Understanding Medicare Expenses
It is crucial you have an understanding of the Out-of-Pocket expenses that are associated with Medicare. Out of pocket costs can be found with Original Medicare Parts A and B through deductibles and coinsurance, through Part D Prescription Drug Plans, and many Medicare Supplement Plans.
Medicare Part A:
2017 Medicare expenses for Part A:
Cost-sharing under Medicare Part A:
Inpatient hospital deductible: $1,316
Inpatient hospital coinsurance: After you have paid your deductible, Medicare pays 100% of costs for your first 60 days in the hospital. After that, your out-of-pocket costs are $329 per day for days 61 through 90, and $658 per day for days 91 and later while using 60 lifetime reserve days. There is no coverage under Medicare Part A for more than 60 days as a hospital inpatient.
Skilled nursing facility coinsurance: You pay $164.50 per day for days 21 through 100. You pay all costs before and after that period.
Psychiatric hospital costs: The same as inpatient hospital costs. The difference is the plan's coverage limit of up to 190 days over your lifetime.
Home health care: You pay only 20% of the Medicare-approved amount for medical equipment. Medicare pays all other costs.
Hospice care: You may need to pay a copayment of no more than $5 for each prescription drug and other similar products for pain relief and symptom control while you're at home. You may need to pay 5% of the Medicare-approved amount for inpatient respite care.
Medicare Part B:
2017 Medicare expenses for Part B
The Medicare Part B premium is $134 in 2017 for those just starting their Part B coverage and who make $85,000 or less individually or $170,000 on a join tax return. There are also state Medicaid programs that allow low-income beneficiaries to not pay anything at all for Medicare Part B. Some late enrollees may pay a penalty in the form of a higher premium and high-income individuals may pay more as well.
Cost-sharing under Medicare Part B:
Annual deductible: You pay $183 before Medicare Part B benefits begin.
Physician coinsurance: You pay 20% of the Medicare-approved amount. You may pay more if your doctor does not accept Medicare.
Preventive care services: Certain preventive care is covered 100% by Medicare. Services that do not fall under this category follow the physician coinsurance provisions (above).
Outpatient hospital care: You pay up to $1,288 maximum.
Lab tests: You pay nothing. Medicare covers all covered lab expenses.
Medical equipment and supplies: Medicare pays up to 80% of the approved amount. You pay the rest. Note that the Medicare approved amount can be less than the actual charge, so you could pay more than 20% of the total cost.
Outpatient mental health services: You pay 45% of the approved amount.
Partial hospitalization for mental health services: After you meet a deductible of $1,316, Medicare pays 100% of covered expenses for the first 60 days of outpatient and partial hospitalization services. For days 61 through 90, you pay $329 per day. For days 91 and later while using the 60 lifetime reserve days, you pay $644 per day.
Medicare Part C (also called Medicare Advantage) plans are sold by private insurance companies. Because of this, coverage details and pricing, such as premiums and other cost-sharing provisions, can vary by plan.
This is why it is recommended that you compare all plans in your area when looking at Part C options. Our plan comparison tool can help you view a list of Medicare Advantage plans in your area. You may also study the plan documents (which you can get from the specific insurance company offering the plan) and compare them with what is covered and how much you would pay out of pocket against Medicare Parts A and B and/or D for the typical health-care expenses that you expect to experience in a given year. Some Part C plans may have a $0 monthly premium, although this does not necessarily make them the cheapest option. There could be higher copayment or coinsurance amounts to balance out the $0 premium. Also, even if you choose to join a Medicare Advantage plan, you must continue paying your Part B premium.
Medicare Advantage plans may have network restrictions that require you to go to doctors and hospitals that participate in the plan's health-care provider network in order to be covered. Other plans allow you the freedom to go anywhere for services to be covered. Still others might cover services at different levels depending on whether you went to a network doctor or if you went outside the network. All Medicare costs and rules are outlined in the documentation you will get from the insurance company.
Medicare Prescription Drug Plans:
With many of the individual Prescription Drug Plans, you are going to find a maximum $360 annual deductible and a 25% co-payment for 2016. Because of the Medicare Modernization Act that was passed in 2003, the Initial Coverage Limit is $3,310 and the Out-of-Pocket Threshold is $4,850 for 2016. Once the out-of-pocket is reached, you qualify for the Catastrpohic Coverage portion of the benefit. During the Catasprohic Coverage portion, you will pay 5% or $2.95 for Generic/Preferred Multi-Source drugs and $7.40 for other drugs (name brand).
After an individual pays the deductible, he or she is in the initial coverage period during which he or she pays 25 percent of drug costs and the Part D plan pays 75 percent of costs. Once Part D drug expenses (paid by the individual and by the Part D plan) total the initial coverage limit ($3,310 for 2016), the individual is responsible for a certain percentage of charges based on whether the drug is generic or brand until the individual has reached the out-of-pocket threshold.
The out-of-pocket threshold is the amount that the individual must pay on his or her own before catastrophic coverage begins. This gap between the initial coverage limit and catastrophic coverage is referred to as the “donut hole.”
Once an individual reaches the catastrophic portion of the benefit, the Part D plan covers approximately 95 percent of the Part D drug expenses incurred. Cost-sharing is set at the greater of 5 percent coinsurance or fixed copayments ($2.95 generic/$7.40 name brand). This amount is set by CMS. It is not a total of other amounts listed in this table.
Medicare Supplement Plans:
There are a good number of plans to choose from when considering Medicare Supplements (Medigap). Some of the plans offer richer benefits with minimal out-of-pocket costs. Others have more costs needing to be covered by the enrollee before the plan begins to pay. You can review the plan benefits and out-of-pocket costs by visiting Medicare.gov or by speaking with your Medicare insurance agent.