Meet MAGI and IRMAA

At first glance, you might think this is an article dedicated to my enduring aunts, donning their masks, insisting on coming to visit for the holidays. Actually, this is to introduce you to two enduring terms you will likely encounter in calculating Part B and D premium costs when helping employees decide to “stay” on a group plan or “go” to Medicare.  The terms go hand-in-hand in helping to determine Medicare premiums for some higher-income earners. The Medicare Architects™ can help with simplifying these discussions. 

• MAGI refers to the modified adjusted gross income, a figure commonly used to identify tax breaks or eligibility for certain IRA contributions. It’s calculated taking the total of your household’s adjusted gross income plus any tax-exempt interest income you may have (these are the amounts are on lines 37 and 8b of IRS form 1040). For the purpose of Medicare Premiums Parts B & D however, MAGI is used to determine if earnings entitle the Medicare Beneficiary to additional costs to their premiums.

• IRMAA refers to the income-related monthly adjustment amount a Medicare beneficiary will pay in addition to the standard Medicare Premiums for Parts B & D based on their MAGI.

Will I be subject to a surcharge?

In calculating eligibility for a surcharge (IRMAA), Social Security considers the beneficiary’s income TWO years prior to the effective year’s date of coverage. So for January 2021, MAGI is looked at from 2019. 

The IRMAA adjustment is added as a way to increase the cost-sharing responsibility of the beneficiary if they are a high-income earner. Medicare assumes they can afford to offset some of the Medicare costs based on their higher income.

IRMAA is composed of 6 income brackets. For 2021 the Lowest MAGI income bracket is  $88,000 for individual earners or $176,000 for joint earners. Someone with MAGI over those figures would pay an additional surcharge with their Part B & D Premiums. This surcharge is re-evaluated each year and adjusted.

We have a helpful tool on our website called the  Stay or Go Analysis™️ that does plan comparison math with IRMAA calculations for you. 

What if the income increase was due to a unique circumstance?

There are eight specific ‘life-changing events’ Medicare will consider in reducing or removing the surcharge but a beneficiary would need to file an appeal for this consideration and back it up with documentation. Events considered are listed below, but additional discussion with a Certified Medicare Planner® might identify other opportunities for appeal:

• Death of a spouse;
• Marriage;
• Divorce or annulment;
• Work reduction — retirement or reduction of hours worked;
• Work stoppage;
• Loss of income from an income-producing property due to a disaster or event beyond a person’s control;
• Loss or reduction of certain kinds of pension income; 
• Employer settlement payment.

The Medicare Architects recommend that employees initiate discussions with their CPA, financial planners, or Certified Medicare Planners® prior to Medicare eligibility to ensure communication about future earnings and discretionary accounts are maintained to avoid annual surprise income surcharges to their Medicare premiums. Very few people think about income from two-years ago impacting what they will pay for Medicare when they get ready to enroll.

Early Medicare education and planning discussions with Certified Medicare Planners®  could help save employees from unexpected fees. By supplying expert resources you provide options for a confident transition to Medicare and potentially identifying savings on their costs.

Consider working with a team of Certified Medicare Planners ® to guide Medicare discussions with your employees. Contact us to learn how we are guiding other HR partners and their employees.

Give your employees personal guidance from a team of experts that will follow them after they retire.

Ready to get started?
Check out our blog weekly for new resources, and helpful tips and tricks to build your Medicare transition strategy.

Your Medicare Transition Partner
– Lora