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Factors Influencing Medicare Premium Calculation

Beneficiaries pay different amounts for Medicare premiums. The government determines the base rates for Medicare premiums, but what you ultimately pay depends on your situation and income. Understanding what impacts your Medicare premiums can help you better budget for health expenses in retirement.

What income is used to determine Medicare premiums?

The income Medicare uses to determine your premiums is your modified adjusted gross income or MAGI. MAGI includes your adjusted gross income (AGI) on your federal tax return plus things like deductions you took for non-taxable income, tax-exempt interest, excluded foreign income, and more.

For Medicare Parts B and D, you pay higher premiums if your income is above a certain level. This premium surplus is called the income-related monthly adjustment amount (IRMAA). A sliding scale table is used to determine your IRMAA based on your income.

Generally, for Parts B and D, the higher your MAGI, the higher your premium. The income thresholds and Medicare premium amounts can change each year.

Medicare Part A works a bit differently. Whether you pay Part A premiums depends on the Medicare taxes you pay while working.

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How is Medicare Part A premium calculated?

Medicare Part A covers hospital stays, skilled nursing care, hospice services, and more. Most funding for Part A comes from payroll taxes paid by workers and employers. For example, in 2021, about 90% of Medicare Part A revenue came from payroll taxes.

Since payroll taxes largely fund Medicare Part A, most people get Part A for free when they turn 65. You get free Medicare Part A if you or your spouse contributed Medicare taxes for 40 quarters — or 10 years — while working. People who receive retirement or disability benefits from Social Security also get free Part A.

You may buy Medicare Part A if you don't qualify for premium-free coverage. In 2024, the monthly premium for Part A is either $278 or $505. The amount depends on how long you or your spouse paid Medicare taxes while working. To buy Part A, you must also enroll in Medicare Part B and pay that monthly premium.

Medicare Part B premiums explained in detail

Medicare Part B helps pay for outpatient care, including visits with your healthcare providers and some home health care. In 2021, about 25% of the funding for Medicare Part B came from monthly premiums paid by Medicare beneficiaries.

Your Medicare Part B premium depends on your MAGI. Medicare bases your premium on your income from two years earlier. For example, your monthly premiums for Part B coverage in 2024 depend on your 2022 tax return.

If your yearly income is above $103,000 on your 2022 individual tax return (or $206,000 for a joint tax return), you may have to pay an IRMAA (additional premium) in 2024. This means your monthly Part B premium in 2024 will be higher. And for each income bracket above the standard thresholds, your IRMAA payment increases. Your IRMAA can range from 35% to 85% of the total Medicare Part B coverage cost. The good news is most people on Medicare pay the standard monthly premium for Part B coverage.

The table below shows your IRMAA and 2024 Medicare Part B monthly premium based on your MAGI from your 2022 federal tax return:

MAGI for people who file an individual tax return
MAGI for people who file joint tax returnMAGI for married couples who file a separate tax return Income-related monthly adjustment amount (IRMAA)
2024 Medicare Part B monthly premium
$103,000 or less$206,000 or less
$103,000 or less$0.00$174.70
$103,000–129,000$206,000–258,000Not applicable$69.90$244.60
$129,000–161,000$258,000–322,000Not applicable$174.70$349.40
$161,000–193,000$322,000–386,000Not applicable$279.50$454.20
$193,000–500,000$386,000–750,000$103,000–397,000$384.30$559.00
$500,000 or more$750,000 or more$397,000 or more$419.30$594.00

How is Medicare Part D premium calculated?

Medicare Part D helps pay for prescription medication costs. In 2021, about 15% of the funding for Part D came from the monthly premiums paid by Part D beneficiaries. State programs that help cover people who qualify for both Medicare and Medicaid contributed to 11% of Medicare Part D revenue in 2021.

Just like with Part B, Medicare beneficiaries with higher income pay an IRMAA in addition to their Part D plan premium. Your Part D IRMAA is determined by your tax return from two years ago. So, both your income and the Part D plan you choose impact your monthly premium.

The table below shows your 2024 Medicare Part D premium based on your MAGI from your 2022 federal tax return:

MAGI for people who file an individual tax return MAGI for people who file joint tax returnMAGI for married couples who file a separate tax return 2024 Medicare Part D monthly premium
$103,000 or less$206,000 or less$103,000 or lessYou pay your plan premium
$103,000–129,000$206,000–258,000Not applicable$12.90 IRMAA + your plan premium
$129,000–161,000$258,000–322,000Not applicable$33.30 IRMAA + your plan premium
$161,000–193,000$322,000–386,000Not applicable$53.80 IRMAA + your plan premium
$193,000–500,000$386,000–750,000$103,000–397,000$74.20 IRMAA + your plan premium
$500,000 or more$750,000 or more$397,000 or more$81.00 IRMAA + your plan premium

How to pay your Medicare premiums

The majority of Medicare recipients do not receive a bill for their premiums. Instead, their Part B premiums are deducted automatically from their Social Security or Railroad Retirement checks. If you do not get these benefits, Medicare will mail you a Part B premium bill, which you are responsible for paying.

There are a few options for paying Medicare bills:

  • Online using a debit or credit card. You can also use a checking or savings account to pay online through the Medicare website.
  • Sign up for auto-payments, where Medicare will pull your premium due directly from your bank account when it is due.
  • Send a check or money order by mail to Medicare's payment processing center.

Unlike Part B premiums, which are often automatically deducted from Social Security checks, Part D premium payments are handled directly between you and your selected prescription drug provider. After enrolling in a Part D plan, the insurance company will bill you directly.

Most Medicare beneficiaries pay standard premium rates for Parts A, B, and D coverage. Higher-income Medicare enrollees may pay additional charges called IRMAA. Premium costs are primarily based on your MAGI from tax returns filed two years prior. Watch for notices from the Social Security Administration informing you if IRMAA applies based on your income.

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