7 Ways to Reduce or Eliminate Your Medicare Premiums With These Strategies

Infographic of a family holding money trying to figure out paying for medicare

When you are on a fixed budget, every expense matters. That includes the premiums and fees that come along with your Medicare coverage. Some retirees with higher-than-average incomes get hit with monthly income-related adjustments to their Medicare premiums. These extra fees add up and wreak havoc on a strict household budget.

While healthcare coverage is non-negotiable, the cost of it isn’t set in stone. There are ways to avoid getting hit with additional charges. Sometimes, you might even qualify to have your premium costs covered by government aid. Keep reading to learn more about the various options available.

What Are Medicare Premiums?

Once you reach the age of 65, you are eligible to sign up for Medicare. You may qualify before then if you have a disability or certain medical conditions. 

Most Medicare recipients pay a standard premium for Part B, which is outpatient care, and Part D, which covers prescription drugs. However, around 7% of Medicare recipients have higher incomes that require them to pay extra. These surcharges increase as your income goes up.

How to Avoid Paying a Premium for Medicare

Government aid is available for low-income individuals and families to reduce or cover the cost of Medicare premiums. This aid is offered through your state’s Medicaid program, and Medicare Savings Programs can pay for your Part A and B premiums if you qualify. You could also get help with copayments, coinsurance, and deductibles. Eligibility is based on income and resource limits. Individuals’ monthly income and resource limits are $1,153 and $8,400, respectively. The numbers for a married couple are $1,546 in income and $12,600 in resources. 

Ways to Avoid Paying an IRMAA 

Medicare premiums vary depending on your income. Individuals with high incomes may incur an extra monthly fee, raising their total premium price. This fee is called an income-related monthly adjustment amount (IRMAA).

If your modified adjusted gross income is $91,000 or less for an individual or $182,000 or less for a married couple filing jointly, you pay the standard Medicare premium without adjustment. Incomes above these figures get charged a monthly adjustment fee ranging from a few dollars to hundreds of dollars extra tacked onto your premiums. You only need to go a single dollar over the threshold to start incurring these fees, so it pays to stay vigilant regarding your income and finances.

While qualifying to have your Medicare premiums covered requires that you meet strict eligibility requirements for government aid, there are strategies to either lower or eliminate the additional charges from an IRMAA.

Notify Medicare of Life Changing Events

Infographic of a woman looking at a check list about medicare premiums

Calculating the IRMAA is based on your tax return, typically from two years ago. If your income has changed significantly and you believe you have paid a fee that doesn’t apply to your situation, notify Medicare or complete an appeal using Form SSA-44 along with proof of the change and current income.

Events that affect your income and IRMAA include:

  • Marriage
  • Divorce
  • Death of a spouse
  • Lost pension
  • Reduced or stopped earned income
  • Employer settlement
  • Loss of property

Not all changes to your life circumstances and financial situation are considered by the SSA. Events like selling off real estate or losing your alimony or child support won’t affect your IRMAA.

Track Your Annual Income

When you enter retirement, you have less control over certain aspects of your income. Social security benefits and pensions are set amounts that you receive each month. You can pay close attention to your other income streams, so the combination doesn’t push you into the income bracket where an IRMAA is triggered.

Use a Medicare Savings Account

If you are worried about your taxable income, consider which types of accounts you use. Open a Medicare savings account (MSA) to take advantage of tax-exempt contributions and tax-free withdrawals for certain healthcare costs. You benefit from lowering your taxed income and finding a convenient way to pay for your medical needs.

Consider a Roth IRA

All taxable income is counted toward the IRMAA determination. One way to keep this below the income brackets is by managing your retirement accounts in your best interest. Traditional IRAs and 401(k) distributions are taxed, but with Roth accounts, you pay taxes upfront, so all withdrawals are tax-free.

There is one potential downside in that you must pay more money upfront when your Roth IRA contributions are taxed, but this may be worthwhile down the road. Start planning your retirement accounts as soon as possible, as you must meet eligibility criteria. To withdraw tax-free income from a Roth IRA, you must be 59.5 years of age or older, have an active account for five years, or qualify for an exclusion.

Donate to Charity

Donating to a qualified charity will lessen your taxable income and help others in need. Anyone over 70.5 years old can make an eligible charitable contribution from an IRA, with a maximum of $100,000 per spouse per year.

Manage Capital Gains Wisely

Selling an asset that results in taxable profit is another way you could be pushed into a higher income bracket. If you have stocks or other investments you wish to sell, try to time that sale to avoid an unexpected spike in your taxable income.

Stay proactive and plan your financial decisions wisely to avoid paying extra costs for your health care. Work with a financial planner who can keep track of your retirement accounts, investments, and income when possible. Together you can monitor your taxable income and make intelligent decisions to keep your income steady. This helps you to avoid unexpected spikes and resulting IRMAA fees that can upset your monthly budget.

You might also be interested in: What Age Is Retirement For Social Security Benefits?

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