Disclaimer: Medicare.org is a non-government website owned and operated by Health Network Group, LLC., an Allstate company. HealthCompare, a licensed insurance agency, may compensate us when you enroll in a plan through our phone number or MedicareEnrollment.com. However, this does not influence our publication. Our opinions are our own.

Medicare.org

A Non-Government Guide to Learn About Medicare

Talk to a Licensed Insurance Agent[1]

833-453-3041 (TTY 711)

Mon-Fri 5am-6pm, Sat 6am-5pm PST

Chapter 1: Medicare Isn’t Free – The True Costs You Need to Know

One of the most common misconceptions about Medicare is that it’s free. After all, you’ve paid Medicare taxes for years, so why shouldn’t it cover all your healthcare costs in retirement? Unfortunately, the reality is that Medicare is far from free, and the expenses can add up quickly if you’re not prepared.

This chapter will explain Medicare’s different parts, their costs, and why planning for these expenses is essential. We’ll also explore some common mistakes people make regarding Medicare costs and how to avoid them.

A 65-year-old African-American man sits with his hands to his head and a surprised look on his face as he reads about the true costs of Medicare on his computer. A stack of bills lies on the desk beside him, emphasizing financial stress.

Understanding Medicare Costs

Medicare is a federal health insurance program with four main parts: Part A, Part B, Part C (Medicare Advantage), and Part D (Prescription Drug Plans). Each part comes with its own set of costs, including premiums, deductibles, and coinsurance.

  1. Medicare Part A (Hospital Insurance)
    • Cost: Part A is often premium-free if you or your spouse worked and paid Medicare taxes for at least 10 years (40 quarters). However, if you don’t qualify for premium-free Part A, you’ll need to pay a monthly premium of $278 or $506, depending on your work history.
    • Deductible: There’s also a deductible for each benefit period. In 2024, this deductible is $1,632.
    • Out-of-Pocket Costs: Even with Part A, you’re responsible for coinsurance if your hospital stay exceeds 60 days. For days 61-90, you’ll pay $408 per day, and for days 91-150 (using your lifetime reserve days), you’ll pay $816 per day. Skilled nursing facility care also has coinsurance costs, with $204 per day for days 21-100.
  2. Medicare Part B (Medical Insurance)
    • Cost: Part B covers outpatient services like doctor visits, preventive care, and durable medical equipment. Most people pay a standard monthly premium of $174.70. Higher-income beneficiaries may also pay an Income-Related Monthly Adjustment Amount (IRMAA), which can increase the premium to as much as $594.00.
    • Deductible and Coinsurance: After paying your annual deductible, which is $240, Medicare covers 80% of your approved medical services, leaving you responsible for 20% coinsurance (20%).
  3. Medicare Part C (Medicare Advantage)
    • Cost: Private insurers offer Medicare Advantage plans and replace Original Medicare. While some plans have a $0 premium, you must still pay your Part B premium. Costs vary depending on the plan, and additional benefits may require an extra premium.
    • Out-of-Pocket Maximum: One advantage of Medicare Advantage is that it includes a cap on out-of-pocket costs, which can reach up to $8,550 in 2024.
  4. Medicare Part D (Prescription Drug Plans)
    • Cost: Private insurers also offer Part D plans, with premiums starting at around $20 per month. However, costs vary depending on the plan and the prescriptions needed.
    • Deductible and Coinsurance: Part D plans often have deductibles, copayments, and coinsurance, with the maximum deductible being $545. Part D also has an initial coverage limit of $5,030 and a catastrophic coverage threshold of $8,000.

The 80/20 System: What Medicare Covers and What You Pay

Medicare operates on an 80/20 cost-sharing model, where Medicare covers about 80% of approved healthcare costs, and you are responsible for the remaining 20%. While this may sound manageable, the reality is that without additional coverage, you could face significant out-of-pocket expenses.

  • Example: If you need surgery costing $100,000, Medicare may cover $80,000, leaving you to pay $20,000 out of pocket. These costs can quickly add up, especially without a cap on your expenses under Original Medicare.

Additional Coverage Options

To cover the gaps in Medicare, you have a few options:

  1. Medigap (Medicare Supplement Insurance): Medigap policies are designed to help pay for some out-of-pocket costs not covered by Original Medicare, such as deductibles, copayments, and coinsurance. There are different Medigap plans available, each offering varying levels of coverage.
  2. Medicaid: If you have limited income and resources, you may qualify for Medicaid, which can help cover costs not paid by Medicare.
  3. Employer or Retiree Benefits: Some employers offer retiree health benefits that work alongside Medicare, covering some or all of your out-of-pocket costs.
  4. Veterans Benefits: Veterans with VA healthcare benefits may be able to use these benefits to reduce their Medicare-related expenses.

Key Mistake: Thinking Medicare Is Free

Believing that Medicare is free or covers all your healthcare needs is costly. The reality is that without additional coverage, you’ll be responsible for 20% of your healthcare expenses, and these costs can escalate quickly. That’s why planning for Medicare costs and exploring your options for additional coverage is essential.

Conclusion

Understanding the true cost of Medicare is the first step in avoiding expensive mistakes. By knowing what Medicare covers, what it doesn’t, and how to fill in the gaps, you can protect yourself from unexpected expenses and make the most of your Medicare benefits.

In the next chapter, we’ll explore the importance of enrolling in Medicare on time and how to avoid the penalties that can add up if you miss your enrollment window.

Chapter 2: Missing Your Enrollment Window – Avoiding Penalties