High health care expenditures are the norm for Americans. There are still millions of people in the United States in 2019 who do not have health insurance, and even for those who have, policies often contain significant coverage gaps.
But many individuals believe that once they achieve Medicare eligibility at age 65, the program will take care of all their medical expenses. Since our payroll taxes have already been deducted from the program, we shouldn’t have any more out-of-pocket expenses, right?
Wrong. In reality, only the premiums for Medicare Part A (hospital insurance) are covered by the Medicare taxes you pay throughout your working years. However, you will still be responsible for contributing to the total out-of-pocket expense of hospitalization and similar in-patient treatment. Not only that, but there are additional expenses associated with other Medicare features.
How Much Does Medicare Cost?
When it comes to Medicare, you may choose between two different plans. Medicare Part A is hospital insurance while Medicare Part B is medical insurance for things like regular checkups and prescriptions. Medicare Part D can be added to help pay for expensive medications.
You also have the option of enrolling in a Medicare Advantage plan from a commercial insurer, which incorporates both Parts A and B of Medicare and often provides coverage for prescription medicines and occasionally additional forms of treatment.
Medicare expenses can quickly go up into the hundreds of dollars. The average 2017 health care bill for someone on Original Medicare was $5,801, according to an AARP study of data from 2020, with roughly 10% of those seniors spending $10,268 or more. (Since there was a lack of quality data, the research did not account for those with Medicare Advantage plans and their costs.) Medicare costs may be broken down into three broad buckets: premiums, out-of-pocket costs, and those Medicare won’t pay for.
The monthly premium is the regular payment made to your health insurance provider. Premiums for Medicare in 2017 averaged $2,728 per person, per year, as reported by AARP. But the price tag was significantly different for people of different ages. It averaged $2,810 for those over 65 and $1,810 for those under that age.
What is the cost of Medicare Part A?
When it comes to Medicare Part A, most people don’t have to pay anything because they previously chipped in through payroll taxes. However, there is a charge to enroll in Part A if you have paid Medicare taxes for fewer than 10 complete years (40 quarters).
If you have paid into Medicare for less than 30 quarters, your monthly payment in 2021 will be $458. The charge drops to $259 each quarter if you’ve paid them for 30 to 39 of them. That comes to $3,108 or $5,496 yearly.
In addition, there is a late enrollment penalty if you don’t sign up for Medicare Part A within the first six months after becoming eligible. The result is a 10% increase on your rates. If you join up for Medicare Part A later than the first enrollment period, you’ll have to keep paying the higher premium for twice as long.
What is the cost of Medicare Part B?
Part B of Medicare comes with a premium that all beneficiaries must pay. In 2021, the average monthly premium will be $148.50, totaling $1,782 for the year.
If you are currently receiving retirement benefits from the Railroad Retirement Board or Social Security, this premium will be withdrawn from your payment automatically. If you don’t pay your premiums, you will be billed for your insurance.
There is a late enrollment penalty if you don’t sign up for Medicare Part B during the first enrollment period. Comparatively, this punishment is much worse than the one in Part A.
You’ll see a 10% rise in your monthly premium for every year you wait to enroll, up to a 30% increase if you wait three years. In addition, the increased rate will remain in effect for the remainder of your life.
What is the cost of Medicare Part D?
To supplement Original Medicare with Part D, you’ll need to pay a monthly premium. Monthly fees are different for each plan. However, in 2021, the average premium for basic Part D coverage is projected by CMS to be $30.50 per month ($366 annually).
Medicare Part D also has a late enrollment penalty. If you have Original Medicare but don’t have a Medicare prescription drug plan or a Medicare Advantage plan that covers drugs, you’ll have to pay this fee. The fine is calculated as follows: for each full month of coverage gaps, the penalty is equal to 1% of the “national base beneficiary premium” ($33.06 for 2021).
Once you join up for Medicare Part D, this sum will become a permanent part of your monthly cost. If you went 30 months without prescription medication coverage, for instance, your premium would increase by $10 per month. A further increase in this fine is tied to any increase in the national base beneficiary premium.
Additionally, Medicare recipients with incomes exceeding a particular threshold will have their monthly payment amount adjusted accordingly. This modification will cost you an extra $12.30 per month if your income is over $87,000 and $77.10 per month if it’s over $500,000.
How Much Are Medicare Advantage Plans?
Although Medicare Advantage plans are commonly referred to as Medicare Part C, they are not technically a part of the official Medicare program administered by the federal government. They are instead provided by non-government organizations such as commercial insurance firms. Plans must offer at least the same benefits as Original Medicare, while many offer more.
If you enroll in a Medicare Advantage plan, you still have to pay your Part B payment to Medicare directly. The insurance company will then get a monthly payment from the government to help with your healthcare bills.
The monthly payment for certain Medicare Advantage plans is more than the standard Medicare Part B premium. Average premiums are projected to be $21 per month in 2021, according to CMS. Medicare Advantage is a more cost-effective alternative for the typical Medicare beneficiary to obtain medication coverage than the average cost of a stand-alone Part D plan. Prices and coverage details might vary widely from one insurance policy to the next.
Health maintenance organizations (HMOs), which force you to receive treatment from providers inside a defined network, have been shown to have the lowest Medicare Advantage rates on average, as reported by the Kaiser Family Foundation (KFF). Preferred provider organizations (PPOs), which let you visit a doctor who is not in their network for a fee, are a little more pricey. The KFF does not rate traditional fee-for-service plans like Medicare and Medicaid, which allow you to see any doctor you want regardless of cost.
How Much Does Medigap Insurance Cost?
The premiums for Original Medicare are reasonable, but the plan does not cover a lot of medical expenses. People often purchase Medigap insurance, or Medicare supplement insurance, to replace the “gaps” in their original Medicare coverage. Private insurance companies provide these plans to their customers in order to pay for their out-of-pocket expenses. Some of these plans even extend coverage to situations where Original Medicare doesn’t, such medical attention obtained while outside the country.
To supplement your Original Medicare coverage, you can purchase a Medigap policy for an extra monthly payment. The cost is variable and will be determined by the package you select.
Most states classify Medigap plans as either Type A, Type B, Type C, or Type N, depending on their specific regulations. Medicare.gov provides a chart detailing the coverage offered by each plan. (Medicare supplement plans in Massachusetts, Minnesota, and Wisconsin fall under a variety of distinct standard classifications in these three states. (For details, please consult the stipulations of your respective state.)
Medigap policies are optional and not all insurers provide them. Plans A, C, and F are mandatory offerings from any insurance company peddling Medigap coverage.
The monthly price for a Medigap coverage can be anywhere from $70 to $270, as stated by eHealth Medicare, depending on the kind of policy and the location of the policyholder. In 2018, the most common form of Medigap coverage, Plan F, cost an average of $1,712 annually, or around $143. There was a wide range in annual cost, from $1,310 in Hawaii to $1,947 in Massachusetts. Simply by entering your zip code on the eHealth Medicare website, you may get an idea of how much Medigap plans in your region will cost.
The Medicare premiums you pay are only the beginning of your financial responsibility for your health care. In 2017, Medicare participants’ out-of-pocket costs for eligible services were $1,522, according to a survey by AARP. For those under 65, the cost was $1,441, while for those over 65, it was $1,536.
What Are Medicare Deductibles?
To qualify for Medicare coverage, you must first pay a deductible and coinsurance sum. Your deductible is this amount.
Medicare Part A deductibles will increase to $1,484 each benefit period beginning in 2021. The first day of your inpatient stay at a hospital or nursing home marks the beginning of your benefit period. When 60 days have passed without an inpatient hospital stay, it will be over. Your Medicare Part A deductible may thus become annualized, meaning you may have to pay it more than once in a given year.
If you have knee surgery at the beginning of January and are released from the hospital by the end of the month, for example, you will have missed a significant portion of the year. All medical expenses up to the $1,484 deductible are on you during that period. Then, after more than 60 days, in June, you’re admitted again following a fall. As a result, you will be responsible for covering all healthcare expenditures up to the deductible once again as you enter a new benefit period. An unlimited number of benefit periods are available each calendar year.
A deductible applies to Medicare Part B as well, however it is paid annually rather than monthly. The Medicare Part B deductible in the year 2021 is $203.
There is often a deductible associated with Medicare Part D insurance. Medicare establishes maximum allowable plan costs to ensure affordability. In 2021, the maximum amount you will be responsible for as your Part D deductible is $445. For 2019, the average Part D deductible was $308 (as reported by eHealth).
Medicare Advantage plans might either have or not have deductibles. In 2019, the average deductible for a Part C plan that included covered prescription drugs was $292, as reported by eHealth. Plans may have a single deductible that applies to all services, or they may have different deductibles for pharmacy medications and medical services. How often and how much your deductible will be will be specified in your plan’s fine print.
How Much Does Part A Coinsurance Cost?
Some of your medical costs will still be out of pocket even after you’ve met your Medicare deductible. Coinsurance refers to the percentage that you are responsible for paying.
Medicare Part A copayments fluctuate with each patient’s length of stay in the hospital. For the first 60 days, you pay nothing, and for the next 30, you’ll be charged $352 every day.
At the start of each renewal cycle, these parameters are recalculated again. A patient who stays for 60 days, checks out for three months, and then returns to the hospital will be considered a new patient and will incur no further costs.
The patient’s lifetime reserve days will begin to be depleted if the patient spends more than 90 consecutive days in the hospital. Medicare will cover the remaining cost of $704 each day, but only up to a total of sixty days in your lifetime. Extra time in the hospital after that will result in full payment.
That is not to say that you will be saddled with enormous hospital expenditures forever. Your 60-day benefit term will begin again when you are discharged from the hospital. If you leave and come back, you’ll have to pay $352 for another 30 days after your first 60 days are over.
However, if you spend Day 91 in the hospital and have used up all of your lifetime reserve days, you will have to pay for everything out of pocket.
How Much Is Part B Coinsurance?
When compared to Medicare Part A, Medicare Part B’s coinsurance is simpler to understand. Once you’ve paid your deductible, your share of Medicare-approved costs for eligible services is 20%. Medicare’s authorized amount is the predetermined payment rate for medical professionals that is accepted by Medicare.
You’ll have to pay 20% of the cost of any medical care covered by Part B, such as doctor appointments, therapy sessions, or even some types of long-lasting medical gear. If your doctor or other provider charges more than the Medicare-approved rate, however, you will be responsible for paying the entire difference.
What Are the Prices of Prescription Drugs?
Medicare Part D has varying costs. Copayments, or “coinsurance,” are amounts you must pay toward the cost of each covered medication under some Medicare Part D plans. Others require patients to pay a certain amount for each medication they need.
There are often levels for medications covered by various Medicare prescription drug programs. For this reason, some medications are “preferred” and have reduced copayments. The KFF estimates the following average prices across tiers for 2020:
- Preferred generic drugs: $0
- Other generic drugs: $3
- Preferred brand-name drugs: $42
- Other brand-name drugs: 38% coinsurance
- Specialty drugs: 25% coinsurance
Once you and your insurance company have spent a particular combined amount on prescription drugs in a given year, Medicare regulations require that you switch to a different plan. That total, after accounting for your deductible, cannot exceed $4,130 in the year 2021.
Once you reach this threshold, you’ll be responsible for up to 25% of the full price of your drugs. Seventy percent of the price of the medication is covered by the manufacturer, while the remaining 30% is covered by your insurance.
But it doesn’t mean you’re stuck paying 25% for the rest of the year. When you reach the second maximum for pharmaceutical prices, $6,550 in 2021, your out-of-pocket cost becomes merely 5% of the total.
Medicare beneficiaries can reduce their out-of-pocket expenses by the amount of any manufacturer discounts they are given when purchasing prescription drugs. If a medication costs $100, your insurance company might cover $5, you might pay $25, and the manufacturer would fork over $70. But your total out-of-pocket expense is $95 (your half plus the manufacturer’s). With it, you’ll be closer to the $6,550 cap on your monthly payment.
What Does Medicare Advantage Cost?
Instead of the 20% coinsurance required under Original Medicare Part B, enrollees in Medicare Advantage plans often pay only a flat copayment for covered medical services including doctor visits. The precise cost, however, varies per package. Your copayment amount will vary based on a number of variables, including the type of plan you purchase, your location, and the insurance provider.
Medicare does not cover these costs.
However, there are several medical procedures that Original Medicare will not pay for. All of the following are entirely your responsibility to cover:
- Regular cleanings, fillings, extractions, and replacements for missing teeth (dentures) are all part of dental hygiene.
- Comprehensive eye exams, corrective lenses, and prescription eyewear
Audiological testing and/or hearing aids
- Care for the feet consisting of regular maintenance such callus eradication (according to AARP, Medicare does cover costs for foot injuries and ailments, such as heel spurs and problems related to nerve damage caused by diabetes)
- The Art of Disguising
- In-home care or placement in a nursing home for the elderly or disabled
- The use of any non-U.S. medical facility for treatment.
Medicare Advantage, a supplement to Original Medicare, can help with expenses like these. But that still depends on the particulars of the approach you take. Neither Original Medicare or Medicare Advantage will pay for any costs incurred for medical care received in a foreign country. However, certain Medigap policies will cover this.
The average Medicare recipient would pay $1,551 in out-of-pocket medical costs in 2017, according to AARP projections based on data from 2020. For individuals under the age of 65, these payouts amounted to $932, while those 65 and over received $1,662.
Total Cost Capsules
Costs for Medicare are substantial, with the AARP estimating an annual outlay of $5,801. Some Medicare recipients, however, incur significantly greater expenses. Health care expenses for those in the 90th percentile, or the top 10% of the population, averaged $10,268 in 2017, according to the 2020 research. That total consists of $2,537 in out-of-pocket costs, $3,740 in Medicare-approved cost-sharing, and $5,218 in premiums.
Actually, there is no annual cap on health care spending under Original Medicare. The program does cover a significant portion of your expenses, but it does not safeguard you against the types of extremely high medical expenditures that might force people into bankruptcy. One-third or more of retirees who declared bankruptcy in 2010 cited medical bills as the cause.
When it comes to Medicare, there are two options for limiting your financial responsibility. Medicare Advantage is one option. According to CMS, all Medicare Advantage policies are required to limit out-of-pocket spending for in-network care, which can be no higher than $7,550 in 2021. However, premiums are not included in this maximum out-of-pocket cost.
If you’re set on using Original Medicare, you may reduce your out-of-pocket expenses by purchasing Medigap coverage with a deductible. Out-of-pocket expenses are capped at $6,220 in 2021 with Medigap Plan K insurance and at $3,110 with Medigap Plan L policies.
Using the out-of-pocket cost calculator on Medicare.gov, you may get a rough idea of how much money you will have to pay for medical treatment under various Medicare plans.
Medicare Advantage plans with prescription coverage are compared to Original Medicare with or without Medicare Part D and Medigap. The calculator factors in all your costs, including premiums, deductibles, and coinsurance. You can look at typical costs for plans with high, medium, or low premiums.
The average Medicare recipient’s out-of-pocket costs may surprise many who have relied on the program as a long-term solution to spiraling medical costs. But the AARP report’s average price is just that; an average. Medicare costs may be lowered in the same way that other major expenditures can be lowered: via comparison shopping.
When it comes to Medicare, comparing different plans is simple. Medicare.gov’s Plan Compare page allows you to do just that, as well as compare Medicare Advantage and Part D plans in your area.
The website compiles a list of plans with their associated premiums, deductibles, copayments, and out-of-pocket maximums based on the information you provide about your location and desired coverage. If you provide a little more information, it can also compare the out-of-pocket expenses of prescription drugs under each plan. Each plan is given a star rating, exactly as you’d see on a shopping website, to help you choose the best option.
Our Medicare enrollment guide will help you understand your options and enroll in the program.