Here’s a riddle: What’s the difference between $107,000 and $107,001? Answer: $974.40, at least that’s how much more that $1 in income will raise your client’s annual Medicare premiums for Part B and Part D in 2013.
For the first 41 years of the Medicare program, everyone enrolled in Part B paid the same premium regardless of income. The Medicare Modernization Act changed that. Best known for creating the Part D prescription drug benefit, it also introduced a sliding scale for Part B premiums based on income starting in 2007.
The Social Security Administration calls this income-based premium IRMAA, for income-related monthly adjustment amount.
The Upshot Of IRMAA
With IRMAA, higher-income beneficiaries pay the standard Part B premium plus an additional amount based on their modified adjusted gross income (MAGI).
The standard Part B premium is set to equal 25 percent of projected program costs, with general revenues funding the other 75 percent. Higher-income enrollees pay a higher percentage of Part B costs. The percentage rises as income rises, with premium amounts that range from 35 percent to 80 percent of the value of Part B coverage.
The Affordable Care Act of 2010 (ACA) contained two provisions that further expanded the reach of IRMAA:
1. It established a new income-related Part D premium that took effect in 2011. The Part D IRMAA uses the same surcharge percentages (35 to 80 percent) and income thresholds as the Part B IRMAA. The surcharge is calculated as a percentage of the national average cost of the standard drug benefit.
2. ACA freezes the income thresholds for IRMAA at 2010 levels from 2011 through 2019.
To return to the case of your client with a MAGI of $107,001: As an individual filer, your client will pay a monthly Part B surcharge of $104.90 and a Part D surcharge of $29.90 (see table). This means that her total monthly Part B premium will be $209.80 and her Part D premium will be the premium for the plan she selects plus $29.90. One dollar less in income and her total monthly Part B premium is $146.90 and her Part D premium is the premium for the plan she selects plus $11.60. That’s a monthly difference of $81.20, an annual difference of $974.40.