How Much Does Medicare Cost?
Entering Medicare is a big milestone, but it’s not free. We’ll review the costs for Medicare coverage and services. We’ll also examine the costs of some options beyond Original Medicare.
The costs for Medicare can be broken down into two categories: premiums for coverage, and charges for services. In this article, we will discuss:
- Costs for Medicare Coverage
- Costs for Medicare Services
- Medicare Supplement (Medigap) Costs
- Medicare Advantage (Part C) Costs
- Prescription Drug Plan (Part D) Costs
Like any other insurance product, you will pay premiums for Medicare. The two main categories of Original Medicare, Part A and Part B are funded differently.
Most people pay for Part A, hospitalization coverage, during their working career. If you’re an employee, you and your employer pay for your Part A coverage through payroll taxes. Each pay period, Medicare taxes are withheld from your check, and your employer matches them.
If you are self-employed, you pay both the employee and employer portion of this tax. These payroll taxes pay for your Part A coverage. As long as you’ve paid payroll taxes for the minimum required time (generally 10 years), you will receive Part A coverage at age 65 without having to pay a premium.
If you don’t work the required number of years to qualify on your own, you can still qualify for premium-free Part A if you are, or were, married to someone who did.
If you didn’t work long enough, and weren’t married to someone who qualifies for premium-free Part A you can elect to pay for it. In 2020 the monthly premium is $458 per month.
Your payroll taxes don’t pay for your Part B, outpatient medical services, coverage. Instead, you begin paying a monthly premium when you enroll. Most people will enroll in Part B at age 65, or when they stop receiving employer health insurance.
Premiums for Part B are dependent on income. The base monthly premium for 2020 is $144.60. Single taxpayers with incomes over $87,000, or joint filers with income over $174,000 per year will pay higher premiums in several income brackets. The Part B premium in the highest bracket is $491.60.
If you qualify for Medicaid, you may not have to pay your full Part B premium, depending on your benefit status.
Beyond Original Medicare
You may choose to supplement your Medicare coverage, or participate in a Medicare Advantage plan. You can expect to pay additional monthly premiums for these programs:
- Medicare Supplement insurance (Medigap)
- Medicare Advantage plans (Part C)
- Prescription Drug plans (Part D)
When you participate in these programs, any required premium will be paid to your insurance company, rather than to Centers for Medicare & Medicaid Services (CMS) or the Medicare program.
So far, we’ve reviewed the costs for having Medicare coverage. When you use Medicare, you will also incur expenses. We’ll review the costs for Medicare services by Part-type below.
When you use services covered by Part A – inpatient hospital stays, nursing home stays, hospice care – you are required to pay a share of the cost. This comes in the form a deductible. For 2020, the Part A deductible is $1,408.
You must pay the deductible before Medicare begins covering your Part A expenses. Also note that you pay the deductible each time you have a new benefit period. So, if you’re hospitalized numerous times during a calendar year, you’ll pay the deductible each time.
For Part B, you’ll also have an out of pocket expense when you use your Medicare coverage. Part B covers all types of services and procedures performed in an outpatient setting:
- doctors’ visits
- diagnostic tests (blood work, x-rays, MRIs, etc.)
- therapy (physical, occupational, etc.)
- outpatient surgeries (arthroscopic procedures, cataract surgeries, etc.)
- some cancer treatments like chemotherapy
There is a small deductible for Part B services: $185. You have to pay the first $185 for your Part B services; after that, Medicare will begin to provide coverage.
Unlike with Part A, however, there are additional charges for Part B. You must pay co-insurance of 20% of the Medicare-approved charges. As an example, if you went to the doctor and had x-rays taken, the Medicare-approved charges might be $165. Of this, you’d pay 20%, or $33.
Original Medicare doesn’t cover prescription drugs at all. You’ll either pay for them totally out of pocket, or enroll in a Part D Prescription Drug plan.
Keep in mind that under the terms of Original Medicare, there is no cap on the amount you pay out of pocket. If you’re hospitalized multiple times, or undergo chemotherapy, you might be responsible for tens of thousands of dollars.
In order to prevent high out of pocket medical expenses, many people use programs besides Original Medicare. Medicare Supplement insurance and Medicare Advantage plans are issued by private insurance companies, and help pay for some all of these out of pocket costs.
Also called Medigap, Medicare Supplement plans work in concert with Original Medicare. Medigap plans are issued in standardized plans: A, B, C, D, F, G, K, L, M, and N. Each standardized plan covers a different percentage of expenses under Parts A and B.
For example, Plan G covers every Medicare-approved charge except for the Part B deductible. If you have Plan G, you will pay the first $185 of Part B expenses in 2020. Once you’ve paid that amount, your plan will pay for 100% of Medicare-approved expenses. You pay nothing else.
Plan K is the least comprehensive. This plan generally pays 50% of all your out of pocket costs (Part A deductible, Part B co-insurance, etc.). However, Plan K puts a cap on your annual expenses: you cannot pay more than $5,880 in 2020.
Medicare Advantage plans, known as Medicare Part C, also help lower your out of pocket expenses, and also offer a yearly cap. Unlike Medigap plans, Medicare Advantage plans tend to require small co-payments or co-insurance on every procedure or service.
Medicare Advantage plans function like employer-provided health insurance. To see a doctor you might have a co-pay of $30. Laboratory blood work might require a $10 co-pay. Inpatient hospitalizations may have a daily co-pay of $295. Co-payments and co-insurance differ by insurance company.
While you are being charged out of pocket for all of these services, your payments are generally lower than under Original Medicare, especially where hospital stays are concerned. Medicare Advantage plans give you a hard out of pocket maximum, which is one reason why they are so popular.
Prescription Drug Plans (PDPs) also have deductibles, co-payments, and co-insurance requirements. The maximum allowable deductible for a PDP is $435 for 2020. Once you’ve paid that amount, you will pay co-payments or co-insurance for each prescription.
Your costs can change throughout the year as your plan pays more and more benefits. When your plan’s payments exceed certain thresholds (called coverage stages) your share of costs increases. This is the infamous “donut hole” or coverage gap. You leave the coverage gap when total drug costs exceed $6,350 for a calendar year. After this, you pay no more than 5% of the cost for medications.
Medicare coverage is a valuable benefit, but it won’t cover every dollar of your medical bills. As you get closer to Medicare eligibility, make sure you’re prepared for the expenses you’ll be required to pay. This is also a great time to connect with a professional and review Medicare Insurance options in your area.
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