Avoid a Medicare Trap

Most Americans will sign up for Medicare Health Insurance benefits when they reach the age of 65.  There are a few exceptions, such as those who are still employed and have employer provided medical coverage that far exceeds Medicare Insurance benefits.

Medicare calculates your initial and ongoing monthly insurance payments for Medical Insurance and Medicare Drug plans based on your income as shown on your annual tax filings going back two years.  For example, if you file to receive Medicare benefits in 2021, Medicare will calculate your required monthly payments based on your 2019 income.

Medicare charges their monthly insurance rates based on each recipients Modified Adjusted Gross Income (MAGI).  The MAGI is your total income less certain adjustments such as self -employment insurance and IRA contribution deductions plus tax exempt income excluding itemized deductions or the standard deduction.  When planning for Medicare Insurance be aware of the trap called the Income Related Monthly Adjustment Amount (IRMAA).

Medicare Part B (Medical Insurance) IRMAA Trap

The Medicare minimum monthly premium for Medicare Part B Insurance is $1,782 per year ($148.50 per month) for people who have MAGI of less than $88,000. As this example illustrates below, keep your income below $222,000 to avoid the Medicare IRMAA increase of $1,303.80 per year, a 33% savings in total Medicare premiums.

In the current year, joint filers MAGI is below $222,000, and they pay $2,494.20 per year, ($207.90 per month), not the base pay of $1,782 as is frequently advertised in the news. If the joint filer’s MAGI is between $222,000 and $276,000, they pay $3,564.00 ($297.0 per month), a 50% increase, $1,782 extra per year. For incomes in an even higher IRMAA of above $330,000 they would pay $5,702.40 ($475.20 per month) which is 220% extra cost over the minimum Part B!  When possible, avoid having your MAGI creep up to a higher IRMAA rate on your Part B as shown above.

Medicare Part D IRMAA Medicare Drug Plan Trap

IRMAA affects Part D Drug Plans too.  The Medicare monthly premium for Medicare Part D (Drug Plans) is your plan premium.  Here is an example in which the plan premium is $1,200 ($100 per month) with joint filer incomes for 2021. If your MAGI is between $176,000 and $222,000 you pay $1,347.60 per year ($12.30 +100 per month plan premium). Income between $222,000 and $276,000, and you pay a higher Part D of $1,581.60 per year ($31.80+$100 per month).

Joint filer’s total part B and D premiums with income below $222,000 is $3,841.80 per year ($2494.20+1,347.60). The total extra cost if your income is between $222,000 and $276,000 for Part B and D will be $5,145.60 ($3564.00+$1,581.60), an increase of 33%, $1,303.80.

For more information on Medicare, and Income Related Monthly Adjustment Amount (IRMAA) See the link:

https://www.medicare.gov/Pubs/pdf/11579-Medicare-Costs.pdf

Your questions and comments are welcome regarding these important planning issues.

We are pleased to offer a complimentary meeting to discuss your questions on these important tax and wealth management issues.

This article is for informational purposes only and is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors before attempting to employ any concepts stated herein.

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