Let me start with a little history. With the introduction of Part B in 1965, the government established a practice where the enrollee would pay about 25% of the total cost, with the government subsidizing the remainder.
In an effort to slow down rising costs to the government, Congress passed the Medicare Modernization Act of 2003. This included a provision where Medicare Part B enrollees whose income fell above a certain threshold would have to pay for a greater share of the Part B costs. The Income-related monthly adjustment amount (or IRMAA) lifts the Medicare Part B premium from covering just 25% of costs up to as high as 80% of costs depending on your income level.
NOTE: To avoid confusing matters even more than is necessary, this post focuses on the Part B premiums. It is important to know that a similar IRMAA surcharge applies to Part D premiums as well.
Part B premiums (and the level of subsidy) is determined by the enrollees income. This is usually based on the last two years of income reported by the IRS to Medicare.
NOTE: There are provisions in place that allow you to appeal your income levels used in the IRMAA test. For more information, see www.Medicare.gov or the pamphlet “Medicare Premiums: Rules for Higher-Income Beneficiaries” published by the Social Security Administration.
Your income level will fall within one of five tiers: Baseline, Tier 1, Tier 2, Tier 3 and Tier 4.
Those enrollees whose income fell below the IRMAA threshold ($85,000 for a individual tax return and $170,000 for a person filing a joint return) are subject to the baseline premium charges, meaning that you will continue to be subject to about 25% of Part B program costs. This yields a rate of $134 per month in 2018.
NOTE: About 95% of all Medicare Part B enrollees fall into this income class and are not impacted by the changes in tier levels for higher income earners.
Those who fall into the highest earnings tier ($160,000 for individual filers and $320,000 for joint returns in 2018) are subject to Part B premiums covering about 80% of total program costs resulting in a monthly cost of $428.60.
The big change for 2018 is that the income levels that determine which tier the enrollee falls into have been changed.
2017
| Individual Returns |
Joint Returns |
|
|---|---|---|
| Baseline | $85,000 or less | $170,000 or less |
| Tier 1 | Above $85,000 up to $107,000 | Above $170,000 up to $214,000 |
| Tier 2 | Above $107,000 up to $160,000 | Above $214,000 up to $320,000 |
| Tier 3 | Above $160,000 up to $214,000 | Above $320,000 up to $428,000 |
| Tier 4 | Above $214,000 | Above $428,000 |
2018
| Individual Returns |
Joint Returns |
|
|---|---|---|
| Baseline | $85,000 or less | $170,000 or less |
| Tier 1 | Above $85,000 up to $107,000 | Above $170,000 up to $214,000 |
| Tier 2 | Above $107,000 up to $133,500 | Above $214,000 up to $267,000 |
| Tier 3 | Above $133,500 up to $160,000 | Above $267,000 up to $320,000 |
| Tier 4 | Above $160,000 | Above $320,000 |
As shown in the above chart, the income levels that determine the Baseline and Tier 1, have not changed. The cap for Tier 2 has been reduced from $160,000 (individual filer) for 2017 to $133,500 for 2018. Tier three now begins at $133,500 and is capped at $160,000. Tier 4 now begins at $160,000, the level that was the starting point for Tier 3 in 2017. Those with incomes ranging above $133,500 (individual) and $267,000 (joint) are subject to significant Part B premium increases in 2018.
The actual premium levels and rates of subsidy by tier are shown below:
| Tier | Individual Tax Return | Joint Tax Return | Married With Separate Tax Return | Monthly Premium |
|---|---|---|---|---|
| Baseline | $85,000 or less | $170,000 or less | $85,000 or less | $134.00 |
| Tier 1 | Above $85,000 up to $107,000 | Above $170,000 up to $214,000 | Not Applicable | $187.50 |
| Tier 2 | Above $107,000 up to $133,500 | Above $214,000 up to $267,000 | Not Applicable | $267.90 |
| Tier 3 | Above $133,500 up to $160,000 | Above $267,000 up to $320,000 | Not Applicable | $348.30 |
| Tier 4 | Above $160,000 | Above $320,000 | Above $85,000 | $428.60 |
Given the continued pressure on program costs, it is reasonable to assume that we will see continued adjustments along these same lines in the years to come. If you are lucky enough to enjoy these high income levels and are in a position where you can plan your earnings into the future, this would appear to be something you and your retirement planner should pay some attention to.
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