What is Medicare and How Much Does it Cost?
Medicare has a lot of moving parts, which can be intimidating to new beneficiaries and veterans of the industry alike. To help you wade through the sea of information, we have described the different parts of Medicare, their coverage, and the associated costs.
Medicare Part A
Part A covers your inpatient care in a hospital or skilled nursing facility, as well as hospice and home health care.
Premium-free Part A is available for many American seniors. You can qualify to pay zero premiums for Part A if:
- You receive retirement benefits from Social Security or the Railroad Retirement Board.
- You are eligible for retirement benefits from either agency but haven’t filed for them yet.
- You or your spouse had Medicare-covered government employment.
You can still receive Part A if you don’t qualify for premium-free. As long as you are 65 or older and have lived in the U.S. legally for at least five years, you can purchase coverage. You just have to pay premiums for them, which can be up to $471 each month. The cost depends on how long you or your spouse worked and paid taxes to Medicare. If you paid Medicare taxes for fewer than 30 quarters, you will pay $471 each month in 2021. If you paid Medicare taxes for 30-39 quarters, your Part A premium will be $259.
In 2021, you earn one Social Security or Medicare credit for every $1,470 in covered earnings each year. You must earn $5,880 to get the maximum four credits for the year. During your lifetime, you might earn more credits than the minimum number you need to be eligible for benefits.
The Part A deductible is $1,484 in 2021 for each benefit period. A benefit period begins when you are admitted as an inpatient and ends 60 days after you last receive inpatient care.
Under Part A, you also pay a daily coinsurance after your first 60 days as a hospital inpatient or your first 20 days as an inpatient in a skilled nursing facility. These days are counted for each benefit period. As a hospital or mental health inpatient, you owe $371 each day for days 61-90 and $742 for days past 90 until you have used your 60 lifetime reserve days. After this point, you owe all costs. In a skilled nursing facility, you pay $185.50 each day for days 21-100, then owe all costs.
Medicare Part B
Part B is your outpatient medical insurance, covering medically necessary and preventive services. Part B covers things like clinical research, ambulance services, durable medical equipment, mental health, and limited outpatient prescription drugs. Medically necessary services are treatments to diagnose or treat your medical condition that is accepted as standard medical practice. Preventive services are those to prevent an illness (as with vaccinations) and screen to detect illness at its early stages. Many preventive care services are covered at 100%, including flu shots, Pap tests, and mammograms.
Premiums for Part B are calculated based on the income you report in your taxes. The standard Part B premium is $148.50 in 2021, and this applies to individuals with an income of less than $88,000 and married couples reporting less than $176,000. If you make more than $88,000 or $176,000 as a couple, you will pay an Income Related Medicare Adjustment Amount (IRMAA) each month. This added charge raises your premiums based on how much higher your income is.
The Part B deductible is $203 in 2021. Like most health insurance, this deductible is only paid once per year. Once you meet the deductible, you will pay 20% of the Medicare-approved amount for covered services as coinsurance.
Signing up for Part B after your enrollment period can result in a late enrollment penalty. For every 12 months you went without signing up once you became eligible, your premium may go up 10%. This penalty stays with you for the lifetime of your coverage.
Medicare Advantage (Part C)
Medicare Advantage (Part C) plans are offered by private, Medicare-approved health insurance companies. Medicare compensates these companies to take care of your Part A and Part B coverage.
While on a Medicare Advantage plan, you must be enrolled in Part A and Part B. When you visit a healthcare provider, show them your Medicare Advantage card instead of your Medicare card.
Many Part C plans offer prescription drug coverage and have options for added benefits such as dental, vision, and hearing coverage. Original Medicare (Part A and Part B) does not have coverage for routine dental, vision, or hearing care, so this is an important benefit for seniors.
The costs for Medicare Advantage plans vary but include premiums, deductibles, copayments, and coinsurance. These plans operate like the health insurance you are used to. You will pay copayments between $0 and $20 when you visit the doctor and up to $50 to visit a specialist or the emergency room. Once you have paid enough in out-of-pocket expenses to reach the yearly deductible, you will be asked to pay a portion of the total cost for healthcare services as coinsurance.
There are a few different Medicare Advantage plan types. The most common are HMOs and PPOs. Under an HMO, you need a primary care physician and referrals to see a specialist; you must also visit providers within the plan’s network. With a PPO, you have more flexibility to see providers outside of your plan’s network but will pay more for their services. You do not need a primary care physician and, in most cases, do not need a referral under a PPO plan.
In rural areas, Private Fee-for-Service (PFFS) plans may be available, which operate differently. You can receive services from any healthcare provider that agrees to treat you and accepts your plan’s payment terms.
Specialized plans are available for people who are institutionalized, are dual-eligible for Medicare and Medicaid, or have a chronic condition. These are Special Needs Plans (SNPs) with requirements for membership set by the Centers for Medicare and Medicaid Services (CMS). The plans are built to care specifically for their members and often have networks of specialists to treat their members’ conditions.
To sign up for a Medicare Advantage plan, you must be 65 or older, be enrolled in Part A and Part B, and live within the plan’s coverage area. Sign up during the Annual Election Period from October 15 to December 7 or make changes to your plan during Medicare Advantage Open Enrollment from January 1 to March 31.
Prescription Drug Coverage (Part D)
While Original Medicare covers only hospital and medical insurance, you can purchase a separate Part D prescription drug plan. Part D plans cover at least two drugs in each therapeutic category and cover essentially all drugs in six categories: anticancer, anticonvulsant, antidepressant, antipsychotic, antiretroviral, and immunosuppressant.
Each plan lists its covered drugs in a formulary. If one of the prescriptions you take is not on your plan’s formulary and cannot be substituted with a covered drug, you and your prescriber can request an exception. You can also request an exception if you need your medication in a higher quantity than the limit allows.
Qualified plans can remove brand-name drugs from their formularies and replace them with generic drugs, or change the price of the brand-name drug when they add generic options. Plans can also make changes to their drug lists throughout the year if drug therapies change, new drugs enter the market, new medical information becomes available, a drug becomes unavailable, or the Food and Drug Administration (FDA) considers a drug to be unsafe.
When a plan changes to covered prescriptions, it is required to notify you and keep you supplied with medication. If a change affects a drug you are currently taking, you will be given at least 30 days’ advance notice or provided at least a month’s supply of medication.
Qualifying for Medicare is a matter of eligibility due to age or disability. The number of years you or your spouse worked and paid Medicare taxes according to the Federal Insurance Contributions Act (FICA) also determine whether or not you qualify to pay nothing in monthly premiums for your Part A hospital insurance. Qualifying for Medicare Advantage or Medicare Supplement policies is determined by age, location, and timing.
Medicare Supplements (Medigap)
One of the main drawbacks of Original Medicare is that there is no out-of-pocket maximum. This means that if you have many healthcare expenses, you could be repeatedly paying copayments, coinsurance, and deductibles without relief. Part A deductibles are charged for each benefit period, meaning you could pay more than one during the year.
To help manage these expenses, Medicare Supplement plans (also called Medigap plans) help to cover copayments, coinsurance, and deductibles for Part A and Part B. Some of the covered expenses include:
Part A coinsurance and costs
Part B copays and coinsurance
Blood (first 3 pints)
Part A hospice
Skilled nursing facility
Part A deductible
Part B deductible
Part B excess charges
Foreign travel emergency
There are 10 Medicare Supplements available: A, B, C, D, F, G, J, K, M, and N. Plans C and F are only open to those who became eligible for Medicare before 2020. They cover the Part B deductible, which will no longer be covered by other plans.
Plans F and G offer the most coverage but have higher premiums. Plans J and K have out-of-pocket maximums of $5,880 and $2,940, respectively. Plan N offers a good amount of coverage but requires you to pay copayments for doctor and emergency room visits.
Enrolling in Medicare Supplements is straightforward. Once you are 65 or older and enrolled in Part B, you have six months to sign up for a Medicare Supplement plan, during which time you cannot be turned away for medical reasons. You can sign up after this Medicare Supplement enrollment period but will have to undergo a medical underwriting.
Medicare Supplement guaranteed issue rights protect you from being charged more for preexisting conditions. There are certain situations that grant you these rights:
- *You have a Medicare Advantage plan and your area is no longer covered, or you move away from the coverage area.
- *You have Original Medicare and a Medicare SELECT policy and move out of the plan’s service area.
- *You join a Medicare Advantage or PACE program during your initial enrollment at age 65 and decide to switch to Original Medicare within the first year.
- *You dropped a Medicare Supplement plan for a Medicare Advantage or Medicare SELECT plan for the first time and decide to switch back within a year.
- *You leave a Medicare Advantage plan or Medicare Supplement plan because the company did not follow the rules or misled you.
- *You cannot be enrolled in both a Medicare Advantage and Medicare Supplement plan..
The Difference Between Medicare and Medicaid
Medicare and Medicaid are two separate, government-run programs. They are operated and funded by different parts of the government and primarily serve different groups.
- Medicare is a federal program that provides health coverage if you are 65+ or under 65 and have a disability, no matter your income.
- Medicaid is a state and federal program that provides health coverage if you have a very low income.
- If you are eligible for both Medicare and Medicaid (dually eligible), you can have both. They will work together to provide you with health coverage and lower your costs
Also know that while Medicare and Medicaid are both health insurance programs administered by the government, there are differences in covered services and cost-sharing.
