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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.