Ask Rusty: Why Aren’t I Exempt from Medicare Part B Premium?

Dear Rusty: Why, as I continue to work after age 65 and have FICA taxes taken from my check, am I (or anyone) also compelled under the threat of penalties, rate increases, etc. to immediately take Medicare Part B? Am I not then effectively paying into the system twice? As more and more people over age 65 continue to work, isn’t that a consideration that should be evaluated by Congress — if one is working past 65, above a specific level of income and paying FICA taxes, the Medicare Part B premium is waived?

Signed: Working Senior

Dear Working Senior: FYI, 6.2 percent of the FICA payroll taxes you pay while working goes to Social Security, and another 1.45 percent goes to fund Medicare Part A (hospitalization coverage, which is free to you). None of the FICA payroll tax you pay from your work earnings goes to fund Medicare Part B (coverage for outpatient services), which is the part of Medicare for which you must pay a premium.

Said another way, your FICA payroll taxes do fund Medicare Part A, which is free to you, but do not provide any funding for Medicare Part B. Part B is funded from two primary sources — the premiums paid by beneficiaries, and the federal government from the general Treasury. Premiums from enrollees pay for about 25 percent of Part B health-care expenses and the remaining 75 percent of Part B operating expenses are paid from the general U.S. Treasury (not from Social Security money).

So, it’s necessary to separate Part B from your thinking about the payroll taxes you pay while working — you’re not paying anything to fund Part B through your FICA taxes. You aren’t compelled to enroll in Part B (it’s optional), but if you don’t enroll during your initial enrollment period (3 months on either side of the month you turn 65) and don’t have other equivalent “creditable” coverage from an employer, and you enroll in Part B later, a late enrollment penalty will apply (10 percent additional premium for each full year after age 65 you go without creditable health-care coverage).

So, your premise in suggesting that Part B be free (the premium waived) if you’re working over a certain age or after an amount of time contributing to the program isn’t valid, because no one contributes to Medicare Part B through FICA payroll taxes — Part B beneficiary contributions are only made through premiums paid by those enrolled in it. And you don’t need to enroll in Part B if you have “creditable’’ health-care coverage from an employer. The Part B non-enrollment penalty only applies if you enroll after your initial enrollment period has expired and didn’t have “creditable” health-care coverage after you turned 65. “Creditable” is a group plan with more than 20 participants.      

Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: ssadvisor@amacfoundation.org.

Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained, and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity.