Understanding the Medicare Part B Fee Structure and Benefits
Part A is probably free, but you will pay a monthly premium for Part B
Throughout your working years, you pay into Medicare; 1.45% comes from your paycheck, and your employer pays another 1.45%. If you're self-employed, you're responsible for the entire 2.9%. Unfortunately, retirement doesn't mean you stop paying into Medicare. Part A is free for most people, but Parts B and D come at a cost. Social Security recommends that you enroll during the three months before you turn 65. If you don't sign up during this initial enrollment period, you might have to pay a late enrollment penalty fee.
Part B Fees
The 1.45% or 2.9% Medicare deduction you paid throughout your working years covers Part A, but Part B comes with a monthly premium that is deducted from your Social Security benefits. If you don't get Social Security or related benefits, Medicare will send you a bill. The standard monthly premium for 2021 is $148.50, but the premium is based on income, so you may pay more.
The federal government pays about 75% of the cost of the Part B premium, leaving you with only 25% of the cost. For higher-income individuals, they will pay a larger percentage based on their earnings. Social Security calls it the Income-Related Monthly Adjustment Amount (IRMAA). Social Security estimates that only 5% of all Medicare recipients will pay more than the $148.50.
To determine if you will pay the extra fee, Social Security looks at your tax return on file with the IRS for two years ago. If you're married filing jointly, you'll start paying higher Part B premiums when your modified adjusted gross income is above $176,000. If you file your taxes using a different status, it's $88,000. The chart below shows the income ranges and the amount you will pay.
|Medicare Part B Premium Costs|
|Single||Married, Filing Separate||Married, Filing Jointly||Amount Owed|
|$88,000 or less||$88,000||$176,000||$148.50|
If you disagree with Social Security's determination of your monthly premium, you can file an appeal. The easiest way to file the appeal is online, but you can also appeal in writing or in-person at a Social Security office.
Like most insurance policies, you have to pay a deductible before insurance kicks in. With Medicare Part B, your deductible is $203 per year. After that, you typically pay 20% of the Medicare-approved amount for most doctor visits, outpatient therapy, and certain medical equipment. That's why Medicare Part B is often referred to as doctor insurance. And while the deductible may seem low, and the 20% is pretty standard, it's important to note that there's no cap on the 20%. Depending on your medical treatment, the bill could be very costly.
If you have enough medical expenses, you can choose to file an itemized deduction and deduct your medical expenses—including your Medicare premiums. Medicare premiums, like most insurance health insurance premiums, qualify for a Schedule A deduction once your medical expenses for the year exceed 7.5% of your adjusted gross income.
Medical care expenses include payments for the diagnosis, cure, alleviation, treatment, prevention, or treatments affecting any function of the body. If you're self-employed and make a profit for the year, you may be eligible for a health insurance deduction, which will lower your taxable income for the year.
Medicare Advantage and Medigap
Because traditional Medicare can leave you with very high out-of-pocket expenses, many people elect to enroll in a Medicare Advantage or Medigap policy, which are policies through outside insurance companies that extend Medicare's coverage for an extra monthly fee. The fees depend on your chosen plan. Parts A and B, and sometimes Part D, are combined into one of these plans, sometimes referred to as Part C. Insurance professionals often recommend supplemental coverage to protect against financially catastrophic medical bills that traditional Medicare doesn't cover.