October 6, 2016
Medicare costs can change from year to year, as health care costs continue to rise and individual health needs change. For older adults on a fixed or limited income, knowing how to budget for Medicare premiums and other out-of-pocket expenses can be challenging.
Knowing what your projected Medicare costs are expected to be each year can help you to plan ahead and minimize out-of-pocket spending.
Budgeting Medicare payments
The first step in budgeting your Medicare payments is determining your cost-sharing expenses. Your Medicare out-of-pocket costs will depend on whether you are enrolled in Original Medicare and whether you have Medicare Part A, Part B, or both. Moreover, these costs can change from year to year.
For Medicare Part A, your costs will generally include:
- Part A premium: If you are not eligible for premium-free Part A, your monthly premium is up to $411 in 2016. The amount will depend on how long you worked and paid Medicare taxes. If you need to pay a Part A premium and didn’t sign up when you were first eligible, you may have to pay a late enrollment penalty. The penalty is a 10% higher premium for twice the number of years you were eligible but didn’t enroll in Part A.
- Part A hospital inpatient deductible: $1,288 in 2016 for each benefit period.
For Medicare Part B, your costs will generally include:
- Part B premium: Most people pay a monthly premium of $104.90 in 2016. If you waited to enroll in Part B, your premium could be 10% higher for every 12-month period that you were eligible for Part B but didn’t sign up. Your premium may also be higher if you make above a certain income level.
- Part B deductible: The annual deductible is $166 in 2016.
- Part B coinsurance: You pay 20% of the Medicare-approved amount for medical services, durable medical equipment, and outpatient therapy (i.e., physical therapy).
If you receive your Original Medicare benefits through a Medicare Advantage plan, your out-of-pocket costs will depend on the plan, but may include a premium, deductible, copayment, or coinsurance. Medicare Advantage plans are offered by Medicare-approved private insurance companies. While Medicare Advantage plans must offer at least the same coverage as Part A and Part B (except hospice care, which is covered by Part A), many Medicare Advantage plans offer extra benefits. In addition, Medicare Advantage plans are able to design benefits in a way that can help plan members budget their expenses. For example, some Medicare Advantage plans may offer $0 deductible on select (many or all) covered services when members receive care from providers participating in the network. Many Medicare Advantage plans use set copayment amounts as the member’s cost-share for specific covered services. Some Medicare Advantage plans come with no additional premium aside from the Part B premium, which you must continue to pay even if you enroll in a Medicare Advantage plan. These are known as $0 premium Medicare Advantage plans.
If you have Medicare prescription drug coverage, your Part D costs will depend on the plan you choose. Medicare prescription drug coverage is provided by private insurance companies contracted with Medicare. There are two types of Medicare plans that provide Medicare prescription drug coverage: (1) stand-alone Medicare Part D Prescription Drug Plans (PDP) to go alongside your Original Medicare Part A and Part B and (2) Medicare Advantage Prescription Drug plans that combine health and prescription drug benefits into a single plan. If you have prescription coverage through a Medicare Advantage plan, you would pay all your health and drug costs through one plan. Medicare Part D costs can include:
- Premium: Your monthly premium could include a late enrollment penalty if you didn’t sign up for Part D when you were first eligible and didn’t have creditable prescription drug coverage for 63 or more consecutive days.
- Copayments/Coinsurance: Many Medicare plans providing prescription drug coverage put covered medications into different benefit tiers, with higher or lower copayments/coinsurance depending on the tier. How much you pay will depend on which prescription drugs you are taking and the tiers they fall under.
- Annual deductible
- Part D-Income Related Monthly Adjustment Amounts (IRMAA): If your income is above a certain amount, you may have to pay an extra cost for Part D coverage to Medicare (not to your plan).
- Costs in the coverage gap: You’re in the coverage gap (also known as the donut hole) once you and the Medicare plan providing your prescription drug coverage spend a certain combined amount on prescription drugs. Generally, you pay all costs for medications while in the coverage gap, minus any government subsidies and drug manufacturer discounts, until you reach the out-of-pocket maximum for that year.
Medicare Supplement plans are offered by private insurance companies and can help you pay for out-of-pocket costs for services covered under Medicare Part A and Part B. If you have a Medicare Supplement plan, the coverage is standardized by plan letter name. However, the costs may vary by plan, even if the benefits are exactly the same. It’s a good idea each year to review and compare costs of Medicare Supplement plans available where you live if you choose to have this coverage.
Every fall, your Medicare plan should send you an “Evidence of Coverage” (EOC) notice that includes details on coverage and what you pay. Your plan is also required to send you an “Annual Notice of Change” (ANOC) that notifies you of any changes in benefits or costs. If you are enrolled in Original Medicare, you should review the official U.S. government Medicare handbook entitled Medicare & You, which describes your Medicare coverage and changes from the prior year’s coverage. Use these documents when budgeting Medicare payments and projecting health costs for the coming year.
How to budget for Medicare coverage and other costs
Once you know what your expected Medicare cost-sharing expenses will be, there are other factors that may affect your out-of-pocket costs. You should consider the following when budgeting for Medicare payments:
- Your individual health needs: Your specific health conditions and medications, along with which health services you need and how often you need them will all affect how much you pay.
- Using in-network doctors and providers: It is generally less expensive to stay in your plan’s network. However, the list of included providers can change every year, So always verify that your providers are still in-network.
- Using Medicare-participating providers: Medicare-participating providers are required to accept assignment for services, meaning they cannot charge you more than the Medicare-approved amount.
- If you have other insurance: If you have other coverage, such as through an employer group plan, it may cover services and costs that Medicare doesn’t. To see how your insurance works with Medicare, check with your health benefits administrator.
- Eligibility for financial assistance: If you qualify for Medicaid, Medicare Savings Programs, and/or Extra Help with prescription drug costs and coverage, you could receive help paying for your Medicare and prescription drug costs.
Medicare cost-sharing requirements can change from year to year, so budgeting for Medicare payments should be adjusted annually. You should carefully read your plan’s EOC and ANOC documents every year in order to decide whether your current plan meets your health needs and if projected costs are still within your budget.
Beneficiaries taking prescription medications have much to gain by researching options each year. Medicare Advantage Prescription Drug plans and stand-alone Medicare Part D Prescription Drug Plans can change their premiums every year. They can also change their formularies, which are lists of covered prescription drugs. In fact, the formulary may change at any time. You will receive notice from your plan when necessary. If your plan changes its formulary and no longer covers a medication you’re taking, you may have higher out-of-pocket costs. Even if all of your medications are still covered, it is worth doing research to ensure you’re getting the best value for your prescription drugs and coverage. Medicare plans providing prescription drug coverage can vary widely in costs, depending on the medications you take, your ability to use a generic equivalent prescription drug rather than a brand name medication, and your use of the plan’s preferred pharmacies (which could result in significant savings).