Medicare comes at a price; it is not free. The cost of Medicare can be hard to take on,
especially if your only income is your Social Security check. That is why budgeting and
preparing for the cost of Medicare is exceptionally vital as you approach Medicare Age.
Most beneficiaries retire around the same time they start Medicare which means costs
are a big part of their future. There are a few different things you’ll want to consider as
you prepare for the cost of Medicare.
1: Know That You’ll Pay More If You Made More
Five words: Income Related Monthly Adjustment Amount (IRMAA). Each year Social
Security looks at your modified adjusted gross income (MAGI) on your tax return from
two years before. That MAGI will determine what you will pay in the current year. If your
income is above a certain threshold, you will pay more than the standard base premium
for Part B. There are several thresholds, so what you will pay depends on your reported
MAGI.
It does make a difference if you file individually or jointly, as the income brackets are
different for both filings. You’ll want to keep in mind that Medicare is individual.
Therefore, you and your spouse must pay the Part B premium and the IRMAA surcharge if
you are subject to IRMAA.
Appealing IRMAA
However, IRMAA is not permanent, and you can appeal it if you qualify for one of the life-
changing events. You would mark on the SSA-44 form which qualifying event fits your
situation and provide the necessary documentation to submit to Social Security.
Once you submit it to Social Security, it can take about 90 days for a representative to
process the appeal. While you are waiting for the response, you will have to pay the
IRMAA surcharge. If the appeal is approved, they generally send a refund check for the
excess amount you paid.
2: Know How You Will Pay for Medicare
The frequency of premium payments is something you will want to know before starting
Medicare. You don’t want to be blindsided by a hefty bill and then scramble to pay it.
Social Security will bill you for your Part B premium when you aren’t receiving Social
Security benefits. That bill is generally a quarterly bill. However, they have sent bills
asking for five months’ worth of premiums. It can be costly, whether it is three months or
five months they are billing you for.
Therefore, you’ll want to prepare for this bill and be ready to pay. You will be able to set up
automatic payments through Medicare Easy Pay, your MyMedicare account, or your
bank. Those payments can be monthly.
3: Know the Late Enrollment Penalties and
Creditable Coverage
If you or your spouse plan on working past 65, you’ll want to know if your coverage is
creditable. If you or your spouse actively work for an employer with 20 or more
employees and that insurance covers you, that coverage is creditable.
However, if there are less than 20 employees, the coverage is not creditable. Additionally,
retiree health plans, VA benefits, Tricare, and Affordable Care Act (ACA) plans are not
creditable for Medicare. When you don’t have creditable coverage, you must enroll in
Medicare Part A and Part B when you are first eligible. If you fail to enroll when you’re
first eligible, you’ll begin to accrue a late enrollment penalty.
The Part B penalty is 10% for every 12 months you go without Part B when you should
have been enrolled. If your coverage is also not creditable for Medicare Part D or you
didn’t have any prescription coverage, you can have a late enrollment penalty for Part D
as well.
Contributing to a Health Savings Account (HSA)
If you contribute to an HSA while enrolled in any part of Medicare, you can be subject to
an IRS penalty. You must stop contributing to your HSA account before your Medicare is
effective. However, when you should stop contributions depends on when you plan to
start your Medicare benefits.
4: Know the Retail Cost for Brand Name Drugs
A big shock to many beneficiaries is the cost of drugs with Medicare. Generally, the cost of
prescriptions under employer coverage is relatively reasonable. However, once you begin
Medicare, your drug plan may have a deductible and coinsurance that you are responsible
for. Most brand-name drugs fall into the higher tiers, which means you’ll pay a percentage
of the cost of the drug. During the year, you could potentially pay 25% of the cost of
expensive medications.
Before you start Medicare, you’ll want to look at the retail price of your drugs. That can
help give you an idea of how much you will pay. Your costs will differ with your Part D
plan, but it lessens the shock by knowing how much the drug truly costs.
5: Know When to Take Social Security Benefits
You can receive Social Security benefits as early as 62 years old. However, when you
begin receiving them before your Full Retirement Age (FRA) your monthly benefit will be
lower than what it could be. If you wait until your FRA, you will receive your maximum
Social Security benefit. Knowing this may help you determine when to take Social Security
benefits.
You may consider speaking with a financial advisor to help you determine when would be
the best time to take those benefits. You’ll also want to consider that once you begin
receiving Social Security benefits and enroll in Part B, your Part B premium will
automatically be deducted from your check each month.
Final Point
Once you begin Medicare, you’ll have to pay the premium and the premiums of other
plans you enroll in. Preparing beforehand for every scenario and situation will be
beneficial, so you aren’t blindsided. You’ll want to consider these tips above before
beginning Medicare and give yourself plenty of time to research Medicare.
