IRMAA and Social Security

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IRMAA and Social Security

In 2022 those who reach Medicare’s IRMAA may be in for somewhat of a surprise when it comes to their Social Security benefits. They will all notice that their Social Security benefit has decreased from 2021.

Yes, you read that right. Their Social Security benefit will actually go down.

This may seem impossible as Social Security is providing a 5.9% cost-of-living-adjustment (COLA) in 2022 as inflation has increased, but, unfortunately, inflation also impacts Medicare too.

How can this be?

Under federal regulations Medicare and Social Security are hand in hand in 2 distinct ways:

1. In order for anyone to receive their Social Security benefit they must accept Medicare when eligible and no longer have creditable health insurance through an employer or spouse’s employer.

    • Failure to enroll into Medicare results in the immediate forfeiture of past, current and future Social Security entitlements.

2. Social Security benefits automatically pay for the bulk of a Medicare premiums along with any surcharges that may occur due to income through IRMAA.

Again, Social Security is providing a 5.9% COLA increase from 2021 Social Security benefits, but please note that Medicare premiums will increase more than double the COLA increase for 2022.

In 2022 Medicare premiums for those who do not reach IRMAA are:

  • Part B: $170.10 a month.
  • Part D: $78.23 a month on a national average including the Part D Deductible. The cheapest total cost (premium and deductible) Part D Plan is $36.23 a month and is available only in Hawaii.

For those who do reach IRMAA in 2022 the brackets, premiums and surcharges are below:

Individual MAGI
Couples MAGI
Part B Premium
Part D Surcharge
Avg Part D Premium
Avg Cost Per Person
< $91k
< $182k
$170.10
N/A
$78.23
$248.33
$91k – $114k
$182k – $228k
$238.10
$12.40
$78.23
$328.73
$114k – $142k
$228k – $284k
$340.20
$32.10
$78.23
$450.53
$142k – $170k
$284k – $340k
$442.30
$51.70
$78.23
$572.23
$170k – $500k
$340k – $750k
$544.30
$71.30
$78.23
$693.83
>$500k
>$750k
$578.30
$77.90
$78.23
$734.43

There is some good news with IRMMA as the first income 4 brackets increase will increase by about 3% from 2021 while the Part D surcharge only grew by less than 1.00%.

The bad news, though, is that the Part B surcharge will inflate by 14.55% from 2021.

To illustrate further, if we take various Social Security benefits and inflate them by the 5.9% COLA, we can see what people can expect to receive in benefits come 2022, which is the chart below:

2021 Social Security Benefit
COLA
2022 Social Security Benefit
Increase from 2021
$2,000.00
5.90%
$2,118.00
$118.00
$2,500.00
5.90%
$2,647.50
$147.50
$3,000.00
5.90%
$3,177.00
$177.00
$3,500.00
5.90%
$3,706.50
$206.50
$3,895.00
5.90%
$4,124.81
$229.81

As you can see, the increases from the 5.9% COLA, no matter what Social Security benefit someone is receiving in 2021, will not exceed even the 1st IRMAA surcharges.

If you reach IRMAA in 2022 your take home Social Security benefit will decrease!

But what about the Hold Harmless Act?

The Hold Harmless Act, passed by Congress in 1984, states that anyone who is receiving Social Security benefits and who is also a Medicare beneficiary can never see their Social Security benefit decrease because of too high of Medicare Part B increases in any given year.

If in a given year the Medicare Part B premium inflates to a point where it is higher than someone’s COLA, then that person is only responsible for paying up to their COLA for their Part B premium.

Your Social Security benefit can never decrease from the previous year because of Part B premiums.

Unfortunately, Congress also passed the Medicare Fairness Act which states that anyone who enters Medicare’s IRMAA will no longer be provided the protection of the Hold Harmless Act.

If you enter IRMAA you lose the right to the Hold Harmless Act, and your Social Security benefit can decrease.

Other considerations:
  • According to the Medicare Board of Trustees the Trust Fund for Medicare will be insolvent by 2025. In order for  Medicare to remain solvent premiums and IRMAA surcharges are in some way going to have to keep up with the rising cost of care.
  • The Covid-19 pandemic is adversely impacting the U.S. healthcare system. As providers of healthcare experience wider staffing shortages as well as a larger demand for their services there is only one-way costs of healthcare can go, which is up.

These two factors alone may just continue this trend of IRMAA surcharges depleting more and more of your Social Security benefit, the only question: have you planned for healthcare in retirement?

 Your health is your greatest asset – the time to plan for it is now!

 

 

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