This Nasty Medicare Surprise Could Cost You Up to an Extra $6,004 in 2024

Medicare provides vital healthcare coverage for tens of millions of Americans. But even though most people have been paying payroll taxes to help support the program throughout their working lives, Medicare isn't free. And every year, many people turning 65 find out about a little-known provision that can make Medicare a lot more expensive.

Deep in the laws governing Medicare is a revenue generator known as the income-related monthly adjustment amount. Also known by its acronym, IRMAA, this provision makes retirees and other Medicare recipients above certain income limits pay extra for their monthly coverage. Here's some information on the details of IRMAA, along with some ways you can try to avoid it.

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How IRMAA works

As you probably know, there are different parts of Medicare that provide different types of coverage. Most people don't have to pay monthly premiums for Part A hospital and inpatient coverage, as long as they or their spouse worked long enough to qualify for no-cost coverage. For outpatient care like doctor visits, Part B coverage does come with a monthly premium.

Those who subscribe to a Part D prescription drug plan also often pay a premium to get their benefits. Medicare Advantage plan participants pay their Part B monthly premium, along with anything extra that their insurance company charges.

The IRMAA provisions state that higher-income Medicare participants have to pay more in premiums for Part B and Part D coverage. Specifically, there are multiple income brackets that determine what your additional Medicare cost will be.

As you can see in the table of the amounts that will be in effect in 2024, the IRMAA amounts can add a lot to your total Medicare expenses:

Data source: Centers for Medicare & Medicaid Services. Table by author.

According to the Centers for Medicare and Medicaid Services (CMS), these surcharges affect about 8% of those with Part B coverage. For top-bracket income earners, monthly IRMAA surcharges for both Part B and Part D can add up to $500.30 per month, or nearly $6,004 each year.

How you can get hit unexpectedly

A lot of retirees are shocked when they get a letter from the federal government saying that they'll owe IRMAA surcharges. In particular, because of the way the CMS determines who's subject to the surcharges, you might initially receive a notice even if your income seems far too low to have to worry about the provision.

The reason is simple: The CMS looks at your income from two years prior to determine whether you'll owe IRMAA surcharges. So for 2024, it's your 2022 income that goes toward figuring out whether and how much you'll pay. For recent retirees, that 2022 figure might include plenty of work-related income from before you retired -- but that doesn't affect the initial calculation.

Can you avoid IRMAA surcharges?

Fortunately, there are some circumstances in which you can appeal a CMS decision that you owe IRMAA surcharges. If you've gotten married or divorced, been widowed, or had a reduction of income due to a work stoppage, work reduction, loss of pension, or loss of income-producing property, then you might have a qualifying life-changing event that will let you reduce or eliminate the IRMAA surcharge. Form SSA-44 allows you to disclose what happened.

This appeal process isn't well known, however. And since most people have their Medicare premiums taken directly from their Social Security checks, you might not even immediately be aware that you're paying an IRMAA surcharge.

Absent a life-changing event, the best thing you can do is to manage your modified adjusted gross income to stay under the IRMAA income limits. That might not save you money now, but after the two-year lag is done, you could see those IRMAA surcharges go away -- and have thousands of extra dollars back in your pocket.