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I’M AMAZED BY the opinions expressed by some retirees about the Medicare premium surcharge known as IRMAA, short for income-related monthly adjustment amount. Is it really unfair for higher-income older Americans to pay larger premiums for Medicare Part B and Part D? Many people think so.
IRMAA was part of 2003’s Medicare Modernization Act and took effect in 2007. The threshold at which IRMAA kicks in for a couple is four times higher than the median household income for Americans age 65 and older. Yet here are just two—out of many—complaining comments I saw on Facebook. Both have been slightly edited:
The idea of taking more from some taxpayers—or giving more back to them—based on income is hardly unique to Medicare. The federal income-tax code is progressive, meaning those with higher incomes pay a higher percentage of their income in taxes. Similarly, the Affordable Care Act subsidizes health insurance based on income. (A digression: Those subsidies don’t always seem to go to the right people. Two bloggers I’ve come across report a seven-figure net worth—and yet they pay less than $40 a month for family health insurance coverage.)
Moreover, roughly 25% to 30% of large employers charge employees for health insurance premiums based on their salary level. At my old employer, we structured retiree premiums based on a combination of years of service and salary. Nobody seemed to complain about that.
The federal government subsidizes Medicare premiums. IRMAA merely reduces the size of that subsidy for some Medicare recipients. According to Medicare’s trustees, about 4.8 million beneficiaries paid a Part B IRMAA premium, or about 8% of Medicare Part B recipients.
More than half of Americans feel the wealthy don’t pay their fair share in taxes. Yet it seems that many retirees, even though they have an income that’s four times or more the average, don’t think they should be considered wealthy.
Progressive tax policies should be implemented in a straightforward way. Doing so via Medicare during and after working years is a stealth tax masking the fact that income-receiving wealthy pay well over 40% of their incomes to the federal government and, in some states like mine, well over 10% to the state and local governments. Essentially, those that receive pure income can pay significantly higher taxes than we would in the most progressive Scandinavian nations.
The dearth of articles on the relative value of Part B for IRMAA payers is interesting. Most articles are written by the insurance industry with a huge vested interest in collecting IRMAA Part B premiums. For relatively healthy individuals, paying the annual $6000 penalty for a doctor’s visit or two, a common drug or two, and a vaccination or two can be irrational. Doom and gloom articles from the government and industry bring up highly exceptional circumstances and gloss over the fact that one later may sign up for Part B the first quarter of a year and pay a the 10% per year penalty on base Part B costs for years Part B was foregone. I am healthy and doing opting out of Part B. My costs for doctor visits, drugs and vaccinations last year were $359.
I have to admit that I get bummed about the IRMAA premium. Part of my issue is that I really don’t earn that much money, but I am required to take RMD. Both my wife and I are avid savers and worked fairly late (I retired at 71 and she is still working at 75). So the government requires me to take money out of retirement (changing largely capital gains to income) that I don’t really need so that I can pay higher tax rates than Warren Buffett and pay a premium for health insurance that I hardly use. Saving and staying healthy are better than the alternative, but it is not a great deal from a taxing standpoint. In retrospect, I should have transferred more money to a Roth when I was younger, but with two incomes, I always hated to pay more taxes. All in all, I don’t mind paying to help others, but the required nature of it makes me feel that I am living to pay taxes.
I paid a significant amount of medicare insurance surcharges during my working years and will now have to pay higher insurance premiums for the same service. This hardly seems fair but the government trying to grab as much money as it can in the most politically sneaky way is hardly new. Anything above the base premius is definitely tax policy in disguise. About 50% of Americans don’t pay any income taxes. While the super-rich don’t pay much in taxes, the average high income wage earner in a Blue state pays 40% -50% of their income in taxes. The politicians protect the super-rich who fund their political campaigns with plenty of tax loopholes.
I view my Medicare premiums and my Social Security together, since my Medicare premiums are automatically deducted from my Social Security payment each month. The Social Security Administration tells me each year what I can expect to get – the gross amount and then the net amount. That’s what I really care about.
I accept that IRMAA makes Medicare a means-tested program. (And I agree with the commenters who claim that this was a tax policy advocacy piece.)
But IRMAA also effectively makes the net amount I get (Social Security minus Medicare premium) an income-based sum, too. More than how IRMAA itself is used now, I fear this may become a back door to making Social Security itself a means-tested program.
I will not be popular but have to admit that after paying medicare taxes on my entire income to get the same services as people who paid significantly less and then being asked to pay more again because I was a diligent saver feels wrong. I believe in charity but when the government takes it, that’s a tax and this feels like double taxation. I already paid for many many years of premium via payroll deductions. Still, it’s not a great deal unit one of those life events happens and then, when I can least afford it, it will be.
I too paid Medicare taxes on my wages and also on the future value of one of my pensions, but my wife and I have collected much more in health care.
I was single during my working years and it would take me over 15 years to utilize my premiums assuming the cost of purchasing basic medical insurance with no ACA help. My husband can make the same claim. My father-in-law is 103 and I do not believe he had to pay into Medicare during his working years. As with the loss of pensions, things have gotten worse for the middle class over the last 20+ years. We have no pensions after our combined 70+ years of work. Our financial existence has been based on aggressive savings and that came with some sacrifices. As with most things, our perspective is based on our particular vantage point.
Love your articles.
@R Quinn – Re your seven figure blogger with a high ACA subsidy, you seem to be confusing means testing via income with means testing via net worth.
I’m sure there are plenty of retirees who have a seven figure net worth and still have a low enough income to make them eligible for a high ACA subsidy. I’m one of them. And I’m not looking forward to being forced to switch to Medicare in two years – I’m sure I’ll be paying a lot more than I am now.
If your (anticipated) RMD puts you into an IRMAA surcharge situation, and you do some tax planning before year end, a good way to avoid the (next) IRMAA is to make some sizable charitable bequests from your IRA, lowering your countable income. A true win-win, for both you and the charity!
How many readers would prefer eliminating Medicare plus that pesky IRMAA surcharge and selecting either self-pay or private health insurance as the replacement – hands?
Forget about self-pay or private. How about eliminating Medicare and moving everyone to ACA?
We’re on ACA for next few years until my wife hits 65; and I’m dreading what the cost of Medicare will be when I sign up two years from now. I suspect it will be signficantly more than what our ACA premium is.
Anyone who knows anything about health care and paying for it will be sitting on their hands. To suggest Medicare can be replaced by self-pay or by private insurance is being out of touch. No one on Medicare would want that and why would they?
My point, exactly!
This article, “Angry at IRMAA”, isn’t financial information. It’s an opinion piece about tax policy. First such article I’ve seen at HumbleDollar.
I hope it is the last one.
Not tax policy at all. Ask people affected and see if they see IRMAA premiums as a financial matter.
I just hope to be lucky enough to have to pay those higher IRMA charges. It will mean a very high retirement income. Of course I’ll do what I can to moderate my taxable income, but I suspect there’s little I can do to change the tax characterization of 30 years of contributions materially over the course of the next decade or so.
Well written article, thanks Mr Quinn!
“The idea of taking more from some taxpayers—or giving more back to them—based on income is hardly unique to Medicare”
Didnt you mom tell you when you were a kid that just because someone else is doing it doesn’t make it right?
It is the right thing to do. See Ocher’s comment.
What puts me into IRMAA territory are RMDs. I have no choice about taking them, and have no problem with paying tax on them, but paying IRMAA as well feels like double taxation.
But IRMAA is insurance premiums.
Not technically a tax, correct. But certainly feels like one.
Dick, Harold, Rick, with respect to the seven changes (death of a spouse, marriage, divorce or annulment, work reduction, work stoppage, loss of incom from income producing property, loss or reduction of certain kinds of pension income), Medicare still looks at full years of MAGI. For example, my employment changed in February 2021, and Medicare B & D did not start until March 2021, but, Medicare looked at all of my wages for 2021 in determining IRMAA.
I appealed to have Medicare exclude income earned and paid prior to starting Medicare B & D, but they rejected my appeal.
I also appealed to have Medicare exclude income earned prior to starting Medicare, but paid after Medicare B & D started (deverance, bonus, etc.) – but, they rejected my appeal.
Worse, the tax was implemented with retroactive effect, penalizing those Americans who gave up higher incomes in exchange for defined benefit pensions and employer financial support in defined contribution plans.
My wife and I had to pay IRMAA during the first year of retirement. While it was a surprise, I understanding the value of progressive taxation and subsidies for healthcare. In the long run I value the importance of good, affordable healthcare for all retirees – and all citizens. While hard work certainly factors into lifetime earnings, so too does the family and community into which we were born. None of us had a hand in choosing our families or our staring point in life. For those of us who are fortunate enough to be able to retire comfortably, having a smaller subsidy than others is a small price to pay to ensure that healthcare is more affordable for all.
As soon as I saw IRMAA in the article title, I thought to myself here we go again. I do think the title is a little off. Most of those affected are not angry at IRMAA, they are angry at the implementation of IRMAA. Quick list of stupid implementation issues: 1) publicizing the thresholds almost a year after threshold-based financial decisions must be made, 2) cliff thresholds, 3) the MAGI calculation.
Publicize the thresholds in the same tax year they must to be used for decisions. Just use reasonable estimates. It is better to have them known in time to be used than to be absolutely precise.
Cliff thresholds? Seriously? Perhaps they were written using a quill pen.
Yes, a means-test should include all current real income, earned and unearned. A Roth conversion is not current real income. Including it in gross income for the purpose of collecting deferred income tax is an accounting convenience. Including it in the IRMAA MAGI results in saved income from perhaps 20 or 30 years ago being used as a current means-test.
Our IRMAA experience: We paid an IRMAA surcharge in 2022. This was due to a small Roth conversion in 2020. When I was running the numbers I think I conflated the IRMAA MAGI with the Roth IRA contribution MAGI and ended up over a cliff. The emotion I would use to describe this is: Perplexed at IRMAA.
This is a good point. With computers, it would be easy enough to make it a non-cliff – OK, you have to pay IRMAA, so your monthly premium will have added ,45% of the amount you made over $97K. Each payer would have a custom IRMAA amount.
I’m guessing using income estimates that are then adjusted in subsequent years would not make people happy either.
I have done large IRA to Roth conversions the past 3 years that triggered IRMAA premiums and Part D increases for my wife. Since Medicare Part B is subsidized, I do not have a problem with it. In fact, I do not know why anyone would complain about it because their income has to be high to have to pay it.
I agree. In order to pay even the first level of IRMAA A single person must have income more than $97,000 ($194,000 married) and they pay less than $70 extra per month.
Intriguing article Dick. Coincidently, I had 2 separate conversations this past week on IRMAA. In both cases, the person had a large, one-time income event which led to very large IRMAA’s 2 years later. They were surprised at the large (~$500 per person) amount of the IRMAA. In one case the couple’s income returned to their lower, steady state value which completely eliminated their IRMAA the following year. Even though IRMAA is frequently discussed on HD, many of our fellow retirees are seemingly unaware of it, and especially how it works. When a company structures health insurance rates based on current income, the connection feels more real. Basing IRMAA rates on income from two years previous breaks that connection and makes it harder for retirees to understand (at least the retirees I’ve spoken to).
I have read of the appeals (reconsideration) process in HD and I have personal experience with it. It works and it is not terribly difficult. Key points are significant life changes… There are 7 qualifying life-changing events:
Death of spouse
Marriage
Divorce or annulment
Work reduction
Work stoppage
Loss of income from income producing property
Loss or reduction of certain kinds of pension income
These are acceptable reasons to reset the earnings expectations and lower IRMAA. Moving into retirement, I found my income dropping…”Work Reduction” in the reconsideration jargon. I have found the Social Security administration surprisingly responsive to my requests. I would suggest that you prepare your appeal in writing ASAP after receiving your initial IRMAA determination.
Yep, I did the same thing and had my previous employer provide a letter that confirmed that I retired. Got credits for the next year for those IRMAA premiums I had paid. The appeals process works, you just have to provide the right documentation and have perseverance dealing with the SS administration (in person works best).
No doubt you are right Rick, being unaware gets people into trouble all the time. Of course, without the delay CMS couldn’t calculate premiums before year end for following year.
Equally confusion is simply defining income ie MAGI. I don’t get the fairness of some of that either.
Thanks for another good post. I don’t complain about the IRMAA surcharge, but then I don’t complain about RMDS, either. A combination of hard work and luck has given me more retirement income than many.
Refreshing attitude 👍
Dick – Let’s not forget that the IRMAA Part B surcharges are not the only Medicare related progressive funding from a tax. Wages are taxed at 1.45% with higher income workers incurring an additional 0.9% premium. Likewise, higher income taxpayers now incur a 3.8% surcharge on investment income as well as the Part D IRMAA surcharges.
I sense that people are more frustrated with the tax-code complexity and the myriad of incremental and non-transparent stealth taxes than they are with the concept that higher-income taxpayers should pay more.
Perhaps John, but more often I think they focus on what affects them. But you are right, the tax code and the more or less hidden taxes are very frustrating.
Mr. Yeigh makes many good points –
would add that the 3.8 Pct tax is
really noxious because its starting
point is not indexed to inflation.
As to Mr. Quinn, I am not sure
why he keeps returning to this
issue over and over again.
I have argued two points in the
past –
a) double taxation
b) retirees have few defenses
against long term wealth losses –
witness recent inflation – and should
not be subjected to special costs
that may deprive them of needed
funds as they age
Comparing retirees to
working age populations who pay
premiums in pre tax dollars is
not appropriate.
Jonathan – pls try to locate a public
policy specialist who can render
a fair opinion about this matter.
So lets take it to the next level. At the grocery store people with “four times the average income” should pay more for their groceries. Or gas. Or housing. Or electricity and water. Then the other way. Let’s means test Social Security. Let’s look at the balances in your IRA’s and 401k’s and take some of that via taxes to make certain of the “fair share”.
Where does it stop and who decides?
Social Security already uses a form of means testing in that the benefit formula favors lower income workers providing a higher benefit percentage on lower earnings.
Your taxes from any source are already adjusted based on income.
Keep in mind too that without IRMAA the Part B premium for lower income retirees would be higher. When I retired my employer premiums were based on my salary at the time. That seemed fair to me.
The difference is that Richard’s example above just reduces the government subsidy. (As pointed out by the commenters below.)
Reduction in subsidy vs paying higher premiums the net impact is the same: someone is being treated differently because of their income. One is FORCED to pay into Medicare all of one’s life and, if you play by the rules, work and are a successful saver, you wind
up getting penalized for your success. Let’s remember Medicare is not a program for the poor, it is a
program for the ELDERLY.
During my working years I paid $97,803 in Medicare taxes, employer likewise. Since I retired, my wife (who didn’t work) and I have received well over $300,000 in claim payments.
All those premiums just covered just Part A of Medicare and premiums are still inadequate to cover costs. Parts B and D are funded by premiums and general revenue.
What would you do if not FORCED to pay Medicare? Penalized seems a strange word. No Medicare is not for the poor, but would you have the lowest income pay more for their insurance?
Thanks, Richard, for reminding us that everyone on Medicare is subsidized, whether or not they have IRMAA premiums. A welcome gift, to be sure.
Agree. I liked this way of putting it: “The federal government subsidizes Medicare premiums. IRMAA merely reduces the size of that subsidy for some Medicare recipients.”
Let’s remember that the federal government has no money without tax payers . We are subsidizing ourselves with our own tax money.
Taxing success will not bring more success. Other things that are taxed heavily seem to have the quantity reduced by taxes(cigarettes). I have to not enjoy my withdrawals due to the taxes on various income increases.
Dan, the article states:
Don’t dismiss the apparent opinions of most commenters here that we should be grateful to our benevolent federal government for “subsidizing” us. Apparently IRMAA is just a reasonable, charitable donation by the privileged.
And, remember as the article states:
LOL, who can argue with that? It’s democracy.