Medicare has several parts, and each part has different costs. Plus, people earning $85,000 or more per year pay more, and those with income at or below the national poverty standard qualify for Extra Help through the Social Security Administration.
Medicare Part A Hospital Insurance
[inpostad]Medicare Part A is hospital insurance. It covers in-patient care. For most people, Part A is funded completely through payroll taxes. If you or your spouse worked for at least 10 years (40 quarters) and paid Medicare taxes, you are not required to pay a monthly premium for your Medicare Part A.
If you or your spouse did not pay Medicare taxes for at least 40 quarters, you will have to pay a monthly premium to receive hospital coverage. For 2013, the full amount for Medicare Part A is $441 per month. This will increase in 2014.
Medicare hospital insurance is not all-inclusive. There are deductibles that must be paid before Medicare begins paying its share. The 2013 deductible is $1,184. The deductible is expected to increase slightly in 2014.
Medicare Part A also has a copayment requirement. The copayment is a set amount you pay for specific types of care. If you’re in the hospital for more than 60 days, your copay is $296 a day for days 61 to 90. After that, your copay is $592 per day.
Medicare Part B Medical Insurance
Medicare Part B is medical insurance for your doctor visits, lab tests, specialists, and other services. It covers your out-patient care.
In 2013, most people with Medicare pay a monthly premium of $104.90 for Part B. However, if your annual income is $85,000 or more, you have to pay a higher premium. How much you make determines how much you pay, ranging from $146.90 to $335.70 per month. 2014 premiums are expected to increase slightly.
Medicare Part B also has an annual deductible. For 2013 the deductible is $147. After the deductible is met you pay a coinsurance, which is 20% of your medical costs.
If you enroll in Medicare Part B late, you may be required to pay a penalty. If you are still working and have credible coverage through your employer or a union, you are exempt from the late enrollment penalty. Be sure to call Medicare before you turn 65 to make sure your coverage is credible.
Medicare Part B does not offer hearing, vision, dental, or prescription drug coverage. For these services, you must purchase additional insurance or pay out-of-pocket.
Medicare Advantage Plans (Part C)
If you choose, you can opt-out of the Original Medicare private-fee-for-service program (Part A and B) by enrolling in a Medicare Advantage Plan (Medicare Part C). These are health plans sold and administered by private health insurance companies, but they are overseen and regulated by Medicare. Although they must offer the same Part A and Part B coverage as Original Medicare, they usually offer more services. That’s the “advantage”. Common additional benefits include, but are not limited to, hearing, vision, dental, and prescriptions.
To enroll in a Medicare Advantage (MA) Plan, you must qualify for both Medicare Part A and Part B. That means you’ll pay, at a minimum, your Medicare Part B monthly premium. On top of that fee, MA plans may charge an additional monthly premium for the extras. Rates vary widely depending on the plan and where you live. Plus, some plans may have additional costs, including deductibles, copayments and premiums for additional benefits, like prescription drugs.
Medicare Part D Prescription Drug Insurance
Medicare Part D is your prescription drug coverage. It’s not required, but you can be penalized if you don’t take it when first eligible and then decide to enroll later.
The monthly premium you pay for Medicare Part D varies by plan and state. The average premium for the past few years been around $30. The average 2014 plan is expected to be about $31. If you have a higher income, you may pay more each month. In 2013, households with income of more than $170,000 or individuals with an income of $85,000 pay between $11.60 and $66.60 more per month for prescription drug coverage.
Medicare Part D Plans have annual deductibles. You pay the full amount of the deductible before the plan starts paying its share of the cost for your prescriptions. For plan year 2013, the maximum deductible is $325. Some plans have a zero dollar ($0) deductible, giving you first-dollar coverage. In 2014, the maximum annual deductible drops to $310.
After you’ve reached your annual deductible, your Medicare prescription drug plan kicks. They pay their share and you pay yours. The part you pay is either a copay or a coinsurance. The amount depends on the plan you’ve chosen. You may pay more for some drugs than others, such as brand-name drugs. A copay is a fixed amount (e.g., $5), whereas a coinsurance is a percentage (e.g., 20%).
If your medications are expensive, you may reach the Medicare Part D coverage gap (aka, “doughnut hole”). This happens when you reach the Medicare Part D initial coverage limit (ICL). The doughnut hole is the amount of money spent on prescriptions that is not covered by Medicare Part D. In 2013, the ICL is $2,970. For 2014, it drops to $2,850.
Although you have to start paying your drug costs on your own when you reach the ICL, you get a 52.5% discount at the pharmacy for your covered brand-name drugs. You continue to pay for your medicines until you reach the maximum spending limit. In 2013, the maximum spending limit is $4,750. For 2014, it goes down to $4,550.
On the plus side, the entire cost of a brand-name drug is added to the maximum spending limit. That’s a bonus because you only pay about half the cost of a brand-name drug, but you get “credit” for the whole amount. As a result, you’ll reach the maximum more quickly. When you hit the maximum spending limit, Medicare will start sharing the costs with you again.
Your annual deductible, the full cost of brand-name medications, plus the amount you spend on generics also count toward the $4,750 maximum spending limit. However, your monthly Part D premiums do not. Keep in mind that most seniors never come near the spending limit.
When Medicare starts assisting with your prescriptions it’s called catastrophic coverage. When you reach this point you are only required to make a small copay or coinsurance payment for the rest of the year. In 2013, for your generic drug, you’ll pay just 5% of the cost or $2.65, whichever is higher. For any brand-name drugs you use, you’ll pay 5% or $6.60, whichever is higher. In 2014 the rates go down, and you’ll pay $2.55 for generics and $6.35 for brand-name or 5%, whichever is higher.
Medigap Supplemental Medicare Insurance
Medicare Advantage is a great way to get more coverage, but it’s not the only way. You also have the option to keep your Original Medicare and add a Medigap plan.
Medigap are supplemental health insurance policies from private insurance companies. They cover some of the medical costs Medicare doesn’t, including copays, coinsurance, and deductibles.
A Medigap plan does not replace your Medicare. You pay a monthly fee to an insurance company in addition to your monthly Medicare Part B premium. Plan costs vary a lot. It all depends on the level of coverage, the company, where you live, and your age. It’s important to shop around before you buy, and compare rates annually to make sure you’re still getting a good deal.
Medigap plans vary from state to state You can get help from your State Health Insurance Assistance Program. Call 800-MEDICARE to find yours.
