You’ve been working your whole life and paying your Medicare taxes regularly. It’s only fair that Medicare is free, right?
Not exactly – the truth about Medicare is that while your contributions will help pay for some parts of Medicare, it is not entirely free. You still need to pay premiums and share out-of-pocket costs.
Leaving out Medicare costs from your personal budgeting or financial plan can be a big mistake as costs can add up.
The Key Parts of Medicare
There are five (5) parts of Medicare that you need to know when considering potential costs:
| Part | Description |
|---|---|
| Medicare Part A | Part A is hospital insurance – inpatient hospitalization, home health care, skilled nursing facilities, and hospice care. |
| Medicare Part B | Part B is medical insurance – outpatient services like doctor’s visits, ambulance transport, and medical equipment. |
| Medicare Part C | Part C is also known as ‘Medicare Advantage’. These are a private health plan alternative that combine Part A and B coverage into a bundled package and often includes additional benefits such as Part D drug coverage, dental, vision, and hearing servicesWhen you choose to enroll in a Medicare Advantage plan you receive your Medicare coverage from the private insurance provider rather than directly from the government |
| Medicare Part D | Part D – refers to prescription drug coverage. Part D coverage can be bought standalone or bundled within a Medicare Advantage (Part C) plan |
| Medicare Supplement | Medicare Supplement is also commonly known as ‘Medigap’. These are private insurance plans that charge a monthly premium to help cover out-of-pocket costs (or “gaps”) that you are responsible for paying under Original Medicare Part A and BTypically seen as ‘Cadillac’ coverage – you can only buy this if you stay with Original Medicare |
How Much Does Medicare Cost?
Medicare costs vary depending on what coverage you are looking at. Outlined below are the key costs for the various parts of Medicare.
| Original Medicare | Premium | Key Out-of-Pocket Costs (2023) |
|---|---|---|
| Medicare Part A Hospital Insurance | $0 per month if you have paid ten years of Medicare taxes while working | – Days 1-60: $1,600 deductible – Days 61-90: $400 per day – Days 91 and over: $800 per day if you have ‘lifetime reserve days’ (everyone gets sixty one-time use reserve days) otherwise 100% of the cost |
| Medicare Part B Medical Insurance | $164.90 per month Higher if your income is above certain thresholds | – Annual deductible: $226 – Cost-share: 20% of medical costs after deductible |
| Private Plans | Premium | Key Out-of-Pocket Costs (2023) |
|---|---|---|
| Medicare Part C *‘Medicare Advantage’ | – $0 – $100 per month In addition to your Part B premium – 66% of plans have no premium | – Annual deductible: $0 – $1,000 (many plans have no deductible) – Cost-share: $0 – $50 copay for primary/specialist doctors; $250-$600 copay for the first 3-7 days of your hospital stay and $0 after – Maximum Out-of-Pocket Cost Cap: $3,000 up to $12,450 |
| Medicare Part D *Prescription Drugs | – $0 per month if bundled in a Part C /Medicare Advantage plan OR – $7 – 99 per month if purchased separately | – Annual deductible: $0 – $505 – Cost-share: You pay fixed copays for drugs based on the ‘drug tier’ of your drug as determined by your plan provider |
| Medicare Supplement *‘Medigap’ | $90 – $300+ per month In addition to your Part B premium | – Annual deductible: You pay the $226 Part B deductible (above) – Cost-share: Typically limited-to-no out of pocket costs |
* The costs range for Part C, Part D and Medicare Supplement are based on typical cost ranges.
Bottom Line: Medicare is NOT free
You will still have to pay for premiums and out-of-pocket expenses. Healthcare costs can add up. Not budgeting correctly for healthcare costs under Medicare can be a very costly mistake.
| Tip: Plan ahead for Medicare costs You could be excluding thousands of dollars from your budget buy not considering the potential costs of Medicare when retiring. In order to get estimate costs, you should always consider your premiums, deductibles, out-of-pocket obligation for both medical and drug costs under your Medicare plan(s). |
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