Major changes are coming to medical care. Here’s how seniors can prepare
Experts say this is one of Medicare’s most disruptive enrollment seasons. Many people will see fewer options, higher costs, and fewer benefits.
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2026 Medicare enrollment begins October 15th. Do you know how much money you made two years ago?
Your 2024 income will determine whether you pay the Medicare Supplement, or Income-Related Monthly Adjustment Amount (IRMAA), next year. Medicare and Medicare Advantage beneficiaries must pay IRMAA plus the standard premium if their taxable income exceeds a certain threshold. IRMAA also applies to any prescription drug coverage.
Medicare premiums are expected to rise by near-record amounts next year, eating up a significant portion of the Social Security cost-of-living adjustment (COLA) older Americans may receive. IRMAA can more than double your standard monthly health insurance premium and almost double your drug premium.
“Medicare is going to be taken out of Social Security, which could be very painful,” said John Jones, an investment advisor at Heritage Financial. “Social Security couldn’t do anything other than pay Medicare.”
Only about 8 percent of Medicare enrollees, or 5.1 million people, pay the Medicare Part B surcharge, compared with 1.7 million Americans when the surcharge began in 2007 to fund Medicare, according to a Medicare Administrative Board report. The number of people paying IRMAA is expected to increase to 8.6 million by 2034.
Nearly 4.5 million Americans pay extra for Part D drug plans, and that number is projected to rise to 7.7 million by 2034.
How much is IRMAA?
IRMAA’s 2026 income threshold has not yet been finalized. However, the Medicare Administrative Board report estimates that in addition to the expected standard monthly Medicare premium of $206.50 and various plan premiums for prescription drug coverage, high-income individuals will pay:
- Individuals with incomes between $109,001 and $137,000, or couples filing jointly with incomes between $218,001 and $274,000, pay IRMAA of $82.60 per month in health insurance premiums and an additional $14.50 in drug premiums.
- Single filers with incomes between $137,001 and $171,000 or joint filers with incomes between $274,001 and $342,000 will pay $206.50 more per month and $37.50 for prescription drug coverage.
- Individuals with incomes between $171,001 and $205,000, or joint filers with incomes between $342,001 and $410,000, pay an additional $334.40 per month, plus an additional $60.40 in prescription drug coverage.
- Single filers with incomes between $205,001 and $500,000, or married couples filing jointly between $410,001 and $750,000, pay IRMAA of $454.30 per month and $78.60 for prescription drug coverage.
- Individuals with incomes of at least $500,001 or joint filers with incomes of at least $750,001 pay an additional $495.60 per month plus an additional $85.80 for prescription drug plans.
How can seniors avoid Medicare surcharges?
Michael Chua, an attorney with Paxterra Law Firm, said Americans focused on saving as much as possible for retirement often overlook IRMAA, “and the results can be surprising.” “People need to plan. IRMAA is a two-year look back, so what you do today will affect what your premiums will be tomorrow.”
Ideally, Americans plan for retirement throughout their lives, advisers said, starting by saving their allowance money as children, maximizing retirement plans and company matchmaking as adults, and using layoffs and periods of low income while staying home to encourage their children to make Roth conversions.
Roth conversions, which move money from traditional pre-tax accounts to after-tax Roth accounts, can help keep future income low and IRMAA in check, advisers said.
At age 73, required minimum distributions (RMDs) from tax-deferred retirement accounts such as 401(k)s begin. Distributions are taxable income and, if large enough, can trigger IRMAA. Roth accounts are not subject to RMDs.
Nick Barr, CEO of Inspire Wealth, said: “As you approach retirement, the location of your assets becomes important.” He said Americans should aim to contribute up to a third of their funds to Roth accounts before retirement and consider moving to Roth accounts early in retirement, when income is lower.
Advisors cautioned that Roth conversions must be strategically planned because the amount converted from a tax-deferred retirement fund to a Roth account counts as taxable income. Advisers warned that the conversion would also require cash to pay taxes.
Early planning allows for more flexibility, including access to tax benefits throughout adulthood. For example, let’s say your personal income is $70,000 and your marginal tax rate is 22%. The next 24% tax bracket won’t be reached until 2026, when your income exceeds $105,700. Advisers said the 22% tax bracket could be “filled” by negotiating enough losses to reach, but not exceed, $105,700.
What if I’m already 62 years old?
Those who missed the earlier boat should start today, advisors said.
Americans approaching age 65, the age at which they can enroll in Medicare, should consider cutting back on work to reduce their income. At the same time, if you can afford it, do some Roth conversions.
“One to two years is not enough time to make big changes,” Boer said, but people can reduce their IRMAA by retiring.
It is also said to be able to “peel off a bandaid.” “If you can’t avoid[IRMAA]shorten your payment time by doing most Roth conversions over a few years and only paying IRMAA for a few years.”
Jones said people can also try suing IRMAA. According to the Social Security Administration, you may be eligible for a premium reduction if you have a life-changing event, such as a decrease in your household income due to marriage, divorce, death of a spouse, loss of income, or payment of an employer settlement.
“You can fake a Ross conversion,” Jones said. “If you do a large Roth conversion, your income will skyrocket. But if you had a significant life event and say it was a one-time thing, you might get your (IRMAA) back.”
For example, if you are self-employed, if you work normally for a year and make a Roth conversion, your income will be higher that year. The next year, because your income has decreased, you can save time and write your IRMAA appeal. “In some cases, you get two years,” Jones said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
