Why are my Medicare premiums so high?
Reader Question:
Why are my Medicare Part B premiums so much higher than my sister’s?
Response:
Basics of Medicare
It can be confusing making the adjustment from employer or private health insurance to Medicare as the structure and determination of premiums are unique to the program. Medicare is composed of several parts: Part A or hospital insurance, Part B or medical insurance and Part D or drug coverage. Part A covers most inpatient hospital care, and some level of skilled nursing home facility care, home health care and hospice care. Part B covers most doctors’ services, preventative care, hospital outpatient care, medical equipment, tests and imaging. Part D covers prescription drugs and is offered through private companies. You have the option of participating in original Medicare (Parts A, B and D) and purchasing a private Medigap or supplemental policy that will help cover above baseline Medicare levels or participating in Part C which is also known as Medicare Advantage. Medicare Advantage is private insurance that will have it's own plan premiums separate from Medicare.
What Does Medicare Cost?
Most people do not pay any monthly premium for Part A whereas everyone pays a monthly premium for Part B. If you participate in original Medicare, your Part D and Medigap policy plan premiums will depend on which plan you select. If you participate in Medicare Advantage, your monthly premium will depend on which plan you select as well. Monthly costs can include both premiums as well as out of pocket costs.
The most likely reason your premiums are higher than your sisters is that you are subject to something called IRMAA (income-related monthly adjustment amounts). Even though everyone must participate in Part B and Part D, the premiums are not standardized across all participants. Part B has a baseline premium of $185 for 2025 (up from $174.70 in 2024) and Part D has no additional premium on top of the plan you select. However, for those with higher income level there are premium increases for both Part B and Part D.
Medicare uses a two year look back period for your tax return and then determines the premium increase based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income (AGI), found on line 11 of the 1040 tax form, that has had a few specific items added back including excluded tax-exempt interest from US savings and municipal bonds. The following chart shows how your IRMAA payment increases for increasing MAGI:
Part B:
Part D:
Per 2025 Medicare Costs publication
Reducing Premiums for Life-Changing Events
If you are currently paying an IRMAA premium, it’s important to evaluate whether that is due to what Medicare calls a “life-changing” event. Medicare lists the following as qualifying life changing events: marriage, divorce, death of spouse, work stoppage, work reduction, loss of income-producing property, loss of pension income or employer settlement payment. A common example that we see with our clients is work stoppage- otherwise known as retirement. Your retirement income may look very different than your monthly income while working.
For example, let’s say that Jane retires at age 64 from full time work and her MAGI decreases from $200,000 to $50,000 as a single person. When she transitions to Medicare at age 65, she will start out with an initial Part B premium of $527.50/mo and a part D add-on premium of $70/mo. The total additional IRMAA premiums she will pay for a full year come out to $5,191. However, Jane underwent a qualifying life-changing with her retirement and has the ability to submit a form to the Social Security office (Click to access form) in order to have Medicare re-evaluate her IRMAA. With the proper adjustment, Jane will avoid IRMAA and simply pay the baseline Part B premium of $164.90/mo. We recommend talking with your financial advisor or tax professional if you are over 65 and experience a life-changing event so they can help you to correctly complete this form. As you can see, it can end up saving you thousands!
Reducing Premiums Through Tax Planning
If you are experiencing higher levels of IRMAA but have not undergone a life-changing event, you can still evaluate if you have any options to potentially reduce your MAGI. There are several potential strategies to help reduce MAGI, if they fit within your financial plan and goals. Some options are various methods of charitable giving, on planning tax efficient withdrawals from accounts in retirement and considering Roth conversions (click on the links to see related content). These options can help reduce your taxable income which may allow for you to reduce your total IRMAA. We recommend speaking with your financial advisor to determine if these might be beneficial strategies in your situation.
In summary, it is important to review your Medicare premiums annually to determine if you are subject to IRMAA and if there is anything you can do about it.
Liz Alf is the Principal of Clerestory Advisors and fee-only CERTIFIED FINANCIAL PLANNERTM located in Minneapolis, MN. She is a member of the National Association of Personal Financial Advisors (NAPFA) the Fee Only Network and Wealthtender. She enjoys serving clients with on-going financial planning and investment management services.