There are a variety of costs associated with Medicare benefits. Medicare is a federal insurance program for seniors 65 years of age and older, as well as some people under the age of 65 who qualify due to certain disabilities. While Medicare can be cost effective when compared to private medical insurance and group insurance plans, there are certain costs you you will be responsible for as a Medicare recipient. Out-of-pocket expenses factor into overall retirement planning, so let’s discuss the expenses you may expect.
Cost categories for Medicare benefits
Medicare costs may include the following:
- Premium: Periodic payment for medical or prescription drug coverage.
- Deductible: Payment required for healthcare or drugs before insurance-covered payments kick in.
- Coinsurance: Amount that reflects your share of the cost of services after applicable deductibles.
- Copayments: Determined amount you pay at point of service.
Costs will vary based on how you receive your Medicare benefits, what plan you choose to enroll in, and what additional coverage you purchase. For instance, Medicare recipients may choose to get their Part A and Part B benefits from Original Medicare or through a Medicare Advantage plan. Individuals who choose to have Original Medicare may opt to enroll in a stand-alone Prescription Drug Plan and may also purchase a Medicare Supplement, or Medigap, policy.
When presented with options of healthcare services and products, there is a potential for additional out-of-pocket costs, such as visits to and treatments received from out-of-network versus in-network healthcare practitioners or facilities. Within drug plans, there will be a difference in cost between brand name or generic drugs. Depending on the plan, additional costs may apply for procedures performed without pre-authorization or primary doctor referral. And, of course, expenses related to treatments beyond what Medicare considers medically necessary would not be covered.
Medicare costs in 2020
In most cases, eligibility for Medicare benefits begins at age 65. If the Medicare application for Part A and/or Part B is submitted to Social Security during the first three months of the initial enrollment period, the effective date will be either the first of the month in which your birthday falls or the first of the prior month, depending on the birth date. Initial premiums due depend on several factors, and historically, premiums have increased annually. Therefore, expect to pay more at age 66, 67 and so on.
For 2020, the standard Part B monthly premium is $144.60. Based on income, it may be more. The deductible is $198, and the coinsurance is 20% of the Medicare-approved amount. Part C, Medicare Advantage, varies with the plan. Part D, drug coverage, may be part of the Medicare Advantage plan. If not, Part D would be a separate premium. Most seniors are eligible for free hospital insurance (Part A). If not, the standard 2020 premium is $458 per month. The deductible for Part A is $1,408 per benefit period. The amount of coinsurance depends on the number of days you are in the hospital.
Late enrollment at age 66
Individuals who miss the initial enrollment period, applying at age 66 rather than 65, should expect to pay a late enrollment penalty. If you are not eligible for premium-free Part A, the late penalty is a monthly premium increase of 10%. This higher premium will be required for double the number of years you were eligible for Part A but did not enroll. Based on the illustration provided by Medicare, if you could have been enrolled in Part A for the past two years but did not sign up, your liability is a 10% higher premium for four years. Similarly, the penalty for failing to apply for Part B is 10%; however, you may have to pay the penalty for the duration of your enrollment in Part B.
Medicare recipients who are permitted to sign up during a special enrollment period usually are not required to pay a late enrollment penalty. This is typically the case for people who are still employed and covered under the company’s group health plan.
Medicare rate changes
On Medicare.gov, go to “Your Medicare costs,” and click “Medicare costs at a glance” to stay informed of the current rates for premiums, deductibles and coinsurance for parts A and B. Those enrolled in parts C and D should receive premium change notifications directly from the insurance companies providing coverage, typically mailed near the last quarter of each year, so beneficiaries are able to make changes during the open enrollment period.