Health Care in Retirement – Medicare Part B

In Part 3 of our Health Care in Retirement Series, we are going to review in-depth Medicare Part B.  To jump to any of the other parts of this series now, use the links below:

• Part 1: Health Care in Retirement – Options for Obtaining Health Insurance
• Part 2: Health Care in Retirement – Medicare Part A (Hospitalization)
• Part 3: Health Care in Retirement – Medicare Part B (Physician Services)
• Part 4: Health Care in Retirement – Medicare Part C (Medicare Advantage)
• Part 5: Health Care in Retirement – Medicare Part D (Prescription Drugs)
• Part 6: Health Care in Retirement – Medigap Plans (Medicare Supplement Insurance)

What is Medicare Part B?  

Part B is coverage for services performed by doctors and other healthcare professionals.  It also covers outpatient care, durable medical equipment, and preventative services.  Part B is one of two components that combine to form what is known as Original Medicare.  Part A is the first component and was reviewed in Part 2 of our Health Care in Retirement Series.

How Much is the Monthly Premium?

Part B premiums are dependent on your income and tax filing status.  In 2022, the lowest premium cost is $170.10 per individual per month.  This is based on household income of $91,000 or less for a single person ($182,000 or less for a married couple filing taxes jointly).  Premiums are deducted from Social Security or Railroad Retirement Board benefits directly.  If you’re not collecting a benefit from either of these programs, you will be billed for the premium.

Once income exceeds the base amount, a surcharge known as the Income Related Monthly Adjustment Amount (IRMAA) is added to the Part B monthly premium.  IRMAA rises with income and in 2022 tops out at $408.20 per individual per month once income exceeds $500,000 for a single person ($750,000 for a married couple filing taxes jointly).

Because IRMAA surcharges can be particularly costly, structuring the sources of your income in retirement, including amounts generated from Roth conversions, can be an effective way to minimize the cost of Medicare coverage.

Does Part B have a deductible and out-of-pocket maximum?

Yes and no.  In 2022, the Part B deductible is $233 per individual per year.  However, Part B does not limit an individual’s out-of-pocket costs related to copayments and coinsurance.  Because of this, many Original Medicare enrollees obtain a Medigap plan to limit their costs under Part B.

Does Part B have any copayments or coinsurance requirements?

It depends.  Most preventative services have no copay or coinsurance requirements if the provider accepts assignment of payments from Medicare

However, Part B generally requires that individuals pay a 20% coinsurance rate for services and durable medical equipment that aren’t considered preventative.  The gross amount charged is based on the Medicare Approved Amount, which is the amount that the service provider is permitted to charge under Medicare.

When am I eligible to sign up for Part B?

Like Part A, you are eligible for Medicare Part B coverage at age 65.  The Initial Enrollment Period is seven (7) months long and begins three (3) months prior to the month in which you turn 65.  It ends three (3) months after the month of your birth.

If you miss your Initial Enrollment Period, you can enroll in Part B between January 1 and March 31 during what is known as the General Enrollment Period.  Coverage obtained during this period will begin on July 1.

If you miss the initial or general enrollment periods because you are still employed and maintaining creditable coverage, you will be eligible for a Special Enrollment Period that will begin in the month you stop working or lose your group coverage, whichever occurs first.  This enrollment period ends eight (8) months from the earlier of the two dates.

Do I have to sign up for Part B?

Like with Part A, it depends.  If you’re already receiving your benefit from Social Security or the Railroad Retirement Board, you’ll be automatically enrolled once you turn age 65.

However, if you (or your spouse) are still employed and you maintain creditable coverage, which is defined as group health coverage through an employer with at least 20 employees, you are not required to sign up for Part B when you turn 65.

Instead, you can delay enrolling in Part B (or opt-out if you were automatically enrolled) as long as you maintain creditable coverage through a qualifying group plan.  COBRA, retiree coverage, insurance obtained through the Veterans Administration, or individual coverage purchased through federal and state health exchanges do not qualify for this exemption.  Military members and their family who are not active duty but are covered by TRICARE must also enroll in Part B when eligible to avoid penalties.  The Medicare website has an online tool that can assist you in determining whether or not you need to sign up

Are there penalties for not signing up for Part B?

It depends.  If you reach age 65 and do not maintain creditable coverage through an employer plan and you’re not active-duty military covered under TRICARE, you’ll pay a 10% late-enrollment penalty for each year you could have signed up for Part B but failed to do so.  Unlike, the late-enrollment penalty for Part A, this penalty is permanent for as long as you carry Part B.  It is also separate from any penalties assessed on coverage under Medicare Parts A and D.

However, if you maintain creditable coverage through an employer-provided health insurance plan or are covered under TRICARE while on active duty, late enrollment penalties don’t apply so long as you enroll during the 8-month Special Enrollment Period that begins on either the day you stop working or the day in which you lose creditable coverage, whichever occurs first.

Part B and Medigap

Once you enroll initially in Medicare Part B, you start the 6-month clock for obtaining a Medigap Plan, which is an optional health insurance coverage sold by private insurance companies that help pay for some of the remaining costs that you are otherwise obligated to cover yourself under Parts A and B.

During this 6-month period, you are guaranteed by law the right to obtain this coverage regardless of your health status or the presence of any pre-existing conditions.  However, after this time period, insurers can require you to complete medical underwriting, which may result in you being charged higher premiums or being rejected altogether for pre-existing conditions.