We’re always looking for ways to reduce Medicare costs and premiums. Almost everyone pays a premium for Part B, Part D, Medigap, vision, dental, and hearing.
All those premiums can add up, but there are ways to save money, whether you’re already on Medicare or signing up for the first time.
5 Ways to Reduce Your Medicare Premiums
Have any Medicare Surcharges Reassessed
Most people pay a standard rate for Medicare. If you’re a high-income taxpayer, you pay more.
In 2020, if your income is more than $87,000 for individuals or $174,000 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. For 2020, that means your premium was based on your modified adjusted gross income back in 2018.
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.
Medicare Advantage Part B Premium Reduction
Some advantage plans have a built-in premium reduction. Your policy pays a portion of the Part B premium, and you pay the rest.
For example, if your plan has a premium reduction of $50 and the Part B premium is $144.60, you’d pay $94.60 for your Part B.
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.
Deduct Medicare Premiums from Your Taxes
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. For 2019, you can only deduct medical expenses that exceed 7.5% of your adjusted gross income.
In 2020, the threshold will increase to 10%. For example, if your income is $100,000 and you have $10,0000 of medical costs, you can deduct $2500 on your 2019 tax return.
Use your HSA to Pay Your Medicare Premiums
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.
5 Ways to Avoid Higher Premiums Before Enrolling
Avoid Late Penalties by Signing Up When First Eligible
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.
Understand what Creditable Coverage Is
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.
Know the Different Enrollment Periods
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.
Contribute to Workplace Retirement Accounts
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.
Find Ways to Maximize Your Tax-Free Income
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 expenses.
Using tax-free funds to pay premiums saves you money. It’s best to get advice from a financial 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.
MedicareFAQ provides free quotes from top insurance companies. Our knowledgeable agents are happy to answer questions and help you compare your options.
When you compare your options, you allow yourself the opportunity to reduce your Medicare premiums.
To get started, give us a call at the number above or fill out our online rate form.