5 Ways to Reduce Your Medicare Premiums

Most people pay a standard rate for Medicare. If you’re a high-income taxpayer, you pay more. If your income is more than $88,000 for individuals or $176,000 for married couples, you’ll have a higher premium or an Income Related Monthly Adjustment Amount.

In assessing IRMAA, Medicare doesn’t look at your current income. It looks back two years. That means your premium is based on your modified adjusted gross income from two years prior. You can ask the Social Security Administration to re-evaluate your premium if your income lowers because of a life-changing event. Examples of life-changing events include retirement, divorce, and the death of your spouse.

Everyone must pay a premium for Part B. Some advantage plans have a built-in premium reduction. Your policy pays a portion of the Part B premium, and you pay the rest. Having an Advantage plan with this option will reduce your overall Medicare premium costs.

Many people don’t realize there’s a subsidy available to reduce Part D premiums and out of pocket costs for medications. People with Medicaid automatically qualify for the Extra Help subsidy. However, you can obtain Extra Help, even if you don’t qualify for Medicaid. When you’re income is low, a subsidy can help reduce Medicare premiums and other costs.

You can deduct certain medical expenses on your tax return. Deductible medical expenses include premiums you paid for Parts B, D, and Medicare Advantage. However, there are limits to this deduction. First, you must have enough total deductions to itemize your deductions rather than taking the standard deduction.

Second, you cannot deduct all your medical charges. You can only deduct medical expenses that exceed 10% of your adjusted gross income.

If you have money in a health savings account, you can use it to pay your Part B, Part D, or Medicare Advantage premiums. You cannot use an HSA to pay Medigap premiums. The money in your HSA is tax-free as long as you use it for medical charges. It’s always cheaper to pay for things with pre-tax funds than to use taxed money.

While avoiding penalties doesn’t directly reduce Medicare premiums, it does prevent them from becoming higher. You can sign up for Medicare three months before your 65th birthday month. You then have a seven-month-long Initial Enrollment Period. There’s a financial motive to enroll during that time.

In general, if you wait and sign up for Part B later, you will pay a late enrollment penalty. You’ll continue to pay the penalty each month for the rest of your life. You also face a late enrollment penalty if you don’t enroll in a prescription plan when you are first eligible.

You can sign up for Medicare and a prescription plan without a penalty after your Initial Enrollment Period if you have creditable health insurance coverage from another source.

Typically, this means you have insurance from your own or your spouse’s employer-sponsored plan. Some people delay enrolling in Medicare because they have other insurance that’s cheaper or has other advantages. Those advantages won’t matter if your plan doesn’t count as “creditable coverage” and you have to pay a late enrollment penalty.

You can manage your premium costs better if you know when you can enroll in Medicare and when you can change plans. Your Initial Enrollment Period is the best time to sign up for Parts B and D to avoid the late enrollment penalty.

As soon as your Part B coverage starts, you have a one-time opportunity to enroll in a Medigap plan without having to answer questions about your health. If you try to join a Medigap plan at another time, health issues can raise your premium. There are also yearly opportunities to change your advantage or Part D plans. These give you a chance to compare options and choose one with a lower cost.

Workplace retirement accounts allow you to make contributions while working and then use them to pay for needs after retirement. Having money in a retirement account won’t lower your premiums. However, it will help you afford healthcare premiums along with all your other living expenses. It’ll feel like you reduce Medicare premiums when you have more money set aside for retirement.

If you contribute money to a Roth IRA or 401K, you pay taxes on the money when you put it in. But the income you earn is tax-free. In some cases, you can convert a traditional IRA or 401K to a Roth. If you contribute to a health savings account, your contributions AND the income from them aren’t taxed as long as you use them for healthcare.

Using tax-free funds to pay premiums saves you money. It’s best to get advice from a professional about ways to grow your income tax-free. Medicare rules change from year to year, and so do the plans available in your area. It makes good financial sense to contact an agent every year to compare your options.