How some people escape the steep Medicare surcharge on premiums known as IRMAA

Who are those people and how can they avoid paying the IRMAA surcharge assessed for Medicare beneficiaries whose 2022 modified adjusted gross incomes exceeded $103,000 ($206,000 for couples)?

They’re former workers for the federal government and sometimes ex-state government employees.

When the IRMAA surcharge doesn’t kick in

But their exemption isn’t really about a way for them to skate pass the IRMAA surcharge, which was enacted by Congress in 2003. They don’t owe it because they’ve chosen not to enroll in Medicare Part B due to continued coverage from the generous Federal Employees Health Benefits Program, the nation’s largest employer-sponsored group health insurance program. (Part B is for doctor bills, outpatient care, home health care, medical equipment and preventive services.)

“Our federal health benefit program started in 1960 and Medicare didn’t start until 1965, so we always had lifetime coverage as federal retirees,” explained Tammy Flanagan, principal of the Retire Federal consulting firm in Bradenton, Fla. “The majority of federal retirees still don’t have to take Medicare.”

Former federal employees can keep their federal health insurance after 65 for as long as they like if they had that coverage for at least the last five years of their career and were eligible for an immediate federal pension.

That pension plus Social Security can sometimes be enough to lead to an IRMAA surcharge for former federal workers in Medicare.

Roughly 20% to 25% of former federal workers eligible for Medicare don’t enroll in Medicare Part B and aren’t subject to a potential IRMAA surcharge, says Flanagan.

How IRMAA works

IRMAA’s surcharge is a sliding scale that, in 2024, starts at $244.60 a month for people with 2022 income between $103,000 and $129,000 and goes up to $559 a month for incomes of $500,000 or more.

The ones who’d owe IRMAA if they took Part B “just don’t like the idea of paying up to $500 a month or $1,000 a month for a couple when they can just have their health insurance the way they always had it and pay just the going rate for their federal health plan,” she says.

State and local government employees hired after March 31, 1986, are required to enroll in Medicare at 65, but earlier hires aren’t.

Retired U.S. Postal Service employees will need to make Medicare Part B their primary coverage, however, starting in 2025. That’s because the Postal Service Reform Act of 2022 demands it.

That change could be a foot in the door toward eventually requiring all federal retirees to enroll in Medicare, says Flanagan, a former employee benefits specialist at the FBI. “I think Congress is certainly going to look at that,” she added.

Incurring the wrath of Medicare beneficiaries

The federal retirees’ exemption from IRMAA irritates some Medicare beneficiaries who owe the surcharge.

“We do get a lot of people who, in general, don’t think much of federal employees. We have this reputation of being lazy and all the other things you hear about the federal workforce,” says Flanagan. “But to tell you the truth, we do work hard.”

Federal workers, Flanagan also noted, sometimes receive lower salaries than they’d earn doing similar work in the private sector.

But fewer and fewer private-sector retirees can keep their employer’s health insurance after leaving their full-time jobs.

In 2022, only 7% of private-sector workers had jobs at employers offering health insurance to retirees, down from 25% in 1997, according to a recent report from the Employee Benefit Research Institute.

Drawbacks for declining Medicare Part B

Although former federal workers who choose not to enroll in Medicare Part B will save the cost of its premiums and a possible IRMAA surcharge, there are potential drawbacks, too.

“Federal retirees who do not enroll in Part B face a late enrollment penalty” if they later decide to sign up for it, says Diane Omdahl, president and founder of 65 Incorporated, a Medicare advisory firm.

That late-enrollment penalty is pretty stiff itself. Your monthly Part B premium might go up 10% for each full 12 months you could have had Part B but didn’t enroll.

Flanagan says, “I get calls from people in their 70s and 80s saying, ‘Hey, I want to join Part B, can I get in?’

Her answer to these federal retirees: “Well, yeah, you can get in, but it’s going to cost you a lot of money with the late-enrollment penalty.”

Advice for former federal workers

Flanagan advises former federal workers to think long-term when deciding whether to forego Medicare Part B and avoid a possible surcharge. “When Medicare pays first and the Federal Employees Health Benefits Plan is a secondary payer, you pay nothing” in out-of-pocket expenses other than premiums and prescriptions, she says.

In effect, the Federal Employees Health Benefits Plan becomes the equivalent of a Medigap policy bought to supplement Traditional Medicare.

As Flanagan wrote in the trade group magazine for federal workers and retirees, when Medicare is the primary payer for a retired federal worker, the Federal Employee Health Benefits Plan can then often take care of Medicare’s deductible, co-payments and co-insurance.

A few private insurers reimburse part or all of federal retirees’ Medicare Part B premiums, which can sometimes ease the IRMAA sting, too. The largest reimbursements are typically offered by the more expensive plans, Flanagan noted.

For state-government retirees, “some entities, like CALPERS [the California Public Employees’ Retirement System] will increase the reimbursement for those who are subject to IRMAA, says Omdahl.

Alaska, New Jersey and New York also reimburse Part B premiums and IRMAA surcharges for their state government retirees in Medicare.