Ask the average person about Medicare, and they can tell you that it’s the government’s health insurance program for people 65 and over, but they probably don’t know the costs involved with coverage.
“A lot of people think that because they have been contributing to Social Security and paying their taxes over the years, that when they turn 65, Medicare is free,” says Medicare expert Diane Daniels, author of The Medicare Survival Guide and host of the podcast Medicare Nation. But Medicare is definitely not free. In fact, according to the healthcare software company Health View Services, the average 65-year-old couple who will retire this year and receive Medicare, can expect to pay $404,253 in premiums and out-of-pocket medical expenses while on Medicare.
Before diving into costs, know that you have two options when choosing Medicare coverage:
1. Medicare offered by the federal government, known as Medicare Part A (hospitalization) and Medicare Part B (doctor visits and outpatient services). Part A & Part B are commonly referred to as “Original Medicare.” If you sign up for Original Medicare, you can optionally enroll in Medicare Part D, which is a prescription drug plan. Additionally, you have the opportunity to get Medicare Supplement/Medigap insurance, which covers most or all of the costs that Original Medicare doesn’t cover.
or you can enroll in…
2. Medicare Part C, also called Medicare Advantage. Medicare Advantage plans are offered by private insurance companies and cover at least the same services covered by Medicare Part A & Part B, but often include other services such as prescription drug coverage. With Medicare Advantage plans you are usually part of a healthcare network.
To learn more about your Medicare choices, click here.
Here is what you can expect to pay for Medicare in 2018:
Medicare Part A – hospitalization
Monthly premium: $0
Annual deductible: $1,316
The good news is that for Medicare Part A, which covers hospitalization, hospice, and skilled nursing, there is no premium. However there is a yearly deductible of $1,316, which is an increase of $28 over 2016. Once your deductible is met, days 1-60 of hospitalization are covered 100%. After 60 days, however, you must pay an amount set by Medicare, and there is no maximum amount for out-of-pocket expenses. Only a Medicare Supplement Plan (which is a plan you can get in addition to Medicare Part A & Part B) will cover your hospital costs if you are hospitalized for more than 60 days.
Medicare Part B – doctor visits
Monthly premium: $134 if you are turning 65 in 2018 and make less than $85,000 a year. If your income is higher, you’ll pay more—up to $428.60 a month
Annual deductible: $183
The monthly premium for Medicare Part B, which covers doctor visits, lab tests, and some preventative services, is $134 (an increase of $30 since 2016). The annual deductible is $183 (an increase of $17 since 2016). Once your deductible is met, Part B generally pays 80% of the Medicare-approved amount for covered services. That means you are responsible for the remaining 20%—and there is no maximum amount for out-of-pocket expenses. That means you could end up paying hundreds or even thousands of dollars if you need medical care. Also keep in mind that Medicare Part B does not pay for dental services, hearing, and vision.
One more thing, notes Daniels: “The government made Part B more convoluted from last year,” she says. “If you are turning 65 in 2017 or are over 65 and not yet receiving Social Security benefits, you’ll pay $134 if your annual income is less than $85,000. But if you are over 65 and collecting Social Security, you’ll be paying less—somewhere between $109 and $111, because the Social Security Cost of Living increase was small,” she says. ”But,” she continues, “If you don’t want to have the Part B premium amount automatically deducted and want a paper bill, you’ll be penalized for that and will pay the $134.”
Medicare Part D – Prescription Drugs
Monthly premium: Anywhere from $0 to $200+
Annual deductible: $400
Prescription Drug Plans are offered by private insurance companies, and each plan has a list, or formulary, that tiers medications by cost, with the lower-tiered medications being cheaper. Every plan is different, so you have to shop around to make sure your medication and your pharmacy are on the plan you’re considering.”You can get a drug plan that costs $17 a month, or you can get one for $170 a month,” says Daniels. “The more you pay out of pocket, the lower the cost for different tiers of drugs.”
In terms of plan deductibles, she says, some are triggered no matter what medication you buy, but other plans allow you to use generic drugs without triggering your deductible. The easiest way to compare plans and pick one is to go to the plan finder on Medicare.gov and enter your zip code. And once you pick a plan, “the most important thing to do is bring your formulary to your doctor so the doctor knows what’s covered when prescribing medication for you,” says Daniels.
Medicare Supplemental Insurance
Monthly premium: Cost varies, with the average being $183
Annual deductible: Cost varies, but can be $2,000+
Medicare Supplement Plans are offered by private insurance companies and cover the 20% that Original Medicare doesn’t cover for services. Medicare Supplement plans often cover copays, deductibles, skilled nursing care premiums, and excess hospitalization.
“Buying a Medicare Supplement plan can give you peace of mind and is like leasing a car for the rest of your life,” says Daniels. “The dealer pays for it if anything goes wrong.” The cost of Medicare Supplement plans varies depending on the plan, where you live, your gender and age.
The average monthly premium is $183, according to the Medicare Rights Center. The yearly deductible also varies, but can be $2,000 or more for certain plans.
Medicare Part C – Medicare Advantage
Monthly premium: $0 to $200+
Annual deductible: Varies
Medicare Advantage Plans are offered by private insurance companies and are an alternative to Original Medicare. Medicare Advantage plans cover all of the services Original Medicare covers, and often cover additional services like prescription drugs, vision, and dental. With Medicare Advantage Plans you are generally part of a network, and use the doctors and services included in that network.
Medicare Advantage plan premiums can range from $0 to several hundred dollars a month, depending on the plan. Yearly deductible costs also vary and can be hundreds or thousands of dollars.
It’s important to note that unlike Original Medicare, all Medicare Advantage plans have an out-of-pocket limit of $6,700 as long as you visit in-network doctors. Once you reach that limit, the plan covers all your medical costs for in-network services. For out-of-network services, you are responsible for the full amount.
The best thing you can do when choosing a Medicare plan is talk to a Medicare or health insurance expert to help you compare plans and costs.