Medicare Costs Explained

How much does Medicare cost?

This is a great question. In this article, I’m going to explain how much Medicare costs, so you know what to expect when you go on Medicare.
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For most people going on to Medicare is a great thing. This is especially true if you have been paying some or all of your health insurance premiums, or if you have had to pay very high deductibles before your insurance starts to pay.

Medicare isn’t free, but many people are surprised by how low the premiums actually are. The reason these premiums may seem low to you is that you have actually been paying for your Medicare the entire time you have been paying taxes.  A portion of your taxes are sent over to the Medicare Trust Fund and are used to pay the medical claims for those who are on Medicare.

Your costs on any health insurance, including Medicare, can be broken down into two categories…Cost of coverage which is what you will have to pay out in monthly premiums, and Cost of care, which is what you pay when you actually seek treatment.  I go more in-depth on this subject in my video “The Hidden Cost of Medicare.” But just like the old saying goes, you “can’t get something for nothing”. If someone is offering you coverage at a lower cost they are making up the difference somewhere else.  I’m not saying this is bad, you just need to know the details of all your options before you make your decisions.

In this article, we will take a deep look at the cost of coverage and then see how these choices will affect your cost of care.

For most people when you turn 65 you will need to apply for both Medicare Parts A and B.  We call this original Medicare. These are the parts of Medicare that you have to get from the Government.  You will go through a private insurance company to get the other parts or supplemental plans associated with Medicare.

If you have worked and paid taxes for more than 10 years, you do not have to pay for Medicare Part A.

For anyone who is joining Medicare in 2020, the standard cost for Part B, $144.60 per month. Higher-income earners pay more for Parts B & D. If you file your taxes as a single and make more than 87,000 or file jointly and make more than 174,000 per year, you will pay more for your Part B. Check out the comments below for a link to download a pdf with all these numbers.

So, for most people, you will pay 144.60 for your Original Medicare, but you still need to get prescription coverage and either a supplement or a Medicare Advantage plan, and this is where your choices will start to affect both what your cost of coverage as well as your cost of care will be. If you want to learn more about this, click the link and watch my full video on how much Medicare costs.

Let’s take a minute and talk about why you need to get anything in addition to your Original Medicare.  For one Medicare was never intended to cover 100% of your medical expenses. That’s ok, and you probably don’t expect it to, but what you might not expect is that Original Medicare has no limit or cap on how much you could have to pay out of pocket each year.  Under Original Medicare, you are responsible for 20% of all your Part B charges. So the primary reason you need to purchase either a supplement or join an Advantage plan to is to protect yourself from a catastrophic medical event. The other thing you need to get is prescription coverage.  The short story is the government says you have to get it, and they’re going to penalize you if you don’t. If you want more information about the costs associated with Medicare, check out my full video at the link above.

So, you are probably wondering how much is a supplement or an advantage plan going to cost?

The monthly premium for a supplement has several variables, including which plan letter you choose, your sex, age, where you live, and maybe even your health.

The most popular Medicare supplement in the past has been Plan F, but it’s not available for people turning 65 any longer so now Plan G is becoming the more popular plan.  It’s nearly identical to Plan F with one difference, and it’s the simplest supplement option when it comes to getting care.

For a Plan G where I’m at here in Central Indiana, a Non-smoking female aged 65 would be about $100/month, and a male would be about ten dollars more. Rates may be higher or lower depending on where you are and your circumstances.  You should connect with a local independent agent who specializes in Medicare. They can give you quotes on all the plans in your market. Remember like all things in life, you can expect modest increases on these plans over time.

So you have your Medicare Part B premium for most people is 144.60 per month, and let’s say your supplement will be $120, now you need prescription drug coverage.  You could have 20 or more stand-alone plans in your market. Once again your independent insurance agent will be able to tell you which plan is right for you. The national average price for a part d plan is right about 33 dollars a month in 2020..  The lowest is around $15. Remember we’re just talking about the premiums here, not how much it actually costs to get your prescriptions.

Let’s see where we’re at, if you have 144.60 for your part b, another 100 to 120 for your supplement, and maybe 20 dollars a month for a Part D, you’re looking at about $265 per month for your monthly premiums.  But, remember what I said about there being two categories of costs. Cost of coverage and cost of care. Well if you choose the plans I have suggested in this example your total cost of care for all Medicare-covered services in 2020, not including your prescription drugs, would be $198 or less per year. That’s right, your out of pocket costs for all Medicare-covered treatment for the entire year would be less than 200 dollars.

Previously I said you need to get either a supplement or a Medicare Advantage plan.  Let’s look at how much a Medicare Advantage plan might cost. First of all, If you choose to join a Medicare Advantage plan, you cannot purchase a Medicare Supplement that covers your copays and deductibles.  Most of the time your Medicare Advantage plan will include your prescription drug coverage. Now you still have to pay your Part B premium, even if you join a Medicare Advantage plan, but Medicare Advantage plan premium can be as low as zero dollars per month. On average in 2020 the average cost is around $36 dollars per month.  So adding your Part B and Medicare Advantage premiums together your average monthly costs with an Advantage plan could be about 180 dollars. But where it gets tricky is when you look at the cost of care on a Medicare Advantage plan. On Medicare Advantage plans, generally, you will have to pay a co-pay or co-insurance whenever you seek treatment.  So it’s really hard to estimate what your costs of care might be. If you are healthy you might pay very little for your care, but if have multiple specialists or have a major hospitalization your costs can really start to add up. What we can say is you will have a maximum out of pocket and on an HMO plan that might be as low as $3400 per year, not including your premiums or prescriptions but could be as high as $10,000 per year on a PPO if you go out of network.

So let’s recap. If you pay the standard Part B premium amount and choose a supplement Plan G and a prescription drug plan, your monthly costs could be around $265 per month, and you feel confident that your out of pocket medical expenses would not be more than 198 dollars for the year.  Or you could choose a Medicare Advantage plan that with a low or no monthly premium which also include prescription coverage and you monthly Medicare premiums could be in the 145 to 180 dollar range depending on what plans are available in your area. And on a Medicare advantage plan your annual costs are capped with a max out of pocket but once again that cap can be different on each plan offered in each service area.

I hope this helped you get an idea of what the costs associated with Medicare are.  I highly recommend if you are approaching age 65 or are already on Medicare give us a call.  We would be happy to review your situation and give you our recommendations.