Understand Your Medicare Out-of-Pocket Expenses in 2014
While Medicare can cover a good portion of your health care expenses, you remain responsible for paying for a share of the costs. As such, expect to have out-of-pocket costs as a Medicare beneficiary. These costs come in a variety of forms and can be impacted by a variety of factors. This article should help you understand what you can expect to pay based on your individual circumstances.
Basic terms for Medicare costs
Let's begin by defining the different forms of Medicare costs that you may experience.
Premium: The amount you pay each month to be covered by the Medicare plan.
Deductible: The amount you pay out of your own pocket for health care products and services before your plan begins to cover expenses.
Copayment: A flat dollar amount (for example, $20) that you must pay for a service after your Medicare plan begins to cover your health-care expenses. This is one form of "cost-sharing" under the plan.
Coinsurance: Another form of cost-sharing, this is a percentage of the total cost of the product or service. You usually pay the smaller portion. For example, you might pay 20% while your Medicare plan pays 80% of the cost.
There are also maximums that both you and the Medicare insurance plan might pay.
Annual maximum: The maximum amount you must pay out of your own pocket each year before the plan pays 100 percent of your covered health-care expenses.
Plan maximum: The maximum amount of coverage provided by the insurance plan
All of these Medicare costs and maximums can vary from plan to plan.
Let's explore how those Medicare costs apply to each different type of Medicare coverage.
What are some of the costs of Medicare Part A?
Medicare Part A is hospital insurance. Most people do not pay a premium for Medicare Part A. Once you have accumulated 40 Social Security credits (that means you have paid Social Security employment taxes for 40 or more quarters), you do not have to pay a Medicare Part A premium. Those who did not accumulate 40 Social Security credits will pay up to $426 per month in 2014. High-income individuals may also pay a premium regardless of accumulated credits.
Medicare expenses for Part A:
- Inpatient hospital deductible: $1,216
- 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 $304 per day for days 61 through 90, and $608 per day for days 91 through 60. There is no coverage under Medicare Part A for more than 60 days as a hospital inpatient.
- Skilled nursing facility coinsurance: You pay $152 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 pay up to a $5 copayment for each prescription drug, and 5% per day of the Medicare-approved amount up to $1,216 total.
What are the costs of Medicare Part B?
The Medicare Part B premium is $104.90 in 2014 for those 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 $147 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 $1,216 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 $1,216, Medicare pays 100% of covered expenses for the first 60 days of outpatient and partial hospitalization services. For days 61 through 90, you pay $304 per day. For days 91 through 60, you pay $608 per day. Medicare does not cover more than 60 days of mental health services in a year.
What are the costs of Medicare Part C (Medicare Advantage)?
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.
What are the costs of Medicare Part D?
Medicare Part D refers to prescription drug coverage that can be obtained in one of two ways: as a stand-alone Prescription Drug Plan (PDP) that can be added to Original Medicare, Part A and Part B coverage, or as coverage included within a Medicare Part C plan. In either case, Part D is sold by private insurance companies with Medicare's approval. You generally pay a separate premium as well as the outlined deductibles, copayments, and/or coinsurance. Low-income beneficiaries can apply for Extra Help, which can help pay those out-of-pocket costs for your prescription drugs, including the monthly premium for the plan.
Medicare costs under Part D usually include a coverage gap, also called the donut hole, which occurs after the plan has paid its maximum coverage amount and before you've paid your maximum out-of-pocket costs. This gap doesn't apply to those who qualify for Extra Help, but it can mean rather large out-of-pocket costs for those who take costly prescription drugs every day to control more serious health conditions. The federal government intends to eliminate this coverage gap entirely by 2020.
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Medicare Advantage Plans, sometimes called "Part C" or "MA Plans," are offered by private companies approved by Medicare and provide Medicare Part A and Part B coverage. Medicare prescription drug coverage is insurance run by an insurance company or other private company approved by Medicare. A Medicare Supplement plan is a health insurance plan provided by a private company that fills in the "gaps" in original Medicare coverage.