‘Tis the Season for Unwelcome News from the Social Security Administration
By the time this article is published, many Medicare enrollees may have already received the Initial Income-Related Monthly Adjustment Amount (IRMAA) determination notice from the Social Security Administration. Every year around the end of November, our clients start asking questions about IRMAA, especially if they are receiving it for the first time.
The purpose of the notice is to let Medicare enrollees know that their Medicare Part B (Medical Insurance) and Part D (Prescription Drug Plan) premiums are increasing for the upcoming year. The notice includes information about how the decision was made, how to request a new initial determination, how to appeal, and specific information about life-changing events that can make the enrollee eligible to request a new decision.
How Is The IRMAA Decision Made?
The Social Security Administration makes IRMAA decisions using IRS data. SSA requests the most recent available Modified Adjusted Gross Income (MAGI) numbers for Medicare enrollees from the IRS annually. If MAGI is above the threshold for the upcoming premium year, the enrollee will receive the notice which explains IRMAA in detail.
Let’s say you received the notice at the end of November 2021. This notice applies to your 2022 premium based on your 2020 MAGI, the most recent available MAGI provided by the IRS. If the IRS doesn’t find a 2020 tax return, they will send your 2019 MAGI to the Social Security Administration.
I retired at the end of 2020 and my MAGI declined significantly in 2021. May I request a new initial determination?
The short answer is yes. Work stoppage (retirement) or work hour reduction are considered eligible life-changing events that allow the enrollee to request a new initial determination. An inaccurate or outdated tax return (due to the filing of an amended return, for example) that SSA might have used can also be a reason for the enrollee to request a new determination. If you are eligible for a new decision, file form SSA-44 before the end of March in the following year.
According to the SSA, there are eight qualifying life-changing events that allow the enrollee to request a new decision:
- Death of spouse
- Divorce or annulment
- Work reduction
- Work stoppage
- Loss of income from income-producing property
- Loss or reduction of certain kinds of pension income
- Receipt of settlement payment from a current or former employer
What if none of the qualifying life-changing events apply to me but I still disagree with the IRMAA determination?
If you have not experienced one of the qualifying life-changing events, you have the right to appeal using a “Request for Reconsideration” form SSA-561-U2. The initial determination notice has instructions about how to appeal.
I have been on Medicare for five years and never received an IRMAA notice until this year. Did I get it because of last year’s Roth conversion?
It is possible. A Roth conversion is a taxable event that increases your MAGI. If MAGI passes the threshold by even one dollar, IRMAA applies for the entire upcoming year. A 2020 Roth conversion could cause 2022 Medicare Part B and D premiums to increase. Keep in mind that if MAGI in 2021 moves back to a level below the threshold, 2023 premiums will adjust accordingly.
In addition to a Roth conversion, many other events can bump the enrollee’s MAGI in a specific year and cause an IRMAA application. Some of these events include:
- Realized capital gains from the sale of property
- Capital gain distribution
- Lottery winnings
- Casino winnings
- Cashing bonds
Those events are not qualifying life-changing events and do not allow you to request a new initial determination. However, you always have the right to appeal.
Ongoing consultation with a qualified financial advisor and tax professional is advisable for those on Medicare. Through diligent monitoring, it may be possible to avoid the IRMAA cliff and the surprises that come with it. Remember that just one dollar over the MAGI threshold could cost a Medicare enrollee a full year of higher premiums.
Important 2022 Medicare Numbers to Keep in Mind:
Part A Costs (Hospital Insurance)
If you’ve worked 10 years or more Free
If you’ve worked 7.5 to 10 years $274
If you’ve worked less than 7.5 years $499
Part B Costs (Medical Insurance)
Standard premium if your annual income is below $91,000 ($182,000 for couples) $170.10
Annual amount $233
For most Part B-covered services 20%
Part D Costs (Prescription Drug Coverage)
The premium varies by Part D plan. $33.37/month base beneficiary premium in 2022
The deductible varies by Part D plan. Up to $480/year