How Much Will My Medicare Cost?

Some people are in for a huge surprise on their 65th birthday. The shocker: that their health care in retirement will cost anything at all. “They’ve worked their whole life and paid into Medicare, so when they turn 65, they figure it’s been paid in advance,” says Jo Murphy, executive director of the Michigan Medicare/Medicaid Assistance Program, a nonprofit that helps residents navigate Medicare. 

In fact, payroll taxes cover only a fraction of the cost of care for Medicare beneficiaries. Health care in retirement can still be expensive. But there is good news: Medicare beneficiaries can choose from a variety of options that can help them manage those costs. 

What Do I Have to Pay For?

The basic core of Medicare is known as Original Medicare. Its costs are detailed here, and they include:

• Hospital insurance (known as Part A): If you contributed payroll taxes for at least 40 quarters (10 years), you’ll have a $0 monthly premium for hospital coverage. For 30 to 39 quarters, it’s $240 per month; less than 30 quarters, $437. If hospitalized, there’s a $1,364 deductible for each benefit period, plus a large daily coinsurance payment per day of hospitalization after the first 60 days. 
• Medical insurance (known as Part B): A $135.50 or higher monthly premium (depending on your income), $185 annual deductible, and coinsurance of 20 percent for covered services. 
• Prescription drug costs (Part D): A monthly premium, plus deductibles, copayments, and coinsurance that vary by plan.

The Problem: There’s No Cost Limit

Here’s the rub: Original Medicare has no out-of-pocket maximum. A bad health year could cost you tens of thousands of dollars. This is why most people choose to supplement Original Medicare with Medicare Advantage Plans (which have out-of-pocket maximums) or Medicare Supplement insurance (which covers most or all of the out-of-pocket costs imposed by Original Medicare). 

“There are options that can lower your costs and risk,” says Diane Daniels, a Medicare consultant and author of Medicare Nation. “Medicare Advantage is an option that lowers the amount they will need to pay.” 

Of course, there’s a catch. Medicare Advantage Plans (also known as Part C) and Medicare Supplement insurance (also known as Medigap) each come with a different set of costs: 

• Medicare Advantage plans typically have copayments, coinsurance, deductibles, and a premium. Usually these are different than the costs under Original Medicare. But the premiums are typically lower than with Medigap. Some plans don’t have any premium at all, and some pay part or all of your outpatient Part B premium. Medicare Advantage plans also usually include prescription drug coverage. And these plans often offer additional benefits not available through Original Medicare, such as vision, dental, or hearing. 
  
  Medicare Advantage plans can provide many benefits affordably because you agree to obtain services from a defined network of providers, which helps control costs. 
   
• Medigap typically covers most or all of your out-of-pocket costs when you go to the doctor or hospital, including copayments, coinsurance, and deductibles. (Exactly how much depends on the particular Medigap plan.) But the monthly premium is typically higher than that of a Medicare Advantage plan, and you still need to pay your Medicare Part B premium. If you want prescription drug coverage, you’ll still need to get a Part D plan. 

Mind Your Money

Many people don’t have a clear idea of how much they’re spending on health care, says Daniels. When they take the time to track their costs and compare plans, they often find that they can save money by making a change. 

For example, Daniels says that some of her clients discover that their costs are lower on a Medicare plan than through their employer’s coverage. (In that case, they may want to switch to Medicare even if they’re still working.) Or they might find that it would be a good idea to switch Medicare plans during the next period of eligibility, because their needs or finances have changed. 

“Comparing the costs and benefits of all of the plans that are available to you is time-consuming,” Daniels says. “But it’s extremely important.”