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Save big bucks on Medicare premiums

Small Changes Can Save Big Bucks on Medicare Premiums

If you pay any attention to Medicare news, you’ve likely heard the term “standard premium.” Depending on income, some people pay either less or more than the standard premium for Medicare Parts B and D. In this post, we look at small changes you can make to save big bucks on Medicare premiums.

How Are Medicare Premiums Determined?

Your Medicare premiums are based on your reported taxable income from two years ago. (That means your reported income for 2018 determines your 2020 premiums.)

Since Medicare is a government program, there isn’t much room for nuance or flexibility. If your income is even $1 higher than the thresholds set by Social Security, you likely face higher premiums for Parts B and D.

Of course, the vast majority of Medicare beneficiaries pay the standard premium (hence the term standard). But, if your adjusted gross income (AGI) falls outside those limits, you may pay more (surcharges) or less (subsidies).

Medicare Part B Premium Surcharges in 2020

Before we look at ways to lower your Medicare premiums, let’s review those income thresholds. Again, the amounts listed below are based on your taxable income in 2018.

Medicare Part B Premium Surcharge

2018 Income Filing as Individual2018 Income Filing Jointly2018 Income Married Filing SeparateMedicare Part B Premium
Up to $87,000Up to $174,000Up to $87,000$144.60
$87,000 to $109,000$174,000 to $218,000Not Applicable$202.40
$109,000 to $136,000$218,000 to $272,000Not Applicable$289.20
$136,000 to $163,000$272,000 to $326,000Not Applicable$376.20
$163,000 to $500,000$326,000 to $750,000$87,000 to $413,000$462.70
$500,000 and up$750,000 and up$413,000 and up$491.60

To arrive at your income, Medicare considers both your AGI and earnings from tax-exempt interest. This is called your modified adjusted gross income, or MAGI. The most common type of tax-exempt interest comes from municipal bonds.

Medicare Part D Premium Surcharges in 2020

Unlike Part B, Medicare Part D monthly premiums vary according to the prescription drug plan you choose and your insurance provider. If your income exceeds the thresholds listed below, the surcharge amount is automatically added to your monthly premium.

Medicare Part D Premium Surcharge

2018 Income Filing as Individual2018 Income Filing Jointly2018 Income Married Filing SeparateMedicare Part D Premium
Up to $87,000Up to $174,000Up to $87,000Your Plan's Premium
$87,000 to $109,000$174,000 to $218,000Not ApplicableYour Plan's Premium + $12.20
$109,000 to $136,000$218,000 to $272,000Not ApplicableYour Plan's Premium + $31.50
$136,000 to $163,000$272,000 to $326,000Not ApplicableYour Plan's Premium + $50.70
$163,000 to $500,000$326,000 to $750,000$87,000 to $413,000Your Plan's Premium + $70.00
$500,000 and up$750,000 and up$413,000 and upYour Plan's Premium + $76.40

Who Is a Higher Earner?

If your MAGI exceeds $87,000 (filing single) or $174,000 (married filing jointly), Medicare considers you a higher earner. These amounts are slightly higher than they were in 2019, when the thresholds were $85,000 and $170,000 respectively.

This is the first adjustment for inflation since 2011. It’s why some people will see their surcharges end even though they experienced no change to their income.

How Higher Earners Can Save on Their Medicare Premiums

If your income skates near the border of any of these thresholds, a bit of planning could save you hundreds of dollars a year.

Lower Your Adjusted Gross Income

Your AGI includes total earnings minus certain deductions. In addition to employment income, total earnings includes income from interest earned, rental properties, royalties, alimony, and more. Talk to your accountant or financial advisor about ways to lower your adjusted gross income. A few options include selling underperforming stocks for a capital loss and splitting share sales over multiple years. If you’re still employed, you can increase contributions to a 401(k) or Health Savings Account (HSA) to lower your AGI.

Charitable Donations via IRA

If you have an IRA, annual withdrawal requirements make lowering your adjusted gross income difficult. But if you’re over age 70-1/2, charitable donations you make from your IRA count toward your annual withdrawal requirement without raising your AGI.

Roth IRA and HSA Income

Payouts from a Roth IRA don’t raise your AGI because they aren’t taxable. Neither are HSA payouts, assuming they’re used to pay for qualifying medical expenses.

Ask for a Reassessment

If a life-changing event led to a permanent drop in income, you can file a Medicare Income-Related Monthly Adjustment Amount form with Social Security.

The most common life-changing events are retirement, marriage, divorce, and death of a spouse. Typically, reassessment is only considered for changes you expect to be permanent.

How to Qualify for Medicare Premium Subsidies

You can also save big bucks on your Medicare premiums if you qualify for subsidies. The Extra Help program helps pay prescription drug plan costs. Medicare Savings Programs help pay Original Medicare (Parts A and B) costs.

How to Qualify for Extra Help

Qualifying for Extra Help is based on your annual income and resources, which must be below these amounts:

  • Income of $18,735 and resources below $14,610 if you file single
  • Income of $25,365 and resources below $29,160 if you file jointly

Resources include personal savings, investment accounts like stocks and bonds, and real estate. It does not include life insurance, your home or vehicles, burial plots, and personal possessions.

You get Extra Help by applying through Social Security here. However, if you have Medicare and Medicaid OR Medicare and Supplemental Security Income (SSI), you automatically get Extra Help and do not need to apply.

How to Qualify for Medicare Savings Programs

Like Extra Help, qualifying for Medicare Savings Programs is based on income and resources.

There are four Medicare Savings Programs. Qualifications and benefits are listed in the table below.

Medicare Savings Programs

Program NameMonthly Income Limit, Filing SingleMonthly Income Limit, Married Filing JointlyResource Limit, Filing SingleResource Limit, Married Filing JointlyWhat Program Helps For
Qualified Medicare Beneficiary (QMB) Program$1,061$1,430$7,730$11,600Part A Premiums
Part B Premiums
Deductibles, Co-insurance, and Co-payments
Specified Low-Income Medicare Beneficiary (SLMB) Program$1,269$1,711$7,730$11,600Part B Premiums
Qualifying Individual (QI) Program$1,426$1,923$7,730$11,600Part B Premiums
Qualified Disabled and Working Individuals (QDWI) Program$4,249$5,722$4,000$6,000Part A Premiums

You apply for these programs via your state’s Medicaid program. You’ll find every state on our Medicare State Assistance Programs article. You can also find your state’s program online by typing “[your state] Medicaid office” into your search engine.

Help Understanding Your Medicare Options

If you need help understanding your Medicare plan options, call us toll-free at 855-350-8101 to speak to a licensed agent.

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