At the end of each year a large question mark looms around a key expense for households; health insurance premiums. For most, health insurance premiums can be managed by moving between insurance carriers, adjusting coverages, or even relying on government subsidies. But for individuals on Medicare, general expectation is that Part B & D premiums will be similar to last year with a small cost of living adjustment (COLA) added. That is until you receive the letter below showing an additional increase from IRMAA! Who or what is IRMAA?
Income Related Monthly Adjustment Amount (IRMAA) is an amount you may have to pay in addition to your standard Part B and/or Part D premium when your income is above a certain level. Just like Medicare premiums, the income levels adjust from year to year, but for 2021 those levels are:
Part B & D – 2021 IRMAA
|Individual Tax Filers||Married Individuals Filing Joint Returns||Monthly Part B Premium||Monthly Part D Premium|
|$88,000 or less||$176,000 or less||$148.50||Plan Premium|
|> $88,000 – $111,000||> $176,000 – $222,000||$207.90||$12.30 + Plan Premium|
|> $111,000 – $138,000||> $222,000 – $276,000||$297.00||$31.80 + Plan Premium|
|> $138,000 – $165,000||> $276,000 – $330,000||$386.10||$51.20 + Plan Premium|
|> $165,000 – $500,000||> $330,000 – $750,000||$475.20||$70.70 + Plan Premium|
|Greater than $500,000||Greater than $750,000||$504.90||$77.10 + Plan Premium|
This all becomes even more important based on key verbiage in the letter above “IRMAA are based on your 2019 [two years prior] tax return.” Many individuals experience major life events leading up the years they start Medicare (Work Stoppage, Work Reduction, Employer Settlement Payment, Divorce, and/or Marriage) and while on Medicare (Death of a Spouse, Loss of Income-Producing Property, or Loss of Pension Income). As a result, the income of an individual or household may change dramatically when life events unfold.
As an example, let’s examine a hypothetical couple, Tom & Denise. In 2020, after 40 years of hard work, Tom & Denise were excited to retire and begin living off their savings and social security. Their income in 2019, the final year of work, was $350,000, but now in retirement, their adjustable gross income is only expected to be $55,000. When they receive their Medicare Part B premium letter for 2021, they are shocked that their Part B premiums are not $148.50 per month, but $475.20 per month each and their Part D premium is $70.70 per month higher than anticipated. The result is an annual expense of $9,537.60 more than they had planned. After realizing Medicare B premiums are based on tax returns 2 years prior, Tom & Denise also recognize they will experience a similar increase in 2022!
What options do Tom & Denise have, if any?
SSA Form 44 – Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event
In this instance, a frequently overlooked form (SSA 44) could help Tom & Denise avoid just over $19,000 in unnecessary expenses.
If one of the following events is the result of the reduction in income the SSA 44 is a viable option to provide additional income related facts in their determination of Part B/D premiums:
- Marriage-You entered into a legal marriage.
- Divorce/Annulment-Your legal marriage ended, and you will not file a joint return for the year.
- Death of your spouse-Your spouse died.
- Work Stoppage-You or your spouse stopped working.
- Work Reduction-You or your spouse reduced your work hours.
- Loss of Income-Producing Property-You or your spouse experienced a loss of income-producing property not under your control. Examples of this would include disaster, losing property due to arson, fraud, or theft.
- Loss of Pension Income-You or your spouse experienced some sort of disruption (cessation, termination, or reorganization) of an employer’s pension plan.
- Employer Settlement Payment-You or your spouse receive a settlement from your employer/former employer because of bankruptcy.
Section 4 of Form SSA 44 requires documentation of the life event and or income changes listed in sections 1 through 3. Note that evidence of work reduction or stoppage may be difficult. The IRS will accept a signed statement from you (under penalty of perjury) regarding your work stoppage or reduction.
You can call your local Social Security office for instructions on how to submit the SSA-44 and supporting documentation. To find the closest Social Security office to you, go to the Social Security Office Locator and type in your zip code.
During the COVID-19 pandemic, Social Security offices are closed to the public, but are still serving via remote means. By calling the local office, you will receive guidance on the best way to send your SSA-44.
If you have any additional questions regarding IRMAA or the SSA Form 44, your advisor at Innova Wealth Partners will be happy to discuss your specific situation and assist.
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