As most adults know, we reach Medicare eligibility upon turning age 65. What is less known are the various costs associated with the different Medicare plan offerings. While you can pick and choose the “parts” you desire, your selections can result in higher premiums.
Medicare is essentially divided into three parts: A, B, and D. In addition, some people choose to purchase Medicare Advantage plans (also referred to as Part C)—more on that below.
In this article, we’ll look at what Medicare really costs so that you can be prepared when it’s your turn to take advantage of this program. Medicare is more than basic health insurance, and once you learn a little about it, you’ll realize it isn’t as overwhelming as it can seem. For those still working at 65, you can often delay enrollment without penalty until retirement.
Medicare Part A: Hospital Insurance
Part A helps cover the cost of inpatient hospital, skilled nursing facility, and home health care. The vast majority will not pay a monthly premium as long as they qualify for coverage. For those who don’t, Part A can be “purchased” for $274/m or $499/m depending on how long you/your spouse worked and paid into Medicare. In short, if you’ve paid Medicare taxes for 10 years or more (40 quarters), you will pay $0 premiums for Part A.
With Part A, you have a deductible and coinsurance, and for 2022, it looks like:
Deductible: $1,556 (each benefit period)
Days 0-60: $0 coinsurance (each benefit period)
Days 61-90: $389 coinsurance per day (each benefit period)
Days 91 and over: $778 coinsurance per day for each “lifetime reserve day,” up to 60 days over your lifetime
Once you exceed your maximum number of lifetime reserve days, you are responsible for all costs. Keep in mind that Part A applies to hospital costs only, and the above numbers are for inpatient hospital stays.
Medicare Part B: Medical Insurance
Part B helps cover your basic medical expenses, including doctor visits, outpatient care, and preventive services. For the majority of people, the 2022 premium is $170.10/m.
Now, the catch here is that the premium is based on your modified adjusted gross income (MAGI). Those with a higher MAGI pay an income-related monthly adjustment amount (IRMAA). This can add as much as an additional ~$408/m per person!
For many, this increase occurs at your required minimum distribution (RMD) age since you are forced to withdraw from retirement accounts, which can drastically increase your MAGI. Some strategies (e.g., Roth conversions) can help you avoid or reduce your exposure to IRMAA.
The deductible for Part B is $233, and afterward, you are generally responsible for 20% of the costs for Medicare-approved services and providers. This includes most doctor services while you’re in the hospital, outpatient therapy, and durable medical equipment (DME).
Medicare Part C: Medicare Advantage
Medicare Parts A and B are often called “Original Medicare” and are included in Medicare Advantage. Medicare Advantage plans (also known as Part C) vary but usually include Part D (prescription drug coverage) along with Parts A and B. They also have services not covered in Original Medicare, including vision, hearing, and dental.
While Part B allows you to use any doctor or hospital that is Medicare-approved in the United States, Part C requires you to use doctors in a network. Medicare Advantage often includes lower premiums and better coverage simply because the “parts” are bundled together.
The cost of Medicare Advantage varies, so it is recommended that you shop around and get estimates from several insurance companies. The factors that usually affect your out-of-pocket costs include:
Whether your plan makes you pay a premium
How much you’re expected to pay for each visit or service
The type of health services you need and how often you utilize them
Whether you need extra benefits
Whether you have Medicaid and, therefore, get help from the state
The plans themselves, not Medicare, set the “rules” for your deductibles, allowable services, and coverage amounts. This is why the rules can change on January 1 of each year.
As a result, you should make it a habit to read the Evidence of Coverage (EOC) and the Annual Notice of Change (ANOC), both of which will be sent to you every fall. These list any changes and additional details regarding the plan you’ve chosen to help ensure there are no surprises during the year.
Medicare Part D: Prescription Drug Coverage
You can get prescription drug coverage in one of two ways: add Part D coverage to your Original Medicare plan or enroll in a Medicare Advantage plan that includes it.
Part D premiums are much lower than the other premiums and start at $12.40/m. But as with Part B, the premium is based on your MAGI, which means you could pay up to an additional $77.90/m per person.
With Part D, you have six questions to ask yourself before deciding whether to get prescription drug coverage:
Do I take specific drugs?
Do I want my drug costs to be balanced throughout the year?
Do I want to protect myself from the rising costs of prescription drugs?
Do I take a lot of generic prescriptions?
Even though I take no prescription drugs now, do I believe I will need to in the future?
Can I afford to pay for my prescriptions completely out of pocket?
Since Medicare covers prescription drugs most often as an add-on, those drug prices can be affected by the hospital and physician coverage you choose in your plans. If you agree to visit only doctors and hospitals considered in-network, you can usually lower your prescription drug costs as well. Plans that offer Medicare drug coverage are run by private insurance companies that follow rules set by Medicare.
Other Points to Consider
While Medicare is not the same as Social Security, they are both government programs that aim to improve your quality of life as you age. While most Americans over the age of 65 take advantage of both Parts A and B, you’ll likely need a Medicare supplement policy to cover the gaps. Given the various options, your total premium for Medicare benefits is not set in stone. While this information can be at times confusing, the good news is that numerous websites allow you to enter basic information and receive an estimate of what your services might cost you.
Medicare is more than just basic health care. It allows you to add the services you want to help save money. That being said, you can be penalized financially for not enrolling early enough. It is recommended that at least three months before you turn 65 years of age, you start looking into the different Medicare plans to learn which are right for you.
Our Bethesda, MD fee-only financial planning firm helps clients integrate their Medicare goals into their overall retirement plan. Discuss your situation with a fee-only financial advisor.
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