Upcoming Changes in Medicare Enrollment

Medicare enrollment for 2026 kicks off on October 15. Have you thought about how much money you made two years ago? Your income from 2024 will actually influence whether you end up paying the Medicare Supplement, or the Income-Related Monthly Adjustment Amount (IRMAA), the following year. This applies to both Medicare and Medicare Advantage users. If your taxable income surpasses a specific limit, you’ll need to cover IRMAA in addition to the standard premium. This also extends to any prescription drug coverage you may have.

Next year, Medicare premiums are expected to rise significantly, potentially consuming a large portion of the Social Security cost-of-living adjustment (COLA) that some older Americans might receive. In fact, IRMAA can more than double your routine health insurance premium and significantly increase your drug plan cost, too.

John Jones, an investment advisor at Heritage Financial, mentioned, “If Medicare is funded through Social Security, that could really hurt.” He added that Social Security may become oversubscribed to pay for Medicare.

Currently, just about 8% of Medicare recipients—around 5.1 million people—pay the Medicare Part B surcharge, a significant increase from 1.7 million when the surcharge was first introduced in 2007. According to the Medicare Administrative Board, this number could rise to about 8.6 million by 2034.

Additionally, nearly 4.5 million Americans pay more for Part D drug plans, with projections suggesting this could jump to 7.7 million in the same timeframe.

Understanding IRMAA Costs

The income threshold for IRMAA in 2026 has yet to be finalized. In conjunction with the expected standard Medicare premium of $206.50 and additional premiums for drug plans, high earners may face the following costs:

• Individuals earning between $109,001 and $137,000, or couples with incomes between $218,001 and $274,000, could pay an extra $82.60 monthly for health insurance and $14.50 for drugs.
• Single filers earning $137,001 to $171,000, or couples with incomes from $274,001 to $342,000, may owe an additional $206.50 plus $37.50 for prescriptions.
• Individuals with incomes from $171,001 to $205,000, or joint filers making $342,001 to $410,000, will likely pay an extra $334.40 and $60.40 for drug coverage.
• Single earners between $205,001 and $500,000, or married couples with incomes from $410,001 to $750,000, could incur an additional $454.30 plus $78.60 for prescriptions.
• Finally, individuals earning over $500,001 or couples with incomes exceeding $750,001 face an additional $495.60 a month with $85.80 for drug plans.

Strategies to Mitigate Medicare Surcharges

Michael Chua, an attorney at Paxterra Law Firm, noted that many people striving to save for retirement often overlook the implications of IRMAA. “It’s crucial to plan,” he emphasized. The IRMAA looks back two years, so decisions made now play a significant role in future premiums.

Experts suggest that a lifetime approach to retirement planning is ideal—starting young, saving what you can, and maximizing matching contributions as you work. Some also advise taking advantage of lower income periods to facilitate Roth conversions, which can help keep future income and IRMAA in check.

Once individuals hit 73, they must begin taking required minimum distributions (RMDs) from tax-deferred retirement accounts like 401(k)s, which can trigger IRMAA. In contrast, Roth accounts aren’t subject to RMDs.

Nick Barr, CEO of Inspire Wealth, mentioned, “Asset location becomes key as you approach retirement.” He advises contributing around a third of retirement funds to Roth accounts and considering early conversions while income is lower.

However, advisors also caution that Roth conversions require careful planning since the amount converted is taxable income. Additionally, you’ll need cash to cover those taxes.

Effective early planning allows for greater flexibility. For instance, if your income is $70,000 and you’re in the 22% tax bracket, strategizing can help you avoid moving into the next bracket until 2026 when your earnings exceed $105,700.

Advice for Those Already Nearing Retirement

For individuals who might have missed earlier opportunities, now is the time to start planning, say experts.

Those approaching 65, the age of Medicare eligibility, may want to consider reducing their work hours to decrease their income. Concurrently, if feasible, pursuing Roth conversions might also be beneficial.

While one to two years might feel too short to make substantial changes, retirement could indeed help decrease IRMAA.

There’s a strategy to “peel off a Band-Aid.” If avoiding IRMAA isn’t feasible, making most conversions over a few years can minimize the duration of payments.

Jones added, “You can challenge IRMAA if you experience a qualifying life event.” Significant changes in household income—like marriage, divorce, or loss of a job—might enable a premium reduction.

He also pointed out the option for a one-time Roth conversion, which might increase your income briefly, but if you face a life-changing event soon after, you may appeal for IRMAA reconsideration.

For example, if you’re self-employed, a year with a substantial Roth conversion might spike your income, but if you see a decrease the following year, you could have grounds for an IRMAA appeal.