Medicare Part B

How It Works and How It Is Funded

Medicare Part B is often called medical insurance. An easy way to think about it is that Part B primarily helps cover the doctors, outpatient care, tests, treatments, and medical services you may need.

If Part A is mainly the hospital side of Medicare, Part B is mainly the medical side.

How Part B Works

Suppose you aren’t feeling well and make an appointment with your doctor. Your doctor examines you, orders blood work, and later sends you to a specialist.

Those are the types of services that Medicare Part B generally helps cover.

Part B can help pay for things such as:

• Doctor and specialist visits
• Outpatient hospital services
• Lab tests and diagnostic services
• X-rays and certain imaging
• Preventive services
• Ambulance services when Medicare’s requirements are met
• Certain medical equipment, such as walkers, wheelchairs, and oxygen equipment
• Certain medications administered in a doctor’s office or outpatient setting

Part B also helps cover physician services you receive while you’re in the hospital.

For example, if you’re admitted to the hospital for surgery, Part A may cover the hospital facility portion of your care, while Part B may cover the surgeon and other physicians who treat you.

How Do You Pay for Part B?

Part B works differently from Part A.

Most people qualify for premium-free Part A because they or their spouse paid Medicare payroll taxes long enough while working.

Part B normally has a monthly premium.

The standard premium can change from year to year. Most beneficiaries pay the standard amount, although people with higher incomes may pay more.

For many people receiving Social Security benefits, the Part B premium is simply deducted from their monthly Social Security payment. Others receive a bill from Medicare.

Where Does the Money for Part B Come From?

Part B is funded differently from Part A.

Part A is funded primarily through Medicare payroll taxes. Part B is funded mainly through a combination of monthly premiums paid by Medicare beneficiaries and money provided by the federal government from general revenues.

In simple terms, beneficiaries pay part of the cost through their Part B premiums, and the federal government pays a substantial portion of the program’s cost using general federal funds.

That’s one reason Part B isn’t usually described as “something you already paid for” in the same way premium-free Part A often is.

Does Part B Pay 100%?

Usually, no.

With Original Medicare, Part B generally has an annual deductible that you must satisfy before Medicare begins paying its share for many covered services.

After the deductible has been met, Medicare generally pays 80% of the Medicare-approved amount for many Part B services, and the beneficiary is responsible for the remaining 20%.

For example, imagine Medicare’s approved amount for a covered medical service is $1,000.

After the applicable deductible has been satisfied:

Medicare generally pays $800.

You would generally be responsible for $200.

That’s the basic 80/20 rule people often associate with Original Medicare Part B.

There are exceptions. Some preventive services may be covered without the usual deductible or 20% coinsurance when Medicare’s requirements are met.

Why Is the 20% Important?

One important feature of Original Medicare is that the beneficiary’s 20% Part B coinsurance generally doesn’t have an annual out-of-pocket maximum by itself.

That’s one reason many Medicare beneficiaries consider additional coverage.

For example, some people purchase a Medicare Supplement (Medigap) policy to help cover certain costs left behind by Original Medicare.

Other beneficiaries choose a Medicare Advantage plan, which provides their Medicare-covered Part A and Part B benefits through a private insurance company and uses its own copays, coinsurance, provider networks, and annual out-of-pocket limit.

Can Your Part B Premium Be Higher?

Yes.

Higher-income Medicare beneficiaries can pay an additional amount on top of the standard Part B premium. This is known as the Income-Related Monthly Adjustment Amount, or IRMAA.

In simple terms:

The higher your income, the more you may be required to pay for Medicare Part B.

Medicare generally uses income information reported to the IRS to determine whether IRMAA applies.

Do You Have to Take Part B?

Part B is generally optional, but delaying it can have consequences.

Some people delay Part B because they are still working and have qualifying employer health coverage through their own current employment or their spouse’s current employment.

But someone who delays Part B without qualifying coverage may later face a late-enrollment penalty, and that penalty can potentially continue for as long as the person has Part B.

That’s why someone approaching Medicare eligibility should not automatically assume, “I’m still insured, so I don’t need Part B.” The type of coverage and employment situation matter.

A Simple Way to Remember It

Think of Medicare Part B as your medical insurance for doctors and outpatient healthcare.

Part A: Think hospital and inpatient care.

Part B: Think doctors and outpatient medical care.

Most people don’t pay a monthly premium for Part A because of their work history.

Most people do pay a monthly premium for Part B.

And with Original Medicare, after the applicable Part B deductible, Medicare generally pays 80% of the Medicare-approved amount for many covered Part B services while the beneficiary is responsible for 20%.

So if someone asks, “What exactly am I paying that Part B premium for?”, a simple answer is:

“Part B is the part of Medicare that helps pay for the doctors, tests, outpatient treatments, preventive care, and other medical services you may need. Your monthly premium helps fund that coverage, while the federal government pays a substantial portion of the program’s overall cost.”