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Cost of Medicare - Understanding Your Out-of-Pocket Expenses in 2013

You can expect to have out-of-pocket costs as a Medicare beneficiary. Those Medicare 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.

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 percent while your Medicare plan pays 80 percent 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.

Cost 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 either $243 per month (30 to 39 credits) or $441 per month (0 to 29 credits). High-income individuals may also pay a premium regardless of accumulated credits.

Medicare Expenses for Part A

  • Inpatient hospital deductible - $1,184
  • 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 $296 per day for days 61 through 90; and $592 per day for days 91 through 150. There is no coverage under Medicare Part A for more than 150 days as a hospital inpatient.
  • Skilled nursing facility coinsurance - You pay $148 per day for days 21 through 100. You pay all costs before and after that period.
  • Psychiatric hospital costs are the same as inpatient 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 $5 for prescription drugs and 5% per day of the Medicare-approved amount up to $1,184 total.

Cost of Medicare Part B

The Medicare Part B premium will be $104.90 for 2013. However, most people will continue to pay either $99.90 or $115.40. 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% percent by Medicare. Services that do not fall under this category follow the physician coinsurance provisions (above).
  • Outpatient hospital care - You pay up to $1,184 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 $1,184, Medicare pays 100 percent of covered expenses for the first 60 days of outpatient and partial hospitalization services. For days 61 through 90, you pay $296 per day. For days 91 through 150, you pay $592 per day. Medicare does not cover more than 150 days of mental health services in a year.

Cost of Medicare Part C (Medicare Advantage)

Medicare Part C (also called Medicare Advantage) plans are provided by private insurance companies; thus the premiums and cost-sharing provisions vary from plan to plan. 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, B and/or D for the typical health care expenses that you expect to experience in a given year. Remember to count the monthly premium.

Medicare Advantage plans come with different benefits and coverage so Medicare expenses vary. Some have high deductibles while others have no deductible. Copayments and coinsurance amounts can vary as well. In fact, some plans may require you to go to doctors and hospitals that participate in the plan's health care provider network in order to be covered at all. 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.

Medicare Expenses for Part D

Medicare Part D coverage is sometimes included within Medicare Part C plans; however, private insurance companies also offer separate Part D prescription drug plans. 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 - or doughnut 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.

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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.

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