The government reports that in 2020, based on age, there were 78.9 million people enrolled in either traditional Medicare Parts A and B or in Medicare Part C, more commonly referred to as Medicare Advantage. In addition, the government reports that 47.4 million people get their prescription drug coverage through Medicare Part D. In 2022, these numbers will increase with new enrollees who are moving from their existing individual or group plans into Medicare.
From October 15 through December 7, those on Medicare must decide on which plan they want for the 2022 calendar year. It is the “open season” for change. Certainly, one of the big questions that everyone wants to understand is how much will it cost?
For most people who have paid enough in Medicare taxes while working, Medicare Part A, which generally covers expenses in the hospital, is prepaid and no new premiums are due for this coverage. For those who have not paid enough in Medicare taxes, it is possible to buy Medicare Part A.
Medicare Part B, which generally covers doctor-related charges, is not prepaid. In addition, the cost of Part B is means tested. Higher-income people are assessed a surcharge for Part B coverage. This surcharge is called the income-related monthly adjustment amount (IRMAA).
Understanding IRMAA surcharges
The IRMAA surcharges are based on modified adjusted gross income (MAGI) reported to the government from two years prior. For 2021, the first trigger point for the IRMAA surcharges for single workers starts at $88,000, based on 2019 MAGI. For couples who filed a joint income tax return, the first trigger point is $176,000. These trigger points are adjusted each year and will be different for 2022. The announcement of the new premiums and trigger point surcharges normally happens in November.
As your income increases, IRMAA surcharges gradually increase the cost of Part B coverage. The range of these increases are significant and are done in steps. In 2021, the basic cost of Medicare Part B started at $148.50 a month. The next step increase moved the premium to $207.90. This would apply to married couples with income between $176,000 and $222,000. With higher incomes (married filing joint with income over $750,000) these monthly Part B charges increased to over $500 a month for the same coverage.
The key thing to remember about IRMAA surcharges is that they can be appealed if there has been a life-changing event. Examples of life-changing events include retirement, marriage, divorce, death of a spouse, loss of income producing property, and loss of a pension.
IRMAA surcharges also apply to Medicare Part D premiums for drug plans and are based on the same income ranges as the Part B surcharges. In 2021, the Part D surcharges ranged from $12.30 to $77.10 a month. These amounts will also be adjusted in 2022.
Appealing IRMAA surcharges
There is a special form needed to file an appeal of IRMAA surcharges. That form is SSA-44. Here is a link to that form which is available on the Social Security web site.
If you are a high earner, then understanding how to file an IRMAA appeal is very important. It could reduce the cost of Medicare in a significant way.
Medicare Part A and Medicare Part B both have deductibles and coinsurance built into their design. As a result, private insurers offer Medicare supplement or Medigap plans that pay for these deductibles and coinsurance charges. Medicare supplement plans are offered by many different insurance companies and come with a wide range of premiums and benefits. You must have Medicare Parts A and B to buy a supplement plan. If you have a Medicare Advantage plan you cannot buy a supplement.
Medicare Advantage plans are offered by medical providers and resemble HMO or preferred provider organization (PPO) types of group insurance programs. These Advantage plans are becoming more popular and now often offer extra benefits like prescription drug coverage. The Advantage plans include calendar-year deductibles and coinsurance choices. Generally, the higher the premium for these plans the lower the deductibles and coinsurance.
It is clear that the Medicare decision can be confusing. However, each state working with the federal government, has special free programs that can help make a good decision easier. For example, in Massachusetts, this program is called SHINE. Here is a link to the SHINE web site.
In other states, these programs are often called SHIP for State Health Insurance Assistance Program. These programs offer access to trained volunteers. These volunteers have experience and also have special tools to help you shop for the best plan to fit your needs. Additionally, many insurance and financial professionals are knowledgeable about Medicare programs and can be a great source of information about the choices available to you. (Need a financial professional? Find one here)
When making the decision to move from a high-deductible company group plan to Medicare, there is another thing to remember: If you are currently paying into a health savings account (HSA) and move from the group plan to Medicare, you can no longer pay into the HSA. You can use the HSA to pay medical bills, but new contributions into the plan are not allowed. (Related: HSAs and retirement planning)
The open season for Medicare decisions closes on December 7. Now is a great time to do some benefit and premium shopping. Making this decision is one you will have to live with for a year. It is a good idea to ask for help. It is OK to be confused. Just be sure to make the decision on purpose and not by accident!
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