2 Reasons Why Your Medicare Bill May Have Suddenly Gone Up (Blame IRMAA)

No one wants their bills to go up. It can be especially distressing if this happens during retirement because you’re already on a fixed income. But it can also be confusing if one of the bills that increases is for Medicare. Isn’t that bill dependent on your income, you may wonder, and why would it go up when your income has remained the same?

The answer is a little more complex than you may have imagined. It’s tied to IRMAA (Income-related Monthly Adjustment Amount), which goes out in November. It’s a notice from Social Security informing you that you have to increase the amount you pay for Medicare.

That includes payments for Parts B and D as well as prescription and medical insurance. So why does this happen?

IRMAA Explained

Higher-income beneficiaries have to pay more to receive Medicare. That’s how prices remain at the correct adjusted level. The level is based off of tax returns from the previous two years, which Social Security looks over.

If your adjusted gross income and your tax-exempt interest income rise above the preset threshold, which is $97,000 for individuals or married people filing separately and $194,000 for joint returns, then you will receive an Annual Determination Notice, which tells you that your payment is heading up in the new year.

So perhaps that explanation is not confusing, but the next part is. What if you didn’t actually change your income level? It could be that something else inflated what the government counts as income.

Two Reasons Your Medicare Payments May Go Up

There are two scenarios in which the amount of money you draw month to month wouldn’t change, but you still get asked to contribute more to Medicare:

· Scenario 1: You convert your 401(k) funds to a Roth IRA. Your income likely spiked that year, after years of remaining the same. That’s because you suddenly have this fresh income source, even though it will go away soon enough as you take the disbursement and decide what to do with it.

· Scenario 2: You sell your home. If you want to retire to, say, an assisted living facility or ranch home, you may sell the home you have lived in for decades and enjoy bonus income that year, though those earnings will not be long-term.

Neither of these is considered a life-changing event. Instead, they are marked as “non-qualifying” events. It means that for a year, recipients will need to pay IRMAA. The good news is that payment may return to its previous level once that year has passed.

What is considered a life-altering event that could impact an adjustment of IRMAA? Social Security will reevaluate if you can provide evidence of something that will truly change your capacity to pay, such as:

· Death of a spouse.

· Annulment or divorce.

· Retirement or another work stoppage, such as getting laid off.

· Reduction or loss of a pension.

Keeping track of what does and doesn’t influence Medicare payment levels can be confusing. Still have questions? Reach out to Jay to get the answers.