At a recent conference, I had a conversation with James, a sales representative from Florida, about Medicare. He is retiring this fall and has decided he’s going to get a Medicare Advantage plan. I asked him how he came to his decision and he replied simply, “I don’t want to pay all that money for Medicare.”
By all that money, he was referring to the Income-related Monthly Adjustment Amount, IRMAA for short. (This is not Irma, the hurricane, because it has two As but if you don’t know about it, you could face a financial tempest.) Higher-income beneficiaries pay more for Part B, medical insurance, and Part D, prescription drug coverage, in the form of monthly adjustments.
Social Security determines who will pay IRMAA based on the IRS tax return two years prior to the current year. Because James plans to retire this year, Social Security will review two elements on his 2020 tax statement, adjusted gross income and tax-exempt interest income, to determine whether he must pay the adjustments. The threshold for a married individual filing a joint return, like James, is $182,000. Because he has figured out he will be at the top level, he would pay an additional $408.20 every month this year, on top of the Part B premium of $170.10. That comes to almost $7,000 in a year. Even though he could afford it, James questions why he should pay it when he can just get a Medicare Advantage plan.
I don’t relish those moments when I have to blow up someone’s Medicare plans, but I did it again. I told James that, in order to get a Medicare Advantage plan, he first had to enroll in both Part A, hospital insurance, and Part B. He gave me an “are you sure” look. He did all this research so how could I be right? I am right because I have studied all the rules. The second sentence in Understanding Medicare Advantage & Medicare Drug Plan Enrollment Periods reads, “You must have Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) to join a Medicare Advantage Plan.”
Before he had a moment to recover, I told him that, if the Medicare Advantage plan included prescription drug coverage, he would have to pay Part D IRMAA. In his situation, that would be an additional $77.10 a month. He said he could just skip drug coverage because he was healthy. He didn’t realize that if he ever needs drug coverage and changes his mind, he’d face a Part D late enrollment penalty, one that would follow him for life.
James just shook his head as he walked away. He will have to pay IRMAA whether he goes with the Original Medicare Path (a Medigap policy and Part D drug plan) or Medicare Advantage. Now, he just needs to take a deep dive into his options and investigate networks, coverage rules, costs including out-of-pocket maximums, and his ability to make changes down the road. To his credit, James started the process early—he still has time to figure things out.