Medicare is a government health insurance program for individuals over the age of 64, with coverage that plays an important role in maintaining medical costs as you age. Medicare was enacted in 1965, and it is designed to provide health insurance coverage for those 65 years of age or older who have paid into Medicare for at least a decade. While Medicare will not be able to pay for everything, it helps to have a thorough understanding of some of the expenses that Medicare recipients will face, as well as who is eligible. However, Medicare can be expensive, especially when you have to foot the premiums by yourself. To further reduce premiums, it helps to understand the ins and outs of the Medicare system, and then how to take actionable steps to lower costs.
Understanding Medicare And Medicare Costs
Medicare is a health insurance program by the federal government for US citizens who are 65 years and older as well as younger individuals who have disabilities. You’re entitled to Medicare if you are at least 65 years of age, a US citizen or a permanent legal resident for the past five years. The federal health insurance program will cover some disabled people who are under the age of 65.
Enrolling into Medicare.
If you receiving Social Security benefits when you are 65, then you will automatically be enrolled in Part A of Medicare. This will cover hospital costs, with Part B covering the cost of doctor visits. Medicare Part D covers the cost of prescription drugs. However, Medicare Part D requires a separate enrollment. If you aren’t receiving Social Security benefits, you will have to sign up via the official website. You typically should do so in the seven-month time-frame around your 65th birthday to avoid any permanent penalties.
With most people who are 65 years of age or older eligible for Medicare, you might qualify for premium-free Part A if you or your spouse worked and paid into it via taxes for at least a decade. You can get premium-free Part A if you are getting retirement benefits from Social Security, are eligible to receive Social Security, but you have not filed for them as of yet, or had a government job. For unique scenarios, there is a dedicated Medicare.gov eligibility tool.
The Medicare program is funded by the Social Security Administration, with most Americans paying about 1.45% of taxes to the administration. The taxes go to the Federal Insurance Contributions Act, which directly funds Medicare.
Medicare Premiums Are Expensive, Do You Need Medicare?
Nearly every American who is 65 years of age or older is eligible for Medicare, with almost all of them being eligible for Part A with no premiums. Even though the majority of recipients are satisfied with the benefits of Medicare, not everyone in this age group wants Medicare, with some feeling forced or pressured to enroll.
If you or your spouse have worked in a job where Medicare taxes were withheld, you’ll automatically become eligible for Medicare once you are 65. Recent immigrants may not be eligible, but once they have become legal residents for at least five years, they may be eligible for purchasing Medicare coverage as opposed to getting Part A for free.
You will have to enroll or forfeit your Social Security benefits. Most are unwilling to forfeit these benefits, accepting enrollment into Medicare. Keep in mind that you are allowed to reject Medicare Part B, which typically has premiums. You can enroll at a future date, but you might face late enrollment penalties.
Understanding Medicare Premiums
Part A. Most people will not have to pay any sort of monthly premiums for Part A. If you have to buy it, it will cost about $437 a month. If you paid into Medicare taxes for less than 30 quarters, then the premiums will be $437 a month. If you paid it for 30 to 39 quarters, then the premiums will be $240 a month.
Part B. The average amount is $135.50 a month. This might be lower or higher, depending on your level of income.
Part B deductible/coinsurance will be about $185 a year. You will pay about 20% of the Medicare-approved amount for most medical services, including inpatient care and outpatient therapy.
Part C. Premiums will vary per plan. Medicare Part C is also called Medicare Advantage. Medicare Advantage gives you another way to get your Medicare Part A and Part B coverage. Private insurance companies that are approved by Medicare offer Medicare Advantage. Most of these plans will include prescription drug coverage, with some plans also offering hearing and dental care. To obtain Medicare advantage, you need to be eligible for Part A and Part B. The Medicare Advantage will pay a fixed amount per month to the companies offering it as a plan. Keep in mind that since it will largely depend on the insurance company, Medicare Advantage plans will have various levels of out-of-pocket costs. One of the unique benefits of Medicare advantage is that you will be able to enjoy Part D.
Part D helps pay for prescription drugs. Part D is relatively new, only being enacted between 2002 and 2003 period as Part of the Medicare Modernization Act. Medicare Part D seeks to alleviate some of the costs of obtaining necessary prescription drugs.
Reducing Medicare Premiums
Now that you are familiar with how Medicare premiums are set up, you will want to actively monitor them. Unfortunately, Medicare premiums could change depending on your income level. For example: what happens if you are a high-income person who is paying a surcharge on premiums and then your income level changes? How about if the circumstances are reversed: you’re a low-income beneficiary of Medicare and surcharges change unexpectedly?
Typically the higher the income, the higher the premiums. The Social Security Administration uses income stated on your tax returns from two years ago to determine premiums. Unfortunately, if your income dips, that will not be reflected on your premiums for another two years, forcing you to deal with the higher premiums.
Unfortunately, a lot can happen in a two-year window. You might’ve lost your job or taken a pay cut. Thankfully you can request that the Social Security Administration recalculate your benefits. You can also ask the administration office to review your income if you are newly divorced or married, your spouse stopped working or their hours have been reduced, income-producing property has experienced a natural disaster that is beyond your control, your spouse has experienced a cessation of employment, or you or your spouse received a settlement from a current or former employer. If income changes due to these above reasons, reducing your premiums can be as easy as submitting documentation verifying the change in income. Keep your tax documents, letters from current and former employers, pay stubs, and death certificates at hand to document the rise or fall of your yearly income.
The Social Security Administration may also determine that you owe an income-related monthly adjustment amount — or an IRMAA that stems from your Part B or Part D premium. The administration may determine that you owe an IRMAA based on the income reported on your tax returns from two years ago. If you’re unsure why you are paying an IRMAA, you can contact in the administration at 800-772-1213.
If you’re ordered to pay an IRMAA, the Social Security Administration office will send you a letter that represents the initial determination. You can request a new determination if you experience any life-changing events that cause your income to decrease. You can also make the case that the administration has used outdated information when calculating your IRMAA.
You can disagree with the decision altogether and appeal. Keep in mind that there are no strict time frames when it comes to appealing an IRMAA that is levied against you — however, it is in your best interest to file it as soon as you can.
Tax-Free Money: About Your Health Savings Account
Many retiring individuals have a health savings account that they have contributed to during their working years. This money is yours – contributions are tax-free and also come out tax-free when utilized for qualified medical costs.
You can lower your monthly premiums with the help of this health savings account. Premiums associated with Medicare Part A, B, C, and D can be reduced with the help of your health savings account.
Reducing Premiums For Low-Income Families
If your income is not low enough to qualify for one of the litany of Medicare savings programs, you may qualify for a subsidy. Medicare Part D low-income subsidy helps to lower not only premiums, but also deductibles, copays, and coverage. Unfortunately, this low-income subsidy tends to be overlooked, yet it is estimated that families can save up to $4,000 on Medicare Part D premiums.
Reducing Premiums With Your Taxes
Your premiums are tax-deductible. If you have enough medical expenses – including premiums – then you can file an itemized deduction on Form 1040.
Most programs qualify for Schedule A Deduction, but the threshold changes from year to year. In 2019, your qualifying expenses must exceed 10% of your adjusted gross income. Mention that you have had an expensive medical year to your accountant when they are preparing your tax returns.
About Aines, Carter & Associates
Catering to La Grange and Louisville Kentucky areas Aines, Carte & Associates specializes in Medicare, including Part D, Medicare Advantage, and the Medigap plans. We can also help you with long term care insurance and life insurance services. To learn more about Medicare and how to streamline premium payments, contact Aines, Carter & Associates.