What you need to know to keep your Medicare Premiums from Increasing
Written by Martin Shields
The surprise that many new retirees find when they start receiving Medicare at age 65 is that their annual premiums will go up if their income increases. This added premium amount is known as Income-Related Monthly Adjustment Amount (IRMAA). These added premium amounts only impact your Medicare premiums for Parts B & D. Your Medicare premiums are based on your income from 2 year ago so your premiums for 2021 are based on your income from your 2019 tax return.
Let’s start with a quick review of how Medicare coverage is divided.
Medicare Part A – This is considered hospital insurance and covers inpatient stays in hospitals and nursing facilities.
Medicare Part B – This is medical insurance and covers visits to doctors and specialists, as well as ambulance rides, vaccines, medical supplies, and other necessities.
Medicare Part C – This part is also known as Medicare Advantage and they are plans offered by private insurance companies approved by Medicare. You must be enrolled in both Part A and Part B to join a Medicare Advantage plan. You’ll still be in the Medicare program, but you will receive your benefits through the plan instead of through Original Medicare.
Plans are required to provide all of the benefits offered by Medicare Parts A and B (except hospice care, which continues to be provided by Part A). Many plans also provide prescription drug coverage and additional benefits like routine dental and eye care.
Medicare Part D. This is the part of Medicare that pays for some of your prescription drugs. Part D plans are purchased through a private insurer.
Next, it’s important to understand how you are charged (premiums) for your Medicare coverage.
Medicare Part A premiums – About 99 percent of Medicare beneficiaries do not have a Part A premium since they have at least 40 quarters of Medicare-covered employment.
The Medicare Part A inpatient hospital deductible that beneficiaries will pay when admitted to the hospital will be $1,484 in 2021, an increase of $76 from $1,408 in 2020. The Part A inpatient hospital deductible covers beneficiaries’ share of costs for the first 60 days of Medicare-covered inpatient hospital care in a benefit period.
Medicare Part B premiums – Each year the Medicare premiums, deductibles, and coinsurance rates are adjusted according to the Social Security Act. The standard monthly premium for Medicare Part B enrollees will be $148.50 for 2021, an increase of $3.90 from $144.60 in 2020. The annual deductible for all Medicare Part B beneficiaries is $203 in 2021, an increase of $5 from the annual deductible of $198 in 2020.
Medicare Part C premiums- The price for Medicare Advantage plans (Part C) greatly varies. Depending on your location, you may have dozens of options, all with different premium amounts. Because Part C plans don’t have a standard plan amount, there are no set income brackets for higher prices.
Medicare Part D premiums – The premiums vary but the national average is $33.06 for 2021 premiums. The deductible also varies but for 2020 it cannot be greater than $435.
In most plans, after spending usually $4,020 in total drug costs, you reach the coverage gap. During the coverage gap you will have to pay 35% of the cost for most brand-name drugs and 44% of the cost for generic drugs. In all plans, after spending $6,350 out of pocket, you will leave the coverage gap and reach catastrophic coverage. During this period, you will pay 5% of the cost for each of your drugs, or $3.60 for generics and $8.95 for brand-name drugs (whichever is greater).
How much will I pay for premiums in 2021?
Most people will pay the standard amount for their Medicare Part B premium. However, you’ll owe an IRMAA if as a single tax filer you make more than $88,000 in a given year or $176,000 if you are married and file jointly.
For Part D, you’ll pay the premium for the plan you select. Depending on your income, you’ll also pay an additional amount to Medicare.
Below are the monthly premium amounts you’ll pay for Medicare Parts B and D for 2021 based on your income from 2019.
| Yearly income in 2019: single | Yearly income in 2019: married, joint filing | 2021 Medicare Part B monthly premium | 2021 Medicare Part D monthly premium |
| ≤ $88,000 | ≤ $176,000 | $148.50 | just your plan’s premium |
| > $88,00–$111,000 | > $176,000–$222,000 | $207.90 | your plan’s premium + $12.30 |
| > $111,000–$138,000 | > $222,000–$276,000 | $297 | your plan’s premium + $31.80 |
| > $138,000–$165,000 | > $276,000–$330,000 | $386.10 | your plan’s premium + $51.20 |
| > $165,000– < $500,000 |
> $330,000– < $750,000 |
$475.20 | your plan’s premium + $70.70 |
| ≥ $500,000 | ≥ $750,000 | $504.90 | your plan’s premium + $77.10 |
What Can You Do To Keep Premiums Lower
- Contributing more to Roth IRAs vs traditional IRAs. This will lower your potential income in retirement.
- For your RMD from your IRAs you can consider making them Qualified Charitable Distributions which will not be considered a taxable distribution and will benefit the charity of your choice.
- Spread out realized capital gains from a taxable investment portfolio over multiple years versus having them occur all in one year.
- Pay for your Medicare premiums from a tax-free Health Savings Account (HSA).
- Unfortunately adding municipal bonds to a taxable account will not work to lower your premiums. Although the income from muni bonds is not taxed at the federal level the income is added back to your Modified Adjusted Gross Income so it would impact your premiums.
- Individuals who are enrolled in Medicare and Social Security have their Part B premiums deducted directly from their Social Security benefits. For the majority of people, there is a hold-harmless provision which protects you by ensuring that the Medicare Part B premiums cannot increase by more than the Social Security cost-of-living adjustment.
This means that if Part B increases by $45 a month each year, but your cost-of-living adjustment only raises your monthly benefits by $35, you save yourself the extra $10 by not having to pay it.
How can I appeal an Income-Related Monthly Adjustment Amounts (IRMAA)?
You can appeal your IRMAA if you believe it is incorrect or if you have had a major change in life circumstance. You can make this change by contacting the Social Security administration or request the appeal.
Below are the reasons your IRMAA can be adjusted:
- Data sent by the IRS was incorrect or outdated
- Filed an amended tax return and believe SSA received the wrong version
- Death of a spouse
- Divorce
- Marriage
- Working fewer hours
- Retirement or Job Loss
- Loss of income from another source
- Loss or reduction of pension
One common IRMAA appeal is when there is a decline in income due to retirement or an individual working fewer hours. For example, if you were employed in 2019 and made $160,000, but you retired in 2020 and are now only making $80,000 from benefits, you could appeal your IRMAA.
Our firm works with our clients to try to minimize any increases in their Medicare premiums. If you have questions regarding this topic, please feel free to reach out to us.