What is Medicare?
Medicare is the government-run health care program for people 65 and older signed into law in 1965. Today, more than 60 million Americans are enrolled in some type of Medicare coverage.1
Medicare won’t take care of all of your health care costs. You’ll be responsible for premiums, deductibles and copayments. And some elements of health care, including long-term care, are not covered by Medicare at all.
Any U.S. citizen or person who has been a permanent legal resident for the past five years is eligible for Medicare. Younger people who are disabled are also eligible for Medicare, sometimes with a waiting period. The government’s Medicare eligibility tool can help determine who is eligible. 2
Understanding what each Medicare part covers and what your costs will be can help you successfully plan for health-care costs as you age.
What You Need to Know
Medicare won’t take care of all of your health care costs. You’ll be responsible for out-of-pocket costs and other services such as long-term care.
What you pay in premiums for the different parts of Medicare or supplemental insurance varies. In some cases, you may pay no monthly premium. In others, you may pay more depending on your income.
You have several ways to set up your Medicare coverage. You can choose Original Medicare, add additional benefits and coverage with Medicare Supplement and Part D or go with an all-in-one Medicare Advantage plan.
Medicare Part A — Hospital Insurance
What Does Part A Cover?
Medicare Part A covers the cost of inpatient hospital stays if you are admitted to a hospital that accepts Medicare after an official doctor’s order. Part A includes inpatient mental health services, stays at a skilled nursing facility, hospice and some home health care services.3
What Costs Will You Pay with Part A
Premiums for Medicare Part A are free if you are age 65 or older and you or your spouse worked and paid Medicare taxes for at least 10 years. They are also free to Social Security Disability Insurance beneficiaries who have paid taxes.
If you and your spouse don’t meet this requirement, you can purchase Part A insurance for $458 a month if you paid Medicare taxes for less than 30 quarters. If you paid Medicare taxes for 30 to 39 quarters, you’ll pay $252 a month.4
What Is Part A Cost Sharing?
A benefit period begins the day you’re admitted to a hospital or skilled nursing facility and ends when you haven’t received any inpatient hospital or skilled nursing facility care for 60 days in a row.
Medicare Part A beneficiaries pay an inpatient hospital deductible of $1,408 in 2020 for each benefit period. After that, there is no coinsurance for hospital stays up to 60 days. If you are in the hospital more than 60 days (not necessarily in a row), you’ll pay $352 per day up to 90 days. After 90 days, you are responsible for the full cost of hospitalization or you can use your lifetime reserve days. These are 60 days of additional hospital coverage to be used throughout your life. You’ll pay $704 for each lifetime reserve day you use.
If you qualify, Medicare Part A pays the costs (room, board, skilled care, etc.) of a skilled nursing facility for the first 20 days with a copay of $176 per day for the next 80 days.5 Skilled care includes nursing and therapy care performed by professionals in an inpatient setting. Skilled nursing care is different from custodial or long-term care, which Medicare does not cover.
Medicare Part B — Medical Insurance
What Does Part B Cover?
Medicare Part B covers medically necessary services provided on an outpatient basis. These include doctor visits, lab tests, x-rays, mental health services, durable medical equipment such as walkers and canes, ambulance services and some prescription drugs that are administered in a doctor’s office or clinical setting.6
Part B also covers preventive services such as yearly wellness exams, screenings and some vaccinations.
What Costs Will You Pay with Part B?
For the majority of people, Medicare Part B monthly premiums are $144.60 in 2020. (Premium amounts are adjusted for costs each year.)
Higher-income seniors may pay what’s known as an income-related monthly adjustment amount (IRMAA) in addition to the standard monthly Part B premium. The total premium, depending on income, ranges from $202.40 to $491.60.7
To learn more about adjusted premium costs, read this MedicareGuide.com article.
Late enrollment penalties are another potential Medicare Part B cost. If you do not enroll in Part B at age 65 when you become eligible and you are not covered by employer group health coverage and later enroll, you’ll pay an extra 10% above the standard premium cost for every 12-month period you delayed enrollment.
What Is Part B Cost Sharing?
Medicare Part B comes with an annual deductible of $198 for 2020. After you meet the deductible for the year, you typically pay 20% of the Medicare approved amount for doctor services and other Medicare benefits. This holds true if you go to a provider that “accepts assignment.” This means that the provider will accept the Medicare payment amount.
Many Original Medicare enrollees also purchase Medicare Supplement Insurance to help pay out-of-pocket costs. Or, they can opt for Medicare Advantage. (See below.)
A Word of Advice
Understanding Medicare’s components and costs can help you make the best decision for your health care needs now and in the future.
Medicare Part C — Medicare Advantage Plans
What Does Part C Cover?
Medicare-approved private insurers administer Medicare Advantage plans. These plans must provide all of the same coverage that is found in Original Medicare Part A and Part B. Often these plans include Medicare Part D prescription drug coverage (more on that below) and extra benefits not covered by original Medicare, such as dental, vision, and some limited non-medical services.8
In order to offer these extra benefits and keep costs down, Medicare Advantage plans often negotiate with a network of providers that plan members must use. This is different from Original Medicare in which beneficiaries may receive treatment from any Medicare provider.
What Will You Pay for Part C?
The costs of Medicare Part C vary depending on your insurer, where you live and what type of plan you choose.
Even if you choose Medicare Advantage, you must still pay Part B premium and any higher-income beneficiary adjustments. You may also pay an additional premium for your Medicare Advantage plan above the Part B amount.
What Is Part C Cost sharing?
Deductibles, copayments and coinsurance for Medicare Advantage plans can vary significantly and can be different than what you would pay in Original Medicare. Low or no-premium plans may charge more in cost sharing. You may pay additional charges if you receive treatment or services outside of your plan’s network. Medicare Advantage plans have a yearly limit on how much members will pay in out-of-pocket costs.
If you choose Medicare Advantage, it’s important to compare total costs —including premiums, cost sharing, and out-of-network charges — both among plans and versus Original Medicare. Cost sharing and benefits of the plan you choose can change from year to year so you need to evaluate coverage during every Medicare open enrollment period. Medicare.gov offers a tool to help compare Medicare Advantage Plans.9
Medicare Part D — Prescription Drug Coverage
What Does Part D Cover?
Introduced in 2006, Part D, an optional program that covers prescription drugs, is the most recent addition to Medicare. Private insurers administer Part D plans. Premiums and cost sharing vary by plan.
You can receive Medicare Part D coverage in one of two ways. If you have Original Medicare, you can enroll separately in a Part D plan when you are first eligible or during the annual Medicare open enrollment period. This is also true in most cases if you have a Medicare Advantage plan that does not include prescription drug coverage.
Or, you can enroll in one of the majority of Medicare Advantage plans that do include Part D coverage.
All Part D policies include a list of prescription drugs covered by the plan, called a formulary. This list will include both brand name and generic drugs. Formularies change from year to year and even within the year so it’s important to check regularly that the medicines you need are included in your Part D coverage.10
The Medicare Plan Finder on Medicare.gov can help find a Part D plan that covers your prescriptions.
What Will You Pay for Part D?
Premiums for Part D plans vary by insurer.
As with Medicare Part B, high earners will pay an income-related monthly adjustment amount (Part D IRMAA), additional to premiums, ranging from $12.20 to $76.40, depending on income.11
You may also pay a late enrollment penalty if you delay joining when you’re first eligible and you don’t already have prescription drug coverage.
What Is Part D Cost Sharing?
Part D deductibles vary among plans. Some plans have no deductible while the maximum amount allowed is $435 in 2020.
Part D and Medicare Advantage plans with prescription drug coverage almost always charge a copayment or coinsurance for each of the medicines you purchase. Part D coverage uses a tiered cost-sharing structure. This means you will pay varying prices for different categories of drugs. In general, you’ll pay more in copays or coinsurance for brand-name drugs and less for generics.
You may also face more cost sharing when you hit the coverage gap, also known as the donut hole. In 2020, when you and your insurer have paid $4,020 in prescription drug costs, you are then responsible for 25% of all of your medicine costs. That 25% cost sharing will continue until you enter what’s known as Medicare Part D catastrophic coverage.
When you spend a total of $6,350 for out-of-pocket costs for your prescription drugs, you will be eligible for catastrophic coverage. When you are in the catastrophic coverage phase, you will pay 5% of the cost of your drugs, or $3.60 for generics and $8.95 for brand-name drugs, whichever is greater. You pay this catastrophic rate for the remainder of the calendar year.
Medicare Supplement Insurance or Medigap Policy
Medicare Supplement Insurance, also known as Medigap, helps to cover the out-of-pocket healthcare costs you incur with traditional Medicare Part A and Part B. There are 10 standardized plans and premiums are regulated by the states. Massachusetts, Minnesota and Wisconsin have their own version of Medigap. What you pay in monthly premiums can depend on where you live, what coverage you get and how old you are.12
Understanding the different components and costs associated with Medicare can help you make the best decision for your health care needs now — and in the future.
For more details on all parts of Medicare and information on how to enroll, read more on MedicareGuide.com.