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Let’s get right to the point. In 2020, the Medicare Part B deductible came in at $198. This is a $13.00 increase from where we were in 2020. That’s a 7% increase year over year and a very similar increase to what we saw (on a percentage basis) with the Medicare Part A deductible.
If you remember, the Medicare Part B premiums came in up 6.7% from where we were in 2019.
Now a lot of people would stop right there and not really think about this much more. But here at Max out of Pocket, we like to dig a bit deeper. So let’s make sure we completely understand the ins and outs of the Medicare Part B deductible and review a little bit of its history. I sometimes wonder if I am the only one keeping track of this stuff.
What is the Medicare Part B Deductible?
As a Medicare beneficiary, we are expected to pay for the first $198 towards Medicare Part B services we receive.
Generally, Medicare Part B covers services provided on an outpatient basis. This includes coverage for things like clinic visits, laboratory testing, home health care, and ambulance services. It also covers more intensive services provided on an outpatient basis like surgeries, diagnostic imaging, chemotherapy, and radiation therapy. Even if these services are provided in the hospital setting, if it is an outpatient service, Medicare Part B will be responsible for covering it and the Medicare Part B deductible will be applied to it.
A Medicare Part B beneficiary who is regularly consuming medical services on an outpatient basis has likely already seen a bill for the 2020 Medicare Part B deductible. That’s because this deductible is “re-set” on January 1st each year and we are already sitting pretty deep into February.
We all know Max likes using buckets to describe all things personal finance, and this concept is no different. The Medicare Part B Deductible is a set amount of money the Medicare program expects us to pay before they will start paying. In 2020, once we fill up our Medicare Part B deductible bucket with 198 dollars, Medicare Part B should start paying our outpatient services.
Unfortunately, out-of-pocket costs don’t completely stop when we hit this deductible. We are still on the hook for a 20% coinsurance after we fill up our Medicare Part B deductible bucket.
A Brief History of the Medicare Part B Deductible
Way back in 1966 when Medicare first showed up on the radar, the Medicare Part B deductible came in at $50. It hung out around there for seven years or so before it saw an increase to $60 in 1973. Then, it stayed at $60 for another 9 years until 1982 when it got another bump to $75. It hung out there until 1991 when it got a $25 bounce up to $100.
From there, nobody touched the Medicare Part B deductible for 14 years. It held at $100 from 1991 until 2004. Take that inflation.
After that, we started seeing this number move around pretty regularly. I summarized those amounts below in a nice easy to understand table. It looks like it was held flat during the recession years at $135. Things crept up from there but were reset in 2012 back down to $140 which is the only year we ever saw a reduction. Max predicts we are set to break $200 in 2021, and I’ll wager $200 on that if there are any takers out there.
I suppose we shouldn’t complain too much. According to this random inflation calculator from the internet, $50 in 1966 would be worth about $406 in 2020. So we have it easy compared to our 1966 counterparts.
Can I Avoid Paying the Medicare Part B Deductible?
These days, Max is doing a lot of research on Medigap policies. These policies are secondary to Medicare and often pick up out-of-pocket costs left to the patient by the traditional Medicare program. Generally, these policies are sold by commercial carriers regulated by federal law and must be clearly identified as “Medicare Supplement Insurance”. In most states, these “standardized policies” are identified by the letters (A-N) to clearly identify what they are covering. Here is a look at which plans cover the $198 Medicare Part B deductible:
Yes = the plan covers 100% of this benefit
Be careful here though; states like Massachusetts, Michigan, and Wisconsin have some weird rules around these Medigap plans.
What’s interesting is a law passed way back in 2015 that banned the sale of Medigap plans that cover the Medicare Part B deductible starting in 2020. The goal is to curb our utilization of Medicare Part B outpatient services. Don’t take my word for it though, take a read of the law yourself.
So now that this law has kicked in, we are no longer allowed to purchase Medigap plans C and F. That’s because those plans pay our $198 Medicare deductible. The good news is those already on Medigap plan C or F before January 1, 2020, are grandfathered in and can keep those plans.
It is much more likely a Medicare beneficiary will get hit with their outpatient Medicare Part B deductible than the inpatient Medicare Part A deductible. A simple clinic visit to a doctor will trigger a bill for it, so we need to plan for it.
We don’t pay the Medicare Part B deductible directly to Medicare. Usually, the physician or organization providing the care collects this fee. So you will want to work with them directly on payment plan options or financial aid. Just to be clear, we don’t have to pay this fee upfront to actually receive services; we can ask the provider of care to bill us for it after the services are received.
Part of the reason we have out-of-pocket costs like this is to curb the utilization of Medicare Part B services. I will call it the government use of a market force to manage utilization. For many seniors, $198 is a lot of money and an expense they should budget for each year. In 2020, the average monthly social security payment for a retiree is $1,503. If a retiree living off social security gets hit with this deductible in January, they just saw 13% of their monthly income leave their pocket.
But people with early retirement dreams like Max build entire portfolios to plan for costs like this. So assuming this number stays somewhat stable, following the 4% rule, we would want to plan on having an extra $5,000 put away for retirement to make sure we can cover this cost every year when we hit traditional Medicare age.
$198 X 25 = $4,950
Did you know Medicare Part B had a dedcutible?