Medicare’s IRMAA Blows Ashore in 2018

Medicare open-enrollment season is here again, running from October 15th-December 7th.  During this period, the roughly 45 million Americans enrolled in Medicare have the opportunity to review their current coverage and make changes for the upcoming year.  It’s also the time when Medicare recipients are reminded of the costs associated with their coverage, and how these might change going forward.  And while some costs are expected to remain stable, or even decrease slightly, in 2018 an increasing number of higher-income enrollees will be subject the Medicare’s Income-Related Monthly Adjustment Amount (IRMAA), which increases their Medicare Part B and Part D premiums.

Although the IRMAA adjustment is nothing new, 2018 marks the first year that new Medicare income tiers become effective.  These changes were included in the Medicare Access and CHIP Reauthorization Act of 2015. The law gradually increased the reimbursement schedule for physicians that accept Medicare but introduced new Medicare Part B and Part D income tiers to pay for the fix. These new income tiers significantly reduce the income thresholds used to qualify for the IRMAA and expand the number of people subject to the adjustment.  The income tiers become effective on January 1, 2018, and are based on 2016 Modified Adjusted Gross Income (MAGI).

Tax Filing Status 2017 Income Thresholds 2017/2018 Monthly Part B Premiums 2018 Income Thresholds % Change in Income Thresholds
Single

MFJ

<$85,000

<$170,000

$134.00 <$85,000

<$170,000

0%

 

Single

MFJ

$85,001-$107,000

$170,001-$214,000

$187.50 $85,001-$107,000

$170,001-$214,000

0%
Single

MFJ

$107,001-$160,000

$214,001-$320,000

$267.90 $107,001-$133,500

$214,001-$267,000

(16.56%)
Single

MFJ

$160,001-$214,000

$320,001-$428,000

$348.30 $133,501-$160,000

$267,001-$320,000

(25.23%)
Single

MFJ

More than $214,000

More than $428,000

$428.60 More than $160,000

More than $320,000

(33.61%)

(25.23%)

The income levels in the top three income tiers have decreased significantly in 2018, resulting in higher Medicare Part B premiums for many retirees. High-income singles will be most affected by this bracket tightening, with those earning more than $160,000 subject to the highest Medicare Part B premium rates. While not escaping unscathed, married couples fare somewhat better in that the income threshold reductions in percentage terms are consistent across the top two tiers.

It’s worth mentioning that the IRMAA was established by the Medicare Modernization Act of 2004, and the Part D income-related premium was introduced in the Affordable Care Act of 2010 as a way to shift Medicare program costs to higher income participants. Monthly Part B and Part D premiums paid by participants represent a percentage of the program costs that are incurred. The table below shows the MAGI thresholds and percentage of Part B program costs they cover.

Tax Filing Status 2017 Income Thresholds % of average per capita costs covered 2017 2018 Income Thresholds % of average per capita costs covered 2018
Single

MFJ

<$85,000

<$170,000

25% <$85,000

<$170,000

25%
Single

MFJ

$85,001-$107,000

$170,001-$214,000

35% $85,001-$107,000

$170,001-$214,000

35%
Single

MFJ

$107,001-$160,000

$214,001-$320,000

50% $107,001-$133,500

$214,001-$267,000

50%
Single

MFJ

$160,001-$214,000

$320,001-$428,000

65% $133,501-$160,000

$267,001-$320,000

65%
Single

MFJ

More than $214,000

More than $428,000

80% More than $160,000

More than $320,000

80%
 Source: Kaiser Family Foundation: Medicare Part B and Part D Income-Related Premiums Before and after 2018.

Medicare Part D drug plan premiums are a mixed bag: the pain will continue for some of these same individuals who, depending on their income, will see sharp increases in the income-related adjustment amount applied to their Medicare Part D drug plan premiums.

Because there are fewer participants in Medicare Part D than in Medicare Part B, fewer participants pay the Part D IRMAA. In addition, Part D premiums vary from plan to plan and are calculated by comparing each plan’s approved Part D bid to the national average monthly bid amount. The base premium covers 25.5 percent of per capita program costs and is set at $35.02 for 2018- down slightly from the 2017 base premium of $35.63. IRMAA adjustments in the table below reflect an increase over that base premium.

Tax Filing Status 2018 Income Thresholds 2017 monthly income-related adjustment 2018 monthly income-related adjustment % Change
Single

MFJ

<$85,000

<$170,000

$0 $0 0%
Single

MFJ

$85,001-$107,000

$170,001-$214,000

$13.30 $13.00 (2.26%)
Single

MFJ

$107,001-$133,500

$214,001-$267,000

$34.20 $33.60 (1.75%)
Single

MFJ

$133,501-$160,000

$267,001-$320,000

$34.20 $54.20 58.48%
Single

MFJ

$160,000-$214,000

$320,000-$428,000

$55.20 $74.80 35.51%
Single

MFJ

More than $214,000

More than $428,000

$76.20 $74.80 (1.84%)

Those impacted may find some solace that the standard Part B premiums are expected to remain stable for 2018, and average Part D drug plan premiums will decline slightly.  In addition, there is a steep discount on brand-name drugs during the coverage gap (also known as the doughnut hole). Medicare participants should closely examine the Annual Notice of Change (ANOC), which includes participant-specific information based on one’s prescription drug regimen. The ANOC is prepared by the participant’s Part D drug plan provider and should be received by September 30th.

Medicare participant and their professional advisors should be aware of these changes and how they may impact overall medical costs and cash flow.  Some simple tax planning designed to lower your modified adjusted gross income may help mitigate the impact of these increases in future years, while those that have experienced a major life-changing event, such a retirement, change in marital status, death of a spouse or loss of pension income, may file Form SSA-44 to appeal the income-related adjustment.

Given the potential impact on high earners, planning for the IRMAA may provide tax-savvy advisors with an opportunity to save their clients significant amounts of money in the years to come.

Sincerely,

forblogs_jm_head

John Male CFP®, RICP®

The Gassman Financial Group

G&G Planning Concepts, Inc.

9 East 40th Street, 5th Floor

New York, NY 10016

T| (212) 221-7067 Ext. 113

F| (585) 625-0830

www.gassmanfg.com

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