In 2023, the premium for Part B, medical insurance, is going down by $5.25, to $164.90. After last year’s hefty increase, Medicare beneficiaries are relieved. With that drop, higher-income beneficiaries will be even more relieved.
Since 2007, higher-income beneficiaries have paid more for Part B (in addition to the monthly premium) because of IRMAA, the Income-related Monthly Adjustment Amount. Social Security uses a special modified adjusted gross income (MAGI) to identify those subject to IRMAA. The MAGI is the total of tax-exempt interest and adjusted gross income from the income tax statement of two years prior. (In some cases, Social Security may use the statement from three years ago.) When that MAGI crosses the threshold, Social Security sends a “welcome to the IRMAA club” letter, the initial IRMAA determination notice.
There are two initial thresholds:
- One for married individuals filing a joint return, and
- A second one for single filers and married individuals filing separate returns. (The couples must have lived apart all year.)
After crossing the threshold, there are five tiers or levels of additional amounts that are paid on top of the Part B premium. Since 2020, the thresholds have been adjusted for inflation.
IRMAA is pegged to the Part B premium. When the premium goes up so do the amounts higher-income beneficiaries pay. For example, in 2022, when the Part B premium jumped almost $22, IRMAA amounts increased by $8.60 at the lowest tier up to $51.80 at the top tier.
For the first time since 2012, beneficiaries will pay less. There are two reasons for this. (Find Part B IRMAA information for 2023 here.)
- The thresholds will increase. The threshold for single filers and married individuals filing separately will be $97,000, up $6,000. For married individuals filing joint returns, the threshold increases by $12,000, to $194,000.
- The adjustments by tier will decrease. For example, the adjustment for Tier 1 is $65.90, down from $68 in 2022. The top tier, with income greater than or equal to $500,000/$750,000, will be $395.60 compared to $408.20.
These savings can add up.
A couple reporting $300,000 will each pay an additional $272.20 every month for Part B IRMAA in 2022, a total of $6532.80. In 2023, their $300,000 income will put them in Tier 2, instead of Tier 3. They will pay $164.80 for a total of $3955.20 and savings of $2,577.60.
A widow with a fixed retirement income of $95,000 will pay $816 this year. With the increase in the threshold, she will not be subject to IRMAA in 2023 and will have to pay only the standard Part B premium.
Part D IRMAA
Since 2011, higher-income beneficiaries who have Part D prescription drug coverage, either through a stand-alone plan or a Medicare Advantage plan, have paid more for this coverage. Even though the same thresholds and tiers apply as for Part B, there won’t be the same savings. In 2023, the decrease in Part D IRMAA will range from $0.20 to $1.50. (Check out the 2023 Part D IRMAA amounts here.)
That’s because Part D IRMAA is pegged to the national Part D base beneficiary premium. (CMS calculates this every year and it also serves as the basis for Part D late enrollment penalty calculations.) These national base beneficiary premiums have hovered around $33 for the last few years.
IRMAA Q&As
IRMAA can be a confusing topic. Here are some frequently asked questions.
Is there anything you can do to get out of paying IRMAA?
To request a new initial determination, meaning you ask Social Security to reduce or eliminate the adjustments, you must experience a life-changing event, generally within the last year. When one of these happens, causing income to drop, the beneficiary can ask Social Security for a new determination, meaning he will pay IRMAA based on the current year’s income, not what he had two years ago.
What are these life-changing events?
Social Security recognizes eight events, the most common ones being work stoppage, work reduction, divorce, and death of a spouse.
Is selling your house a life-changing event?
This may be a life-changing event for you, but Social Security does not recognize it as one for IRMAA purposes. If you sell your house after retirement, you’ll likely pay IRMAA on that income in two years.
Must my retired spouse pay IRMAA if income from my employment exceeds the threshold?
Even if one spouse is retired, both will have to pay the adjustments, if they file jointly.
Do you pay IRMAA if you have a Medicare Advantage plan?
Yes, you do. You must be enrolled in Part B to qualify for a plan. If your income meets the threshold, you will pay.
There are actions you can take, such as Roth conversions, to help reduce income that would be subject to IRMAA. But, even with the best planning, you should prepare yourself psychologically for a potential shock. You won’t know the IRMAA threshold that will apply until after the year ends and your planning is finished.
Here are five take-away tips.
- Pay attention to any notices you receive from Social Security.
- Be aware of IRMAA and the two-year lookback.
- Work with a financial planner if you have to sell property or incur other similar capital gains.
- If you experience a life-changing event, take timely action.
- And, enjoy the brief respite from the endless cycle of rising Medicare costs.