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  • Mike Komara

Ways to Reduce Your Medicare Premiums

Updated: May 29

While tax payments are taken out of your paycheck to cover the cost of Medicare Part A, retirees pay for Medicare Part B and D during retirement. High-income earners typically pay more for this coverage than those with a moderate income. However, high-income retirees can reduce their premium payments by taking specific actions.


There are a number of ways to reduce Medicare premiums. One option is to enroll in a Medicare Advantage plan. Advantage plans typically have lower premiums than traditional Medicare plans, and they often include additional benefits such as dental and vision coverage. Another way to reduce premiums is to choose a high-deductible plan.


High-deductible plans have lower monthly premiums, but they require you to pay more out-of-pocket costs before your insurance coverage kicks in. Finally, you can also reduce your premiums by enrolling in a Medicare Part D prescription drug plan.


Prescription drug plans have different premium levels, so you can shop around to find one that fits your budget. By taking advantage of these options, you can significantly reduce your Medicare premiums.



Tips to Avoid an IRMAA

The Medicare Income-Related Monthly Adjustment Amount (IRMAA) is an amount high-income earners may pay in addition to their Part B or Part D premium. The Social Security Administration determines whether you must pay an IRMAA based on the adjusted gross income and some tax-exempt income on your federal tax forms of the past two years. The SSA will notify you if your income qualifies for an IRMAA.


An IRMAA, or income-related monthly adjustment amount, is an extra fee that some Medicare recipients have to pay for their Part B and Part D coverage. The amount of the fee is based on your income, and it can be a significant added expense for those on a fixed income.


If you're concerned about being required to pay an IRMAA, there are a few things you can do to avoid it. First, make sure that you're accurately reporting your income to the Social Security Administration. If your income has changed since you last filed taxes, be sure to update your information with the SSA.


You can also request a "hardship exemption" from the IRMAA if you can demonstrate that paying the fee would cause undue financial hardship. Finally, remember that you can switch to a different Medicare plan during open enrollment if you find that your current plan is becoming too expensive.


By taking these steps, you can help ensure that you won't be surprised by an unexpected increase in your Medicare costs.


Because IRMAA is based on adjusted gross income (AGI), undertaking strategies that lower that income or avoiding strategies that raise AGI are ways to prevent it. For example, selling real estate or taking other actions that raise capital gains can increase AGI and IRMAA surcharges. Also, giving to a charity will potentially lower AGI.



How to Get Medicare Surcharges Reassessed

If you feel that the Medicare surcharge you are required to pay is too high, you can request a reassessment. The process is fairly simple and only requires a few steps. First, you will need to gather supporting documentation to prove your income.


This can include tax returns, pay stubs, or bank statements. Next, you will need to fill out a form requesting a reassessment of your Medicare surcharge. The form can be found on the Medicare website or by calling the Medicare hotline.


Once the form is completed, you will need to mail it to your local Medicare office. A representative will review your case and determine if you are eligible for a reassessment. If so, they will send you a notice informing you of the new amount you will be required to pay. If you are not satisfied with the new amount, you can appeal the decision by requesting a hearing with an administrative law judge.


Another way to avoid IRMAA or have an IRMAA surcharge reassessed is to have a qualifying life-changing event that affected your income. If you experience one of these events, you file a form with Medicare to let them know. You'll also have to submit proof that your AGI has been reduced. Qualifying life-changing events are:

  • marriage

  • divorce

  • the death of a spouse

  • a loss of job or reduction in hours

  • a reduction or loss of your pension

  • a settlement from an employer

  • a loss of income-generating property



Use HSA Funds to Pay Your Medicare Premium

A Health Savings Account (HSA) is a savings account that can be used to pay for qualified medical expenses. The funds in the account are not subject to federal income tax, and they can be used to pay for Medicare premiums.


With the rising cost of health care, many seniors are looking for ways to save on their Medicare premiums. An HSA can be a great way to do this. The funds in the account can be used to pay for Medicare Part B and Part D premiums, as well as other qualified medical expenses. There are no age limits on HSAs, so anyone can open an account and start saving for their future health care needs.


Many employers offer the option to contribute to a health savings account. The IRS allows you to contribute to these HSAs with pretax dollars while working if you have a high-deductible health insurance plan. The money you contribute to an HSA remains yours even after you retire. You can use it to pay your Medicare premiums without incurring taxes on the money, as well.




Avoid Late Enrollment Penalties

If you're not already enrolled in Medicare, you may be facing a late enrollment penalty if you wait to sign up. Medicare is a federally-funded health insurance program for people aged 65 and over, as well as for certain younger people with disabilities.


You're typically first eligible to enroll in Medicare three months before your 65th birthday. If you don't sign up during this initial enrollment period, you may have to pay a late enrollment penalty. The amount of the penalty depends on how long you delay enrolling in Medicare, but it could add up to 10% to your premium each year that you're not covered.


In addition, waiting to enroll in Medicare could cause gaps in your coverage, leaving you responsible for the full cost of your medical care. Therefore, it's important to ensure that you enroll in Medicare on time to avoid penalties and ensure continuous coverage.


You can sign up for Medicare three months before your 65th birthday. You then have seven months to enroll in Medicare and receive financial incentives for enrolling during that time. Generally, if you wait longer than that to enroll in Medicare Parts B and D, you face a late enrollment fee that you'll pay every month for the rest of your life. You can only avoid the late enrollment fee by either signing up on time or by being enrolled in another health insurance plan that offers "creditable coverage."



Maximize Your Tax-Free Income

Tax-free income doesn't count in your AGI calculation. One way to maximize your tax-free income is to receive income from a Roth IRA or 401(k). The money you contribute to a Roth retirement account is taxed when you first earn it, so it is not taxed when you withdraw it.


However, you should consult a tax and financial adviser if you want to use this strategy, particularly if you plan to convert traditional IRAs to Roth IRAs. Converting the plans all at once before you retire can trigger an increase in AGI and IRMAA.


If you're not already enrolled in Medicare, you may be facing a late enrollment penalty if you wait to sign up. Medicare is a federally-funded health insurance program for people aged 65 and over, as well as for certain younger people with disabilities.


You're typically first eligible to enroll in Medicare three months before your 65th birthday. If you don't sign up during this initial enrollment period, you may have to pay a late enrollment penalty. The amount of the penalty depends on how long you delay enrolling in Medicare, but it could add up to 10% to your premium each year that you're not covered.


In addition, waiting to enroll in Medicare could cause gaps in your coverage, leaving you responsible for the full cost of your medical care. Therefore, it's important to ensure that you enroll in Medicare on time to avoid penalties and ensure continuous coverage.



File an IRMAA Appeal

Each year, the Centers for Medicare and Medicaid Services (CMS) reviews the income of Medicare beneficiaries who are enrolled in Part B and/or Part D. If your income has increased since you last enrolled in Medicare, you may be required to pay a higher premium, known as an Income-Related Monthly Adjustment Amount (IRMAA). However, you may be able to appeal this decision if your circumstances have changed.


If you want to appeal your IRMAA, you will need to file a formal appeal with CMS. You will need to include documentation that supports your appeal, such as tax returns or pay stubs. You may also need to provide a written explanation of why you believe you should not have to pay the higher premium.


Once CMS receives your appeal, they will review your case and make a determination. If you are successful, your IRMAA will be reduced or eliminated. If you think you qualify for an IRMAA appeal, don't wait to file. The sooner you submit your appeal, the sooner CMS can review your case and make a decision.



Part B Costs for Higher Incomes

The IRS establishes four brackets that determine the charge for Medicare Part B. The brackets change yearly depending upon inflation. Those who fall below certain income thresholds will pay a basic rate. However, the cost rises with each additional tier of income. Top-earners may pay more than three times the basic cost.



Use Solas Wealth as a Resource

The financial professionals at Solas Wealth can help you understand Medicare surcharges and work collaboratively with you to choose the best options for avoiding them.


Solas Wealth examines managing surcharges in the context of your overall financial goals and your wealth management portfolio. Our mission is to guide you through life transitions, and Medicare enrollment represents one of those transitions. Schedule a conversation with a Solas Wealth adviser today.




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