• How IRMAA Works: The higher your income, the higher your Part B premium. There are different income brackets, each with a corresponding premium amount. You’ll receive a notice from Social Security if you’re subject to IRMAA.
• Delayed Enrollment Penalty: If you don’t sign up for Part B when you’re first eligible and you aren’t covered by creditable coverage (like employer-sponsored insurance), you may face a late enrollment penalty. This penalty is a 10% increase in your Part B premium for each full 12-month period you could have had Part B but didn’t enroll. This penalty is generally lifelong.

Medicare Part C: Medicare Advantage

Medicare Advantage plans are offered by private insurance companies approved by Medicare. These plans combine Part A and Part B coverage and often include Part D (prescription drug coverage).

• Varying Premiums: Part C premiums vary widely depending on the plan, the location, and the coverage offered. Some plans have $0 monthly premiums, while others can be quite expensive.
• Other Costs: Even with a $0 premium, you’ll likely still have to pay your Part B premium. You’ll also have cost-sharing expenses like copays, coinsurance, and deductibles.
• Factors Influencing Premiums: Premiums are affected by the plan’s network (HMO, PPO, etc.), the benefits offered (dental, vision, hearing), and the geographic area.
• Example: A Medicare Advantage plan in a rural area with limited benefits may have a lower premium than a plan in a major city with extensive coverage.

Medicare Part D: Prescription Drug Coverage

Part D provides prescription drug coverage and is offered by private insurance companies.

• Monthly Premiums: Part D plans have monthly premiums that vary by plan.
• Deductibles, Copays, and Coinsurance: In addition to the monthly premium, you’ll likely have a deductible, copays, or coinsurance for your prescriptions.
• Income-Related Monthly Adjustment Amount (IRMAA): Just like Part B, higher-income individuals pay an additional amount called IRMAA for their Part D coverage. This is determined by Social Security based on your income from two years prior.
• Late Enrollment Penalty: If you don’t enroll in Part D when you’re first eligible and don’t have creditable drug coverage, you may face a late enrollment penalty. This penalty is a percentage of the national base beneficiary premium and is added to your monthly premium for as long as you have Part D coverage.

Understanding IRMAA and How It Impacts Your Premiums

IRMAA, or the Income-Related Monthly Adjustment Amount, is a surcharge added to your Medicare Part B and Part D premiums if your income exceeds certain thresholds. This can significantly increase your healthcare costs.

How IRMAA is Calculated

IRMAA is determined by the Social Security Administration based on your modified adjusted gross income (MAGI) from two years prior. For example, your 2024 IRMAA is based on your 2022 tax return.

• MAGI Calculation: MAGI generally includes your adjusted gross income plus certain deductions that were added back in, like IRA deductions and student loan interest.
• Income Thresholds: The income thresholds are adjusted annually. Social Security publishes the income brackets and corresponding premium amounts each year.
• Appealing IRMAA: If your income has decreased due to certain life-changing events (e.g., retirement, divorce, loss of income-producing property), you can appeal the IRMAA determination. You’ll need to provide documentation to support your appeal.

Strategies to Manage Your Income and Potentially Reduce IRMAA

While you can’t always control your income, there are strategies you can use to potentially manage it and reduce your risk of being subject to IRMAA.

• Tax-Advantaged Retirement Accounts: Contributing to tax-deferred retirement accounts like 401(k)s and traditional IRAs can lower your taxable income.
• Health Savings Account (HSA): If you have a high-deductible health plan, contributing to an HSA can reduce your taxable income.
• Tax-Loss Harvesting: This involves selling investments at a loss to offset capital gains, potentially lowering your overall income.
• Strategic Charitable Giving: Donating appreciated assets to charity can provide a tax deduction and reduce your taxable income.
• Consult a Financial Advisor: It’s always a good idea to consult with a qualified financial advisor who can help you develop a personalized strategy to manage your income and reduce your tax burden.

Ways to Lower Your Medicare Costs

Even though Medicare comes with associated premiums and costs, there are ways to lower them and make healthcare more affordable.

Extra Help (Low-Income Subsidy) for Part D

The Extra Help program, also known as the Low-Income Subsidy (LIS), helps people with limited income and resources pay for their Medicare prescription drug costs.

• Eligibility Criteria: Eligibility is based on income and resources. Social Security determines eligibility.
• Benefits of Extra Help: Extra Help can significantly lower your Part D premiums, deductibles, and copays. It may also eliminate the coverage gap (donut hole).
• How to Apply: You can apply for Extra Help through Social Security.
• Example: Someone who qualifies for Extra Help may pay little to no premium for their Part D plan and have significantly lower copays for their prescriptions.

Medicare Savings Programs (MSPs)

Medicare Savings Programs (MSPs) are state-run programs that help people with limited income and resources pay for their Medicare costs, including Part B premiums.

• Types of MSPs: There are different types of MSPs, each with different income and resource limits: