How is Medicare Premium Calculated?

Your monthly Medicare premium isn't pulled out of a hat. It's calculated using several key factors like your income level and the type of coverage you choose. Most beneficiaries pay approximately 25% of the cost of Part B coverage.

Medicare helps pay for many medical services including outpatient care and prescription drugs, but requires beneficiaries to contribute through premiums that vary depending on certain conditions.

There are variables like income and late enrollment penalties that can change these numbers significantly from one person to the next.

The Income-Related Monthly Adjustment Amount (IRMAA) can lead to higher premiums for high-income beneficiaries. Your tax return data from two years prior plays a pivotal role in determining whether you owe additional surcharges.

IRMAA uses your modified adjusted gross income (MAGI) — which is your adjusted gross income plus tax-exempt interest income — to determine your premium tier.

Understanding the difference between AGI and MAGI is crucial — they may look alike but play very different roles when determining your Medicare dues. View current IRMAA brackets to see how income levels affect premiums.

Several factors determine your total Medicare premium costs:

Understanding how IRMAA is calculated is the first step to managing your Medicare costs. Strategic income planning can help minimize surcharges.

If you've experienced a qualifying life-changing event (retirement, divorce, death of a spouse), you may be able to appeal your IRMAA determination and reduce your premiums. Learn more about strategies to reduce your MAGI.