September 19, 2021
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How Can I Save on Medicare Premiums?

Many seniors transition to Medicare thinking it is going to be free. They think they won’t have to pay Medicare premiums, deductibles, or copays since they’ve paid FICA taxes throughout their working years. However, this is not the case. In fact, your FICA taxes only fund one part of your Medicare – your Medicare Part A premium. That’s why most people qualify for premium-free Part A.

While other parts of Medicare will have premiums, such as Part B, Part C, Part D, and Medigap plans, you may be able to save on Medicare premiums. It depends on your income, medical expenses, and if you saved for retirement.

Reducing your Medicare Part B and Part D premiums through an IRMAA appeal

The Centers for Medicare and Medicaid Services (CMS) sets the base Medicare Part B premium each year. Nearly every Medicare beneficiary pays the base premium. However, if you are a high-income earner, then you may pay more than the base premium. If you made more than $88,000 as an individual or $176,000 as a married couple in 2019, your 2021 Part B premium would include an income-related monthly adjustment amount (IRMAA). Your Part D premium will be higher, too.

However, if you are no longer making that same higher income you were two years ago due to a qualifying event, such as retirement, then you can appeal your higher Medicare premiums. If your appeal is approved, your IRMAA will be removed from your premiums, and you’ll pay the standard base rate.

Paying your Medicare premiums with Health Savings Account funds

A health savings account (HSA) is a savings vehicle that allows you to put pre-tax dollars in savings that you can then use to pay for qualified medical expenses. You can pay most Medicare premiums with funds from your HSA, such as your Part A premium (if you have one), Part B premium, Part C premium, and Part D premium. However, you can’t use HSA funds to pay your Medigap premium.

Qualifying for Medicaid

Medicaid is a social welfare program to provide free or low-cost health care services to low-income individuals and families. Although Medicaid is administered at the state level, it is usually jointly funded by both state and federal tax dollars. Medicaid is income-based, and income levels vary by state, meaning you may qualify in one state but not another. If you are eligible for both Medicare and Medicaid, you are considered dual eligible and could save on Medicare premiums.

There are four levels of Medicaid benefits for Medicare purposes: Qualified Medicare Beneficiary (QMB), Specified Low-Income Medicare Beneficiaries (SLIMB), Qualifying Individual (QI), and Qualified Disabled and Working Individual (QDWI). Each level has different income requirements, with QMB having the lowest income requirement. If you are a QMB, Medicaid will pay your Part A and Part B premiums as well as your copays and deductibles. Other levels of Medicaid may also pay for your Part B premium. Every Medicare beneficiary who qualifies for Medicaid also qualifies for the Low-Income Subsidy, also called Extra Help, for Part D.

Lowering your Medicare Part D premium with the Low-Income Subsidy

The Low-Income Subsidy (LIS) program for Medicare Part D can lower or eliminate your Part D premium. It can also lower or eliminate your deductible, coverage gap, and copays. There are three levels of the program. You can qualify for a full subsidy, half subsidy, or quarter subsidy. If you are eligible for the full subsidy, you are credited the total benchmark premium for your state, and that will go toward your Part D premium.

For example, in Texas in 2021, the benchmark premium is $22.48 (the lowest in the country). If you qualify for the full subsidy and have a Part D premium of $22.48 or less, you will eliminate your Part D premium with LIS. If you are eligible for a half or quarter subsidy, you will get a partial credit but could still eliminate your premium depending on its price.

Reducing your Medicare Part B premium with a Medicare Advantage plan

A common misconception about Medicare Advantage (Part C) plans is that you don’t have to pay your Part B premium once enrolled. However, that isn’t the case. You must have and continue to pay for Part A and Part B to have a Medicare Advantage plan.

However, some Medicare Advantage plans give their beneficiaries a Part B premium allowance each month to reduce their Part B premium. This plan feature is rare and not offered everywhere. Also, Medicare Advantage plans can lower or eliminate this allowance year to year.

The Part B premium allowance is not the sole reason you should choose a Medicare Advantage plan over another Medicare Advantage or Medigap plan. You will still want to select the most cost-effective plan for you that includes your doctors in its network.

Deducting your Medicare premiums from your taxes

If you have spent enough on medical expenses for the year, you may be able to file an itemized deduction on your 1040. In 2021, your medical costs must exceed 10% of your adjusted gross income (AGI) for you to qualify for a deduction. If you are eligible, you may be able to deduct your Part B, Part C, Part D, and Medigap premiums.

Conclusion

If none of these options help lower your Medicare premiums, you may need to consider other alternatives, such as a part-time job or side hustle to lower your Medicare costs.  The best way to guarantee that Medicare premiums won’t have a harsh impact on your retirement, however, is to set aside money for health care costs before you retire. .