges.
- The 4th IRMAA Bracket they will pay over $660,000 in IRMAA surcharges.
- The 5th IRMAA Bracket they will pay over $720,000 in IRMAA surcharges.
How do we know this? Well again, the federal government tells us what they are expecting in terms of the amount people reaching IRMAA will pay.
According to the 2022 Medicare Board of Trustees Report the Trustees are projecting that between 2023 to 2031 over $355 billion will be collected from those who reach IRMAA.
By 2031 over 13.5 million seniors will be subject to IRMAA which is a 9.5% increase per year since IRMAA was first implemented back in 2007.
Yes, IRMAA started 15 years ago…has your financial professional ever mentioned it?
IRMAA is a much larger problem than anyone in the financial industry has yet to even address. It will increase your Medicare costs and decrease your Social Security benefits forcing you to have to withdraw even more money out savings risking your retirement.
If you have assets in a Traditional 401(k), IRA, and or a 403(b) the odds that you will eventually reach IRMAA at some point in retirement is greater than anyone will tell you.
