The country’s best government-funded health insurance program “Medicare” was established in 1965. About 64 million Americans, or about 18% of the population, are covered by Medicare today; most beneficiaries are retirees (65 years or older). In addition, about 56% or 36 million enrolled people use Original Medicare, the traditional fee-for-service health insurance program directly managed and run by the federal government. Original Medicare has two parts: Part A and Part B. Part A of Original Medicare covers hospitalizations, operations, skilled nursing care, and other “big” healthcare services. No monthly premiums are associated with Medicare Part A, even though it has other cost-sharing expenses. Understanding the monthly premiums for Medicare Part B Part B operates somewhat differently. You will always be required to pay a monthly premium for this other half of Original Medicare, regardless of how long you have worked. In addition to your monthly premium payments, there are deductibles and coinsurance fees. Medicare Part B works with Part A to cover doctor visits and preventative care (i.e., cancer screenings, flu shots, annual wellness visits, mental health services, clinical research, medical supplies, and other essential outpatient services). The standard Part B premium in 2022 will be $171.10 per month or $2,053.20 annually. When you reach Medicare eligibility at age 65, the monthly premiums for Medicare Part B will be deducted from your Social Security benefits. Your Part B charges will be billed if you aren’t yet receiving Social Security. The Income Related Monthly Adjustment Amount (IRMAA) Most retirees will pay the standard monthly premium for Medicare Part B. However, if their income exceeds a certain threshold, they will also be charged an additional Income Related Monthly Adjustment Amount (IRMAA). Significant IRMAA surcharges can increase the cost of their premiums to as much as $578.30 per month or $6,939.60 per year. Medicare will compute a different version of your modified adjusted gross income, or MAGI, using a two-year look-back window to determine your income for IRMAA purposes. Your MAGI is calculated by adding your AGI to any tax-free interest you may have, such as distributions from investments, such as the Vanguard Tax-Exempt Bond ETF. For instance, whether you will receive an IRMAA in 2022 will depend on your 2020 MAGI. Fortunately, if you were married and made less than $182,000 (or less than $91,000 if you were single) in 2020, you would only have to pay the standard Part B premium. However, retirees must be aware that because withdrawals from traditional IRA and 401(k) plans are treated as taxable income (raising AGI), they will increase your revenue for Medicare purposes and put you at risk of paying an IRMAA surcharge. On the other hand, withdrawals from Roth accounts won’t increase your income for IRMAA calculation purposes because Roth contributions are made using after-tax money and because qualified distributions are tax-free. For these reasons, you might want to think about performing Roth conversions or structuring your 401(k) required minimum distributions (RMDs) so that your income is below the IRMAA cut-off if you have sizable traditional IRA or 401(k) account balances. Cost-sharing charges for Part B Medicare Part B has cost-sharing expenses, such as a deductible and a coinsurance ratio, just like Part A. The annual deductible for 2022 is $233. Before Medicare starts to pay anything, you must first meet your deductible. You are only charged a single deductible for the entire year, unlike Medicare Part A, which bases its calculation on benefit periods. Medicare Part B will cover 80% of all subsequent costs for covered services after your annual deductible has been met, while you are responsible for the remaining 20%. Consider Jennifer, a retiree who is covered by Medicare Part B. She recently incurred a $1,500 bill for a new wheelchair and has not met her monthly deductible. She must first pay a deductible of $233. Medicare will pay $1,013.60, or 80%, of the remaining $1,267. The remaining $253.40, or 20%, more than Jennifer’s deductible, is billed to her. Her out-of-pocket expenses for her wheelchair come to $486.40 in total. She wouldn’t have to pay another deductible if she later spent $500 on a CPAP machine in the same calendar year. Medicare would cover the remaining 80%, or $400, leaving her responsible for the remaining 20%, or $100 of the total cost. In total, Jennifer’s out-of-pocket expenses (premiums, deductibles, and coinsurance charges) for the entire year would be $2,627.60, assuming she pays the standard Part B premium. Even though this is merely an illustration, it shows how out-of-pocket expenses under Part B alone can easily exceed several thousand dollars annually. Enrolling for Medicare Part B Those already receiving Social Security benefits at age 65 automatically have Part B of Medicare enrolled. Your Social Security check will be reduced by the amount of your monthly Part B premium. If you have delayed collecting Social Security past age 65, you can enroll in Medicare through the Social Security website. Medicare Part B enrollment is recommended for those 65 or older, either retired or employed by a small business with fewer than 20 employees close to their 65th birthday. Maximize your enrollment chances during the first period, which consists of the three months preceding your birthday. You may have to pay more later if you don’t enroll during that window. You don’t have to rush to enroll at age 65 if you want to stay on your workplace health plan as long as your employer has at least 20 workers and you are still employed. There is a limited period after retirement during which you can apply for Medicare. For example, suppose you received your Social Security benefit and were automatically enrolled in Medicare Part B. In that case, you have the right to opt out if you also receive coverage through your employer.
Contact Information:
Email: [email protected]
Phone: 9143022300
Bio:
My name is Kevin Wirth and I have worked in the financial services industry for many years and I specialize in life insurance and retirement planning for individuals and small business owners, with a specialty in working with Federal Employees. I am also AHIP certified to work with individuals on their Medicare planning. You can contact me by e-mail or phone. I look forward to the opportunity of working with you on these most relevant areas of financial [email protected] 914-302-2300
