Many retirees may be surprised to learn that the investments they make can have an impact on their Medicare premium. This is because Medicare premiums are based on your modified adjusted gross income, or MAGI, as derived from the most recent tax data Social Security receives from the IRS. Investment decisions, such as asset allocation, can directly influence your MAGI and, therefore, your Medicare premiums. Additionally, long-term care planning and health savings accounts HSAs can also have an indirect impact on Medicare premiums by potentially lowering out-of-pocket costs that can add up over time.

Generally, the higher your MAGI is, the greater your Part B and D premiums will be. The good news is that if you have been paying a surcharge because of a one-time spike in your income, you can ask for a review by Social Security to see if you are eligible for a reduction or waiver of the extra cost. Some examples of this type of life change include a large withdrawal from an IRA or other retirement account, a Roth conversion, or even the vesting and exercise of stock options.

The surcharge is in place because Social Security actuaries project that Investments and Medicare premiums per-enrollee spending will grow faster over the next decade than it did during the previous decade and somewhat more rapidly than private insurance per-enrollee spending. This is mostly due to projected increases in outpatient hospital services, physician-administered drugs and new medications. However, lower-than-projected growth in prescription drug expenditures and a slowdown in the generic dispensing rate could offset some of these expected increases.

Medicare actuaries also predict that a higher percentage of Medicare beneficiaries will pay a Part B deductible in 2024 than they did in 2022. This is partly because the 2022 premium included a contingency margin to cover projected Part B spending for a new medication, Aduhelm. Lower-than-projected Part B spending has resulted in much larger reserves in the Supplementary Medical Insurance Trust Fund, so a lower-than-expected premium is possible.

The other reason the premiums are likely to be lower than expected is that CBO’s most recent long-term budget projections show that Medicare’s per-enrollee spending growth is slower than private health insurers’, and that option 1 which would increase the basic monthly premium by a specified percentageis more costly than both options 2 and 3.

In addition to lowering their Medicare premiums, individuals can use investment strategies to manage their overall retirement income. This may include implementing a more diversified portfolio that focuses on growth, and taking advantage of tax-deferred investment opportunities. This can help reduce the degree to which Social Security benefits and Medicare premiums are taxed, while preserving assets that can be used for long-term care expenses in the future, thus easing the strain on Medicare in the years to come.