Healthcare is a major expense in retirement and while Medicare is a federally run program (via payroll taxes), it is not free. Before you head into retirement, it’s important to understand how much it’ll cost you.
According to the most recent studies by Fidelity, after age 65, you can expect to spend approximately $5,000 per person for your medical expenses.
In today’s episode, I want to break down some of those costs.
Because Medicare is a multi-part system, the easiest way to understand its cost is to break it down by part.
Part A
Many people do not have to pay a premium for Part A because they (or their spouse) paid for Medicare while they worked. If you pay into Social Security for 10 or more years, your Part A premium is typically $0.
Otherwise, premiums run $52-$471 per month depending on how long you paid into Social Security.
Unlike traditional healthcare plans, Part A does not have an annual deductible but instead has a deductible per hospital benefits period (beginning when you go into a hospital). The deductible for Part A is $1,484 per benefit period (which is 60 days). Copays (per day) for a hospital stay are $0, $352, or $704, depending on the length of stay, with only 150 days being covered.
- Days 1–60: $0 coinsurance for each benefit period.
- Days 61–90: $352 coinsurance per day of each benefit period.
- Days 91 and beyond: $704 coinsurance per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over your lifetime).
- Beyond lifetime reserve days : all costs.
Meanwhile, the cost of a skilled nursing facility (if you meet the criteria) has a per day copay of $0 (after paying your deductible) for the first 20 days and a $185.5 copay for days 21-100. Stays beyond 100 days are not covered.
You pay:
- Days 1–20: $0 for each benefit period .
- Days 21–100: $185.50 coinsurance per day of each benefit period.
- Days 101 and beyond: all costs.
Part B
The standard premiums for Part B is $148.50 per month and varies based on whether you are receiving Social Security benefits and your income (up to $504.90 per month).
A higher income means that you’ll pay a higher premium (as shown in Question 30).
The deductible for Part B is $203 per year. Once you have reached your deductible, you’ll be responsible for 20% of the cost of covered supplies and services (coinsurance).
Part C
Part C, also known as Medicare Advantage, is optional. It is offered via private insurers and cost will vary by plan and insurer.
The Center for Medicare and Medicaid (CMS) estimates that the average premium is $33 per month, and can range from $0 to $481 per month. These estimates include plans that include Medicaid coverage and special-needs plans.
Deductibles, copays, and coinsurance vary by plan. The out-of-pocket limit for Part C cannot exceed $6,700 per year for in-network services and $10,000 per year for out-of-network services. The Kaiser Family Foundation estimates the average out-of-pocket limit is around $5,060 per year.
Part D
Offered through Medicare-approved private insurers, the cost of Part D (also optional) varies by insurer, plan, state, and income. According to CMS, the average premium for Part D is around $43 per month.
Remember, to get Part D you must be enrolled for Original Medicare (Part A and B) and will have those premiums as well.
Part D limits deductibles to $445 per year or less.
Also – don’t forget to include the cost of the “Coverage Gap” into your anticipated expenses, if you think you will be incurring a large amount of prescription drug expenses (as we discussed in Question 31).
Keep in mind that different plans cover different medications, so be sure to select one that offers low costs for the prescriptions you need.
Medigap/Medicare Supplement
According to eHealth research, the average Medicare Supplement premium in 2019 was $152 per month in 2019. You will still have to pay Part B premiums.
Medigap is supplemental insurance that you can buy to help pay for things that aren’t covered by Medicare Part A and Medicare Part B. Some examples of the costs that may be covered by Medigap include:
- deductibles for parts A and B
- coinsurance or copays for parts A and B
- excess costs for Part B
- healthcare costs during foreign travel
- blood (first 3 pints)
The specific things that are covered depend on the Medigap plan that you purchase. There are 10 different types of Medigap plans, which are each designated with a letter: A, B, C, D, F, G, K, L, M, and N. Each plan has a different level of coverage.
Each Medigap policy has a monthly premium. The exact amount can vary by individual policy. Insurance companies can set monthly premiums for their policies in three different ways:
- Community rated. Everyone that buys the policy pays the same monthly premium regardless of age.
- Issue-age rated. Monthly premiums are tied to the age at which you first purchase a policy, with younger buyers having lower premiums. Premiums don’t increase as you get older.
- Attained-age rated. Monthly premiums are tied to your current age. That means your premium will go up as you get older.
One of the most comprehensive types of Medigap policies is Plan G. Let’s take a deeper look into those premiums and you can do more research on your own at Medicare.gov.
https://www.everydayhealth.com/medicare/what-is-the-most-popular-medicare-supplement-plan/
https://www.medicare.gov/your-medicare-costs/medicare-costs-at-a-glance
https://www.healthline.com/health/medicare/medigap-plans-cost#about-medigap