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Strikes Me as Fair

Richard Quinn, 12:43 pm ET

THE FEDERAL government’s Centers for Medicare and Medicaid Services just announced the new income-based Part B and Part D premiums for 2022. Many people aren’t happy.

Next year’s basic Part B premium jumps to $170.10 a month, in part because Congress artificially limited this year’s premium increase to only 25% of the true amount. It’s time to play catchup—and deal with rising health care costs.

But a small group of seniors will pay more than $170.10 a month—sometimes much more. At issue is IRMAA, short for income-related monthly adjustment amount, the Medicare premium surcharges for higher-income retirees. In 2022, these surcharges start at a modified adjusted gross income of $91,000 for single individuals and $182,000 for couples.

Like most people, I dont like paying more than I have to for anything. But let’s be realistic: The median household income for Americans ages 65 to 74 is $46,360 and, for those over age 74, it’s $54,058. For a couple to pay IRMAA premiums in 2022, they need an income that’s more than three times these medians.

I, too, would like to be paying only the standard Medicare Part B premium. But what I like more—and truly appreciate—is being in such an enviable position that I have to pay a lot more for Medicare than the vast majority of my fellow seniors.

If you’re one of those Americans who supports the fair share rhetoric directed at the super-wealthy, keep in mind this principle should apply to everyone. Most out-of-pocket health care costs, and even most health care insurance premiums, are highly regressive. They dont care how much you earn. A young family with modest income can have a $5,000 deductible and pay $500 a month in premiums, just like the wealthy family two towns over. Seniors have good health care coverage and, overall, relatively modest costs. Why not make Medicare premiums a bit progressive?

Call me naive, but I don’t think it’s right for well-off older Americans to employ financial strategies that avoid or minimize IRMAA premium surcharges—things like doing Roth conversions in their 50s and early 60s, so their modified adjusted gross income later looks modest for IRMAA purposes.

Among some Facebook groups I follow, people are obsessed with IRMAA and view it as unfair—something to avoid as a part of retirement planning. My contention: We may not like those extra Medicare premiums taking a chunk out of our Social Security check—but they strike me as fair.

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David Lamb
David Lamb
15 days ago

I agree that “We may not like those extra Medicare premiums taking a chunk out of our Social Security check—but they strike me as fair.” But I also think it is fair “to employ financial strategies that avoid or minimize IRMAA premium surcharges—things like doing Roth conversions in their 50s and early 60s, so their modified adjusted gross income later looks modest for IRMAA purposes.”

Why not? It’s avoidance not evasion.

Will Wiener
Will Wiener
17 days ago

Not a matter of comparing retirees
Of different income levels. It is a matter
of thinking clearly about the funding of
social insurance like Medicare and
Obamacare in relation to all of the
funding sources available at the Federal
level.
As to the “40 years to prepare argument”,
I don’t think any of us could have easily
foreseen years and years of zero interest
rates, not to mention the record debts and
the Fed balance sheet explosion.

R Quinn
R Quinn
17 days ago
Reply to  Will Wiener

I see that as having little to do with accumulating assets for ones retirement. For most of those 40 years the growth would have and should have come from equities, not interest.

Even in the last 12 years, bond interest rates were of little consequence to most investors. My 401k is now 60% higher than on the date I retired in January 2010 and that is is after seven RMDs have been taken and with 40-50% of the investment in bond funds and the balance in index funds.

Even if the last 12 years are an anomaly surely the last forty were not. If a couple in retirement in 2021 has an income of $192,000 they are well positioned.

Record debts and the fed balance sheet likely will have an impact, but apparently not yet.

So, back to basics. Yes, I would like to have the extra IRMAA premiums I pay in my pocket. In fact, because of no RMD in 2020 my bracket is likely to be lower next year. On the other hand, a person with an income several times that of the great majority of retirees paying $170.10 for Medicare has nothing to complain about because of income based premiums IMO.

There is one aspect of the process I do see as unfair. That is, Roth earnings being tax-free are excluded from MAGI while municipal bond interest also tax free are included in MAGI. In theory at least the low bond interest results in a economic good for governments, the Roth does not.

Will Wiener
Will Wiener
17 days ago
Reply to  R Quinn

This is not a matter of anyone’s
personal situation or their success
as investors in the past. Would ask
you to focus on the risks related to
the future which could present
very significant challenges –
much lower returns and much
higher inflation. In this context,
cannot look favorably on IRMAA
and Obamacare taxes in relation
to retirees. (Obamacare threshold
is not even indexed to inflation)

Totally agree with your comments
on the Roth exclusion. Outrageous.

Have never seen a forecast of the
impact of Roth accounts on long term
revenues of the Federal government.
Seems to me it could be profound.

Will Wiener
Will Wiener
17 days ago

I would say “not fair at all”
why?
Affluent retirees paid high taxes to support
Part B recipients throughout their
working lives, They are still paying
through the graduated income tax for
Part B. Charging them extra premiums
feels like double taxation. You can argue
that even in the highest bands,some
subsidy is provided but let’s face it,
it is not much.
Generally speaking, retirees have limited
defenses against adverse market conditions
such as artificially low interest rates and
inflation. As a result, they should not face
extra burdens like premium surcharges
and Obamacare investment taxes which
might impair their financial condition
over time. Being affluent at 70 does not
mean you will still be affluent at 85.

Also IRMAA charges are only tax
deductible under very limited conditions.
why is it OK for health care premiums
to be deductible for corporations and
a tax free benefit to employees ( not
to mention FSA’s and HSA’s available
to employees) but have no deduction
for IRMAA ?

As to the 14.5Pct premium increase, it
has been indicated that it is related
significantly to Biogen’s alzheimer
drug – this puzzling as Biogen’s
2022 forecast for sales of the drug
are less than 1 billion dollars.

R Quinn
R Quinn
17 days ago
Reply to  Will Wiener

I’d call that a rather selfish view my self, but that just me.

Limited defenses? Their (our) defenses are no different than anyone else and by the way we had 40 years or so to prepare for the retired life and since we are talking about people in this case who are in the top 20% or less of income earners – they have no excuse not to be prepared.

That new drug – not yet approved for Medicare- is part of the story where reserves are building up, the other parts are the artificial holding down of premiums this year and generally higher spending.

Fact is there is a link to what we all want – or should be, so who pays more the retired couple living mostly on Social Security or the couple with a $200,000 income? Or doesn’t it matter?

James McGlynn CFA RICP®
James McGlynn CFA RICP®
18 days ago

Richard thanks for the link to my article on Roth conversions and IRMAA. I think I have one more lump sum I will be doing in December and paying a 25% rate to do so. Seeing how rapidly Medicare premiums rose (14.5%) and the means-tested IRMAA rates tied to that is another incentive. Just as the combined Medicare tax rate of 2.9% with no ceiling on income is a tax so is the additional .9% ACA surcharge on income over $200000. The 7% of IRMAAA payers have already been taxed on their income once. The surcharge for IRMAA sure seems like a tax to me. Eventually Congress will use “fairness” arguments to tax Roth accounts-it seems inevitable even though I paid taxes on them. I can justify Roth accounts and conversions much easier than 529 plans which never pay taxes and only benefit the wealthy. A topic for another time.

R Quinn
R Quinn
18 days ago

I see the standard Part B premium as a premium and can’t see how IRMAA premiums are any different – premiums. The reality is that any tax value under any law benefits those in higher tax brackets. HSA, HRAs, Roth etc.

Some large employers use income based premiums. Is this really any different except the IRMAA can be avoided?

When i retired part of my pension was non-qualified and i had to write a check for $16,000 to pay Medicare premiums on the value of a pension no matter how long i actually collect it Fair? I guess.

Ocher
Ocher
18 days ago

My wife and certainly don’t enjoy paying the IRMA surcharge, but we realize that we are incredibly fortunate to be in our current financial position in retirement. Hard work, luck, and being born into families that were able to provide the support we needed to launch our careers contributed to our current financial situation. I don’t want my fellow seniors to struggle with health care costs in retirement while we have more than enough to meet our basic needs, contribute to charitable causes, and provide occasional support to our adult children and their families.

Last edited 18 days ago by Ocher
R Quinn
R Quinn
18 days ago
Reply to  Ocher

👍🏼

corrupt
corrupt
18 days ago

Call me naive, but I don’t think it’s right for well-off older Americans to employ financial strategies that avoid or minimize IRMAA premium surcharges—things like doing Roth conversions in their 50s and early 60s, so their modified adjusted gross income later looks modest for IRMAA purposes.”

I’ll call you naive. The rules for what is and isn’t income are well known, and as long the conversions (IRA to Roth) are legal, I will take advantage of them. To do otherwise is to encourage even more waste than the government is currently wasting. If my not paying additional taxes means the government doesn’t have money to waste determining why lesbians are fat or encouraging trannies in Afghanistan, I’m ok with it.

R Quinn
R Quinn
18 days ago
Reply to  corrupt

Government is government and always will be. And citizens are citizens, they want more and more from government and still have the objective of avoiding paying for as much as possible of what they want.

Hey, I take advantage of every legal way to minimize taxes, who doesn’t, but if you take it to the logical conclusion where are we?

In this case, if everyone paying IRMAA premiums were successful avoiding them, the most logical outcome is the basic Medicare premium everyone pays would go up to make up the lost revenue – or there is a new revenue source created.

The point here was is it unfair to expect higher income retirees to pay a greater share of their health insurance costs? Is it?

Harry Crawford
Harry Crawford
18 days ago
Reply to  R Quinn

And what scares me about a new revenue source is Value Added Tax. In Europe, most countries have VAT and they start at about 20%. Imagine all current taxes plus another tax called VAT of 20%.

Ormode
Ormode
18 days ago

Most of the problem is with the cliffs. If your income was $113,999 in 2020, you pay one thing, but if it was $114,001, you pay much more.
Surely it would be possible to come up with a formula that gradually increases the premiums for each payer – the government does have computers that can perform calculations.
Of course, if you are a single retiree with an income over $180K, then you don’t have to worry until you hit $500K, giving you plenty of room to take more income without having to watch your step.

Andrew Forsythe
Andrew Forsythe
18 days ago

Let me ask a basic question to Dick, or Jonathan, or anyone who knows the answer. IRMAA income brackets are listed by year, but if you’re actually paying a surcharge, it’s typically based on your income tax return from 2 years previous.

So which IRMAA bracket applies to 2021 income—the 2021 $176,000 amount (for a joint return), or is it rather the not-yet-announced 2023 amount?

Jonathan Clements
Admin
Jonathan Clements
18 days ago

Your 2021 income will be subject to the brackets that prevail in 2023. The 2022 brackets that were just announced will be applied to your 2020 income.

Andrew Forsythe
Andrew Forsythe
18 days ago

Jonathan, thank you kindly.

Luckless Pedestrian
Luckless Pedestrian
19 days ago

The penultimate paragraph of this thoughtful and provocative essay takes direct aim at Mr. McGlynn’s 10/27 HD article. It will be interesting to see if he responds.

Jonathan Clements
Admin
Jonathan Clements
19 days ago

On this one, I’d defer to Judge Learned Hand’s 1934 opinion: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Dick may be right on the ethics. But I’d have a hard time quibbling with someone who thought otherwise.

R Quinn
R Quinn
18 days ago

No doubt about it that everyone has the right within the law to minimize taxes – that’s everyone, many people seem to forget the everyone part.

What I find objectionable with regard to IRMAA is the view the income based premiums are unfair. These are premiums, not taxes though and I think that’s a significant difference.

An
An
18 days ago
Reply to  R Quinn

How does the Medicare portion of payroll taxes turn into prepaid Medicare Part A premiums?

R Quinn
R Quinn
18 days ago
Reply to  An

Do you pay premiums for Part A? You pay premiums -equal to about 25% of total cost – for Part B which is actually voluntary and for Part D.

Medicare is funded in several different ways. Designated income taxes, general revenue, payroll taxes and premiums.

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