THERE ARE TWO THINGS that Americans loathe paying: taxes and health care costs. When those two come together, watch out. That brings us to IRMAA, short for income-related monthly adjustment amount, the steeper Medicare premiums paid by retirees with high incomes. Those who pay IRMAA are often livid about the extra cost. I looked up my Social Security records.
Over my working career, I paid $98,062 in Medicare taxes and my employer paid $97,735, for a total of $195,797. Yes, that’s a lot of money. But my wife, who didn’t have any earned income after 1970 and thus paid minimal Medicare taxes, has incurred bills paid by Medicare well in excess of $300,000.
Many retirees can say the same and most paid far less in Medicare taxes than I did. Keep in mind that the current taxes funding the Medicare hospital trust are inadequate. The trust will run out of money in about four years. The standard Medicare Part B premiums only fund about 25% of the program’s costs. The balance comes from general federal government revenue.
In that context, the IRMAA surcharges don’t seem so terrible. Yet, when I pointed out to a group of retirees that the income-based premiums affected only 7% of retirees, many weren’t impressed. Many also discounted the fact the premiums start at $91,000 for individuals and $182,000 for couples, well above the typical U.S. household income.
Here are some of the replies I received from various Facebook groups:
“I think Medicare and IRMAA are a scam.”
“Considering that all those years I paid the maximum into Social Security and Medicare and now am having Social Security taxed but also having Social Security income increasing my IRMAA, it just wasn’t worth it to me.”
“I consider it a federal fine for being successful.”
Affluent current and future retirees seek ways to avoid or limit IRMAA. One strategy is to fund Roth accounts or to make Roth conversions two years in advance of Medicare. Tax-free distributions from Roths aren’t counted when determining income for IRMAA purposes, but tax-free municipal bond interest is. Go figure.
I think keeping your income low to avoid paying $816 a year more in Part B premiums—that’s the sum if you breach the first IRMAA income threshold—is a losing proposition. But this Facebook commenter didn’t think so: “The last thing you want is to make $1 more than the [IRMAA] bracket. That’s really feeling screwed.”
Yes, IRMAA is a so-called cliff penalty. Even if you’re just $1 above the threshold amount, you get charged the full extra premium for that income level. The premium surcharges could have been better designed. Still, is it so unreasonable for high-income retirees to pay more for Medicare?
Read more by Richard Quinn