Projected increases in Medicare costs led Congress to raise premiums for higher-income beneficiaries.
Medicare Part B provides medical coverage for physicians' fees and outpatient services. The premiums that beneficiaries pay cover only 25 percent of the program's cost--federal revenues provide 73 percent. The Medicare Modernization Act of 2003 sought to increase the share for the program's cost for higher-income Medicare beneficiaries. Effective 2007, Medicare Part B premiums increased for beneficiaries with income above certain thresholds. The income used is their modified adjusted gross income, or MAGI.
MAGI Definition
Social Security administers the Medicare Part B "Income-related Monthly Adjustment Amount" (IRMAA) notifications. MAGI is the sum of an individual's adjusted gross income as shown on the first page of their tax return, adjusted to include tax-exempt interest income entered on line 8b on Form 1040 of federal returns. If the MAGI exceeds certain thresholds, recipients receive notification their Medicare Part B premiums will increase.
MAGI Information Source
Social Security receives information about recipients' income from the Internal Revenue Service. However, the information is two years old since that is the first tax year for which IRS has complete information available. For example, premiums for 2010 use the MAGI information from a recipient's 2008 tax year's return filed in 2009. If no return information is available, IRS supplies information from three years prior.
Individual Filing Status
Thresholds that trigger increased Medicare premiums may change annually when the consumer price index increases. The threshold varies according to the Medicare beneficiary's filing status. In 2010, filers with a filing status of "individual" and a MAGI of $85,001 to $107,000 have premiums of $154.70. The standard premium is $110.50. A MAGI of $107,001 to $160,000 causes premiums of $221. MAGI income of $160,001 to $214,000 generates premiums of $287.30. MAGI above $214,000 raises premiums to $353.60.
Married Joint Return
SSA uses the MAGI for married couples filing joint returns even if only one member of the couple receives Medicare. MAGI of $170,001 to $214,000 raises premiums to $154.70; if $214,001 to $320,000 premium is $221; for a MAGI of $320,001 to $428,000 premiums are $287.30 and MAGI above $428,000 means the Part B premium will be $353.60.
Married Filing Separately
Medicare Part B recipients who lived with their spouse at least part of the tax year, and whose filing status is "married filing separately," have Medicare Part B premiums of $287.30 when their MAGI income is $85,001 to $129,000. If their MAGI exceeds $129,000, their premium amount is $353.60.
Duration of MAGI
The MAGI only affects premiums for one year. Each year Social Security makes a new premium amount decision. If the income was a one-time increase, such as capital gains from the sale of a home, the premiums will decrease after one year when income drops below thresholds that trigger premium increases.
Appeal Rights
Beneficiaries can appeal the Income-Related Monthly Adjusted Amount (IRMAA) notification. If they had certain life-changing events--such as a divorce, marriage or job loss--SSA may be able to use information from a later year's tax return to reduce premiums. If IRS provided information for a tax year three years earlier than the premium year, but the beneficiary has tax return information from two years earlier, SSA can use the information from the later return.
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