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Many people make the mistake of thinking that Medicare, the federal government's health insurance program for people age 65 and older, will pay for everything related to their health care. Unfortunately, it doesn’t. The reality of how much you will owe out of pocket when you use health care services can be a serious budget buster. We'll help you decipher Medicare's many costs and how to keep them under control.
When you add up monthly premiums, deductibles, copays, and coinsurance costs, the average Medicare beneficiary will pay thousands of dollars each year for their major medical care. And, depending on the type of coverage you choose, costs can vary significantly each year.
To better understand costs the Centers for Medicare & Medicaid Services (CMS) created a plan comparison tool. It estimates what Medicare Advantage plan enrollees would pay if they choose a specific plan.
Consider this example: If you live in Cleveland, Ohio, enroll in Original Medicare, buy a Medigap Plan G policy and a Medicare Part D prescription drug plan, all with average-priced premiums, CMS estimates that you’ll pay approximately $5,569 out of pocket in 2021. This is for someone in good health.
If you join a Medicare Advantage plan that includes prescription drug coverage, CMS estimates that you’ll pay $4,339 in 2021. These are just estimates, but MedicareWire feels there's a significant disconnect.
For most people, Medicare covers about 80 percent of all major medical costs. However, not all health care services are Medicare-approved. As a result, Medicare only covers about 52 percent of the total healthcare costs most healthy people incur.
For example, Original Medicare does not cover routine health care for dental, vision, hearing, and other health maintenance that are not on Medicare's medically necessary list of services. All of these costs must be paid out-of-pocket unless you enroll in a Medicare Advantage plan that covers them.
Plus, you may have to pay thousands of dollars in out-of-pocket costs. These are the shared costs built into Medicare.
In the beginning, Medicare had two components, hospital insurance (inpatient) and medical insurance. They broke these two health insurance coverages up into Medicare Part A and Medicare Part B, respectively. These two parts are Original Medicare.
There are three cost components in Original Medicare:
Medicare Part C, private health plans, and Medicare Part D, prescription drug plans, add one most costs component, a copayment. Copayments are similar to coinsurance, but they are a fixed amount (e.g., $20 copay for a doctor visit), not a percentage.
Let's start with premiums because they are the easiest to understand.
Health insurance premiums are what we pay monthly to be in a health plan. It does not matter if you use health services or not, you pay the monthly premium. Similar to auto insurance, you pay a premium for each type of coverage. With auto insurance, it's collision and comprehensive coverage. With Original Medicare, it's Part A (hospital) and Part B (medical).
Beneficiaries can add a Part D plan to their A and B benefits to get prescription drug coverage. Beneficiaries also have the option to enroll in a private insurance Part C plan (aka, Medicare Advantage), which will provide their Medicare Parts A and B coverage, and can include extra benefits, like Part D, dental, vision, hearing, and more.
Each of these different parts has a monthly premium that you must pay, and they look like this:
Continuing with our auto insurance comparison, Medicare coverage has deductibles. These are what the insurance beneficiary pays out-of-pocket before the insurance policy begins paying its share.
The Medicare Part A deductible is based on an inpatient benefit period. Unless you have a Medigap policy (Medicare supplement), the benefit period deductible is an out-of-pocket cost. A benefit period starts the day you are admitted into a hospital or skilled nursing facility (or home health care for convalescence) and ends when you have been out for 60 days in a row. If you are admitted again after 60 days, then a new benefit period starts, and the deductible is incurred again.
A hospital stay may come with Part B costs, too. Here's why.
Part B costs cover doctor visits, specialists, lab tests, diagnostics, and other medical services. These services can be received in an outpatient or inpatient setting. Unlike Part A, the Part B deductible is an annual deductible that you must pay before Medicare begins paying its share.
Most Medicare Part C plans do not have inpatient and outpatient care deductibles. Instead, most plans use flat-rate copays. For example, a plan may charge you a $395 per day copay for the first 5 days of a hospital stay.
Most Part D Plans have an annual deductible that you pay at the pharmacy when you pick up your medications. Once the deductible amount is met, then the plan kicks in and begins paying its share.
The final cost component in Medicare is coinsurance or copayments. All Medicare Parts have it.
With both Medicare Part A and Part B you pay a flat 20 percent coinsurance. The coinsurance is paid on the Medicare assigned rate for the service. For all services that are not covered by Medicare, the beneficiary pays the full cost. Also, if a healthcare provider does not accept the Medicare assigned amount, the beneficiary pays the additional cost (up to 15%) out of pocket. These are known as Part B Excess Charges. With Medicare Part A, inpatient coinsurance costs do not begin until your 61st day in the hospital or skilled nursing facility.
In Medicare Part C, most health services come with a plan copayment, but coinsurance is also used. The problem here is that Medicare Advantage plans are not standardized. Even though CMS requires all plans to provide the same services as Medicare Part A and Part B, they do not require them to provide the service the same way. So, for example, one plan may charge a $295 copayment for ambulance transportation while another charges a 25% coinsurance.
With a Medicare Part D plan you pay copayments or coinsurance based on the tier your medication is in. Each plan has a formulary (covered drug list) that categorizes covered medications into several tiers (1-5). You continue to pay the copays or coinsurance until you reach the plan's initial coverage limit.
If you qualify for Medicaid, the health insurance program for people with low incomes, it will pay some or all of your out-of-pocket costs. Individuals on both Medicare and Medicaid are known as dual eligibles and have special plan options, such as Medicare Advantage Special Needs Plans (SNP-D).
Medicare has other assistance programs for beneficiaries with incomes that are too high to qualify for Medicaid but who still have trouble paying their health care bills. Each of the four programs has specific income and asset limits and eligibility requirements:
Your state Medicaid program or State Health Insurance Program — commonly called SHIP (877-839-2675) — can help with enrollment and provide more details on the income caps and eligibility criteria.
Citations & References
medicare.gov
cms.gov
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