The typical person on Medicare will pay at least $289 more in 2022, just for Part B coverage, and double that to $578 for a couple. IRMAA surcharges are also increasing 14.5%.
By David Enna, Tipswatch.com
Just a month after learning their Social Security payments will increase 5.9% in 2022, retirees got some harsh news Friday: Medicare Part B premiums will increase 14.5% next year, to $170.10 a month. Also, the annual deductible for all Medicare Part B participants will increase to $233, up 14.8% from this year’s level.
The Centers for Medicare and Medicaid Services announced the new rates Friday afternoon. CMS also announced new income tiers and costs for Income-Related Monthly Adjustment Amounts, IRMAA for short, that add Part B and Part D surcharges for higher-income participants.
Any day now, if you are on Medicare, you will get a letter from CMS informing you of these new premium and deductible costs for 2022. If you planned poorly, you may be meeting up with IRMAA, and you really don’t want to meet IRMAA. These surcharges can be lofty, so it’s smart to plan ahead to limit these costs.
Let’s dive into the key Medicare changes for 2022.
Part A: Hospital insurance
Most people who reach age 65 go on Medicare Part A, even if they are still working. Medicare Part A covers inpatient hospital, skilled nursing facility and some home health care services. About 99% of Medicare beneficiaries do not have a Part A premium since they have at least 40 quarters of Medicare-covered employment.
Although coverage is generally free, Part A has some sizable deductibles and coinsurance costs, and those will be rising in 2022:
Keep in mind that most people on Medicare have a Medigap or Medicare Advantage plan that will cover all or most of the Part A deductible and coinsurance amounts. For example, all standardized Medicare Supplement (Medigap) plans, A through N, provide coverage for Part A coinsurance, and most also cover all or most of the Part A deductible costs.
Part B: Medical insurance
Medicare Part B can be described as covering “outpatient services,” things like doctor visits, some lab tests, an annual wellness exam, flu shots, diabetes screenings, etc. Medicare Part B generally pays 80% of approved costs of covered services, and you pay the other 20%. Some services, like flu shots and a wellness visit, may cost you nothing.
Part B deductible. Before Medicare pays anything, you have to meet your Part B deductible each year. For 2022, that deductible is increasing to $233, up from $203 in 2021, an increase of 14.8%. Most Medigap plans do not cover this deductible and as of Jan. 1, 2020, Medigap plans sold to new people were not allowed to cover the Part B deductible. But once the deductible is met, Medicare and Medigap plans will cover some or all of your Part B costs.
Part B premium. The Part B monthly premium, paid by all people on Medicare, is rising to $170.10 in 2022, up from $148.50 in 2021, an increase of 14.5%. CMS noted this increase is unusually high, caused by several factors:
- For 2021, Congress put a cap on the Part B premium increase in one of its COVID-19 spending bills, holding the cost increase to just $3 a month. The 2022 increase will recoup some of that lost revenue.
- CMS noted “rising prices and utilization across the health care system.”
- CMS said is building “contingency reserves” due to the uncertainty regarding the potential use of the Alzheimer’s drug, Aduhelm, by people on Medicare. CMS is currently analyzing use of this drug, “which could, if covered, result in significantly higher expenditures for the Medicare program.”
So, for most people in 2022, Medicare Part B is going to cost $170.10 a month for the premium, plus the cost of the $233 deductible. That’s a total cost of $2,274 a year, up from $1,985 for 2021, an increase of 14.6%.
Beware: IRMAA is lurking
Since 2007, a beneficiary’s Part B monthly premium is based on reported income, known as MAGI, or modified adjusted gross income. According to the Social Security Administration handbook, for Medicare’s purposes MAGI is adjusted gross income (line 11 of the 2020 federal income tax form) plus tax-exempt interest.
Here are the 2022 Part B total premiums for high-income beneficiaries, which apply to income reported on your 2020 tax return:
These income-related monthly adjustment amounts affect about 7% of people with Medicare Part B. And it’s important to note that people on Medicare Advantage plans continue to pay the Part B premium, and are also subject to the IRMAA surcharges.
CMS just announced these 2022 IRMAA levels, but they are triggered by income you reported on your 2020 federal tax return. These charges are universally misunderstood. They are called 2022 IRMAA levels, but apply to the 2020 tax return. In other words, when you filed your 2020 return earlier this year, you could not know the income levels that would trigger the surcharges. And a tiny mistake can be very expensive.
When you file your 2021 return next year, realize that you won’t know the relevant IRMAA levels until November 2022, many months after you have filed. It’s a crazy system.
Part D: Drug coverage
IRMAA surcharges also apply to Medicare’s Part D premiums for drug coverage. There is no “standard” Part D premium — the cost you pay depends on the Part D insurer and plan you choose. The IRMAA cost, if any, is added on top of your base premium. People in Medicare Advantage plans don’t pay a separate Part D premium, since those plans include Medicare Advantage Prescription Drug (MAPD) coverage. But Part D is built into Medicare Advantage, and the IRMAA surcharge still applies.
Here are the Part D IRMAA levels for 2022, based on reported income for 2020:
IRMAA can pack a wallop
The IRMAA penalty isn’t a “progressive tax” that ramps up as you go over an income level. Instead, going $1 over the limit is the same as going thousands of dollars over the limit, and incurs the same surcharge. And while the IRMAA surcharges are increasing 14.5% across the board, the IRMAA income tiers only increased around 3%, less than the rate of inflation.
Here is a look at the annual costs of Parts B and D, plus IRMAA, for 2022, based on income reported for 2020:
My advice: Recognize IRMAA and plan for it
It’s worth noting that the first IRMAA tier for both singles and couples is not too daunting. It adds just $965 to the annual costs for a single filer, and $1,930 to the annual costs for a couple. But the next tier up starts to get pricey, increasing annual costs by $2,426 for a single filer and $4,853 for joint filers.
So I think people looking to take capital gains, buy a boat, make Roth conversions, etc., could feel comfortable in hitting that first IRMAA tier. In fact, anyone planning on doing major Roth conversions over a period of time should probably shoot for that level, but not higher, if possible.
Anyone reaching age 63 this year, and everyone already on Medicare, should be paying careful attention to income levels each year. That means tracking capital gains distributions, dividends, pension payments, annuity income, Roth conversions, IRA withdrawals, Social Security income, etc. It’s a lot of work, but can avoid financial pain.
Another key consideration is that Required Minimum Distributions are required from traditional tax-deferred accounts beginning at age 72. If you have sizable holdings in these accounts, you could be facing years of higher Medicare premiums triggered by RMDs. And if one spouse dies, and the surviving spouse inherits tax-deferred holdings, the problem magnifies. The surviving spouse now will file a single tax return, pushing IRMAA costs much higher.
So making some Roth conversions, within reason, before reaching age 72 makes good financial sense. Plus, it’s wise to use tax-deferred accounts for charitable giving, beginning at age 70, when qualified charitable distributions are allowed.
You can appeal an IRMAA ruling
The Social Security Administration has very specific rules that will allow you to get a waiver of the IRMAA surcharge, if you meet certain criteria for a “life-changing event” in 2020, which include:
- Work stoppage
- Work reduction
- Employer settlement payment
- Death of spouse
- Loss of pension income
You’ll need to fill out IRS Form SSA-44 to request the waiver.
The surge in Part B costs was anticipated because of last year’s congressionally-mandated limit, but an increase of 14.5% surprised me. As recently as August, Medicare trustees had projected a smaller increase of $10 from the current $148.50.
The result: A typical person on Medicare will be paying at least $289 a year more, just for Part B coverage. That’s $24 a month, and $48 a month for a couple. In addition, they most likely they will also face higher costs for Part D and Medigap coverage.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
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These changes are hurting people with incomes less than 50k. I wish I was poor or rich, and not in the broken middle
This is elder abuse..
We’re going to raise Medicare premium for people that have worked in this country all their life but we’re going to give you legal immigrants $450,000. Something is very wrong with this picture.
How do they expect seniors like me have to live onLy on social security.with this outrageous increase on part B my monthly payment will be below 1000.00. I will not be able to pay my rent or buy food or pay my other bills
So much for cola increase.wont benefit a gain at all
I retired in 2019 and had my Life-Changing Event that year. I began Medicare in 2020. My income in 2020 exceeded the $176,000 2019 IRMAA bracket but is below the $182,000 2020 bracket. The SSA says I owe IRMAA for 2020. I think it’s a mistake and I plan to appeal. I’ve not been able to find out anything regarding my situation and the SSA rep I spoke to appears to know less than I do. It’s hard to argue the point when you don’t know what the process is. Does anyone here know, or where I can turn to for help? Thank you.
A similar thing happened to me. I was laid off and retired in 2016 and received a buyout. In 2018, the year I began Medicare, I got the IRMAA ding because the buyout pushed me over the 2018 income limit (applied to the 2016 tax return). I appealed. I won. However … it ended up that my wife also got a buyout later in 2018, pushing us up over the first IRMAA limit for income in 2018. I was on Medicare five months in 2018. SSA wrote me in November 2019: “You owe IRMAA for five months of 2018.” I appealed. I emphatically lost.
So the point is, if you have a life-changing event in year one, in year two your income has to fall below the IRMAA limits for year two or SSA will require you to pay IRMAA for the months you are on Medicare in year two. There isn’t a way around this.
(On the other hand, we successfully appealed the 2020 IRMAA hit based on 2018 income, because of my wife’s life-changing event that year.)
So much for a 5.9% cola increase. This is just a small part of increases ie medications, groceries and etc!
Please note that no one is “required” to pay for Part B (or C. or D.). They are voluntary. Part A. is free. Yes, there is a penalty if you do not have coverage, but the enrollment is not mandatory. You can always buy coverage privately. You may find it is unaffordable, but …
Unless you are retired military and have Tricare for Life…then Part B is mandatory.
Is the 2022 3% increase in IRMAA income tiers an outlier or typical of the annual change seen in recent years? Also, how is that change determined…is it tied to any specific economic indicator? Thanks for an excellent review.
DW, great question. A couple of years ago I tried to figure out if there was a method to the tier levels. I couldn’t find anything conclusive. Back in 2007, the first year of IRMAA, the first tier started at $80,000 for a single filer and $160,000 for a couple. Adjusted for inflation (using a November 2007 start point) that would translate into $105,278 for single filers and $210,556 for a couple. Instead, for 2022 we get $91,000 for a single filer and $182,000 for a couple. So the tiers are not tied to U.S. inflation, and they aren’t keeping up with inflation. Result: Wealthier people are having to bear higher costs for Medicare over time. That is probably a wise course, but the SSA should be honest about it.
Income-related monthly adjusted amount (IRMAA) surcharge for Medicare Part B started in 2007 and for Part D took effect in 2011. The Medicare Modernization Act of 2003 (MMA;P.L. 108-173) required the Part B premiums and The Patient Protection and Affordable Care Act (ACA; P.L. 111-148) imposed the premiums for Medicare Part D prescription drug benefit enrollees. Prior to 2010, annual adjustments to the Part B thresholds were based on annual changes in the Consumer Price Index for Urban Consumers (CPI-U), rounded to the nearest $1,000. The ACA also froze the thresholds used to determine high-income premiums for 2011 through 2019 at the 2010 level. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA: P.L. 114-10) maintains the freeze on the income thresholds for the lower two high-income premium tiers but reduces the threshold levels for the two highest income tiers for 2018 and 2019. This was done so that over time, as income—including Social Security benefits—increased with inflation, a greater proportion of Medicare enrollees would pay the high-income premiums. Beginning in 2020, the income thresholds are once again adjusted based on changes in the CPI-U based on the new 2018 and 2019 thresholds. All this detail is spelled out in the Congressional Research Service Report R43962, The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10) and Congressional Research Service Report R40082, Medicare Part B: Enrollment and Premiums.
Great information! Thanks.
David, thanks for continued diligence in helping to follow and understand the changes.
I may have to pay an IRMA surcharge this year because I cashed in a large amount of 30 year EE bonds two years ago(which raised my MAGI) This was a one time increase in my income. and made my income abnormally high. Forthcoming I will not be cashing in 30 year old EE bonds, so my MAGI will decrease and my income will be back to my normal retirement income (below the amount that requires an IRMA surcharge.
Will the IRMA surcharge automatically disappear next year because my MAGI has decreased?
If it does not automatically disappear I am aware that one can do an appeal via SSA form 44 but in looking at that form there is no box to check that relates to a one time increase of income due to cashing in savings bonds as a reason for appealing future surcharges.
Yes, the Social Security Administration will look at each year’s MAGI level. It’s not clear to me if you are paying the IRMAA surcharge currently, or are expecting to pay it next year. But each year, the SSA will adjust or eliminate the surcharge based on your income two years before. So next year’s IRMAA will be based on the 2020 tax return you filed earlier this year. You should be getting the letter verifying that soon.
Thankfully IRMAA goes bye-bye if your following years MAGI keep you outside its grasp.
Me thinks there is a h-u-g-e consequential difference if an unaware senior decides to divest/cashout a large lump for spending needs aware only they’ll pay capital gains, not aware of IRMAA – and affluent person who can easily afford the IRMAA penalty. As for Medicare 2022 increases being outsized, I expected it. Doesn’t make fixed income senior retirement living any easier nonetheless.
Like others, would like the amount of ibond purchases per year to go up by at least double, but our government must have compelling rationale for not doing so. Too bad they don’t share the “why-not” with us though.