turn 65? Here’s what to know about Medicare Part B. personal Finance

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Created in 1965, Medicare is the nation’s premier government-funded health insurance program. Today, Medicare covers approximately 64 million Americans, or about 18% of the population – most of whom are Retired 65 years and above,

Of these enrolled, about 56% — or 36 million individuals — participate in Original Medicare, the traditional fee-for-service health insurance program that is managed and administered directly by the federal government. Basic medicine consists of two parts, Part A and Part B.

Retirees who have worked for more than 40 quarters (10 years) and pay payroll taxes will qualify for premium-free Part A, the half of Original Medicare that covers hospital stays, surgery, skilled nursing care and other benefits. Provides coverage for “elder” health care. Services.

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Although Medicare Part A is not completely free and still comes with other cost-sharing charges like deductible and co-insuranceThere is no monthly premium attached to this portion of Medicare – hence its name.

Understanding Medicare Part B Monthly Premiums

However, Part B works a little differently. No matter how long you worked, you still have to pay monthly premiums for this half of Original Medicare. As always, deductibles and cuminsurance fees apply In Total For your monthly premium payment.

Medicare Part B complements Part A, including doctor’s office visits, preventive care services (such as flu shots, cancer screenings, and annual wellness visits), mental health care, clinical research, medical equipment, and other therapeutics. Pays for urgently needed outpatient services.

In 2022, the standard Part B premium is $171.10 per month, or $2,053.20 for the full year. You become eligible for Medicare Part B when you turn 65, and the cost of monthly premiums will be automatically deducted from your Social Security benefit payments. If you are not yet receiving Social Security, you will receive a bill for your Part B charges instead.

All About Income Related Monthly Adjustment Amount (IRMAA)

While most retirees will pay standard Part B monthly premiums, if you earn above a certain threshold, you will be assessed an additional income-related monthly adjustment amount (IRMAA). IRMAA surcharges are significant and can drive up the cost of their premiums to $578.30 per month, or $6,939.60 per year.

To calculate your income for IRMAA purposes, Medicare will calculate a variant of your modified adjusted gross income, or MAGI, using a two-year look-back window. They calculate your MAGI as adjusted gross income (AGI) plus tax-free interest income, which includes distributions received from funds such as Vanguard Tax-Exempt Bond ETFs,

For example, in 2022, your 2020 MAGI will be used to determine whether you will be rated IRMAA.

Fortunately, if you’re married and have less than $182,000 (or are single and earn less than $91,000) in 2020, you won’t be assessed IRMAA, and you’ll pay standard Part B premiums.

However, retirees should importantly note that withdrawals from traditional IRAs and 401(k) plans count as taxable income (and therefore increase AGI), such withdrawals. Will Increase your income for Medicare purposes and put you at risk of being assessed an IRMAA surcharge.

On the other hand, because Roth contributions are made using after-tax dollars — and because qualified distributions are tax-free — withdrawals from Roth accounts Will not done Increase your income for IRMAA calculation purposes.

For these reasons, if you have a large traditional IRA or 401(k) account balance, you may want to consider performing Roth conversion or structure 401(k) Required Minimum Distributions (RMDs) In a way that keeps your income within the IRMAA limit.

Part B’s Cost-Sharing Fee

Similar to Part A, Medicare Part B also comes with cost-sharing fees, including a deductible and a coinsurance split.

For 2022, the annual deductible is $233. You need to meet your deductible before Medicare can start covering anything. Unlike Medicare Part A, your Part B deductible is not calculated based on the benefit period, and instead you are charged a deductible for the entire year.

After satisfying your annual deductible, Medicare Part B will pay 80% of all subsequent costs for covered services, and you will be responsible for the remaining 20%.

For example, let’s say Jennifer is a retiree enrolled in Medicare Part B. She hasn’t received the deductible for the year and recently spent a $1,500 bill for a new wheelchair.

She would first pay a deductible of $233. Of the remaining $1,267, Medicare will cover 80% of the cost, or $1,013.60. Jennifer is billed over the remaining $253.40, or 20%, of her deductible. In all, the total cost of his wheelchair is $486.40.

If she purchases a $500 CPAP machine in the same year, she won’t have to pay another deductible. Medicare will cover 80% of the full cost, or $400, while the remaining 20%, or $100, will be owed.

All told, let’s say Jennifer pays standard Part B premiums, then her combined out-of-pocket costs (premium, deductibles, and coinsurance fees) for the year would total $2,627.60.

Although this is only one example, it shows that out-of-pocket costs under Part B alone can easily exceed several thousand dollars a year. Thankfully, being aware of these costs is a great first step toward planning and budgeting wisely for all of your health-related needs in retirement.

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