Plan Your Medicare Health Costs for Retirement

Jory Cross by Jory Cross | Licensed since 2012
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This article was updated on: 02/27/2018

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It’s smart to plan ahead for your retirement. Planning health-care costs in particular is important, since those costs may be among the biggest expenses you will have to face after retirement. Learn how to plan for health costs by understanding how much you may have to pay for Medicare premiums, and find out the difference in costs between each Medicare health plan available in your area.

There are various ways you can get your Medicare coverage, and each option has costs associated with it.

Original Medicare (Part A and Part B)

The Medicare coverage listed below generally applies only if you receive the services or supplies from a Medicare-assigned provider, and if your doctor certifies that they’re medically necessary.

Medicare Part A costs

  • You will not have to pay a premium for Medicare Part A (hospital insurance) if you’ve worked and paid Medicare taxes for at least 10 years (40 quarters), or you qualify through your spouse’s employment history.
  • If you don’t qualify for premium-free Medicare Part A, your monthly premium could be up to $422 in 2018. Use the Medicare Eligibility and Premium Calculator to find out if you qualify for premium-free Medicare Part A.
  • If you require an inpatient hospital stay, you’ll pay a Medicare Part A deductible of $1,340 for each benefit period.
  • You’ll also pay a coinsurance for each benefit period of your inpatient hospital stay; the amount may vary, depending on the length of your stay:
    • First 60 days: $0 coinsurance for each benefit period.
    • Days 61 to 90: $335 coinsurance per day of each benefit period.
    • Days 91 and beyond: $670 coinsurance for each “lifetime reserve day” after day 90 for each benefit period (You get up to 60 “lifetime reserve days” over your lifetime).
    • After lifetime reserve days are used up: You pay all costs.
  • For skilled nursing facility care, you’ll pay a coinsurance per day of each benefit period:
    • First 20 days: $0 coinsurance for each benefit period.
    • Days 21 to 100: $167.50 coinsurance per day of each benefit period.
    • Days 101 and beyond: You pay all costs.

Medicare Part B costs
If you enroll in Medicare Part B (medical insurance), you’ll have to pay a monthly premium for this coverage. The amount you pay for your premium may depend on your situation:

  • Most Medicare beneficiaries who have their premiums deducted from their Social Security benefits and who signed up for Part B before 2018 pay an average of $130 for the Part B premium.
  • If any of the following situations applies to you, you’ll typically pay $134 in 2018:
    • You enrolled in Part B for the first time in 2018.
    • You aren’t receiving retirement benefits from Social Security or the Railroad Retirement Board.
    • You get directly billed for your Part B premiums.

If you’re eligible for both Medicare and Medicaid benefits, and Medicaid pays for your premiums, technically your Part B premium may be $134 per month. However, if you meet eligibility requirements, Medicaid pays the premium.

In some situations, you may owe a higher Part B premium if your income as reported on your tax return from two years ago is above a certain threshold. You may also pay a higher Part B premium if you didn’t sign up for this coverage when you were first eligible (see below for more information on late-enrollment penalties and how to help avoid them).

Other costs you may have for Part B include:

  • You’ll also pay a yearly deductible of $183 in 2018. Some individuals with a higher income may have to pay a higher Medicare Part B premium.
  • After you pay the deductible, Medicare Part B covers most doctor visits and services, such as lab tests. Some services are covered at no cost to you; for others, you generally pay 20% of the cost of the service.
  • Medicare Part B also covers certain durable medical equipment (DME) and supplies when medically necessary. An example of a DME is a diabetes testing monitor or a wheelchair. You generally pay 20% of the cost of the covered equipment and supplies.

Original Medicare, Part A and Part B, has no out-of-pocket maximum.

Note that the above costs don’t include prescription drug costs. Original Medicare doesn’t include this coverage. To get this coverage, you can either buy a stand-alone Medicare Part D Prescription Drug Plan or switch to a Medicare Advantage Prescription Drug plan.

Also, Original Medicare doesn’t cover vision or dental services. Some Medicare Advantage plans (described below) do offer this coverage.

Medicare Advantage plans (Medicare Part C)

Medicare Part C, also known as Medicare Advantage plans, is insurance sold by private insurance companies that have contracted with Medicare. With Medicare Advantage plans, you receive your Medicare benefits through the insurance company instead of directly through Medicare. Medicare Advantage plans must offer the same benefits as Original Medicare (except hospice benefits, which are still covered under Part A). Many Medicare Advantage plans include prescription drug coverage and other benefits, such as dental and vision coverage, so they can give you all your coverage in a single plan. If you enroll in a Medicare Advantage plan with prescription drug coverage, also known as a Medicare Advantage Prescription Drug plan, you’ll have all of your Medicare coverage under a single plan.

Medicare Advantage plans set their own monthly premiums and other costs such as coinsurance, copayments, and deductibles. However, these costs must be approved by Medicare. These vary among plans, so when you’re figuring out your retirement costs, look at the costs and benefits of various plans to see what best fits your needs. Feel free to use the no-obligation Compare Plans tool on this page.

With Medicare Advantage or Medicare Part D Prescription Drug Plans, you still continue paying your monthly Medicare Part B premium.

Medicare Part D Prescription Drug Plans

Medicare Part D is prescription drug coverage sold by private companies approved by Medicare. If you’re enrolled in Original Medicare, Part A and Part B, you can get this coverage separately through a stand-alone Medicare Prescription Drug Plan. If you’re enrolled in a Medicare Advantage plan, you’ll typically get prescription coverage through a Medicare Advantage Prescription Drug plan. Although this coverage is optional, you may save money by getting this coverage as soon as you’re eligible for Medicare, during your Initial Enrollment Period (IEP). For most people, this starts when you turn 65 or have received disability benefits from the Social Security Administration or Railroad Retirement Board. If you don’t get it at that time, and you decide to enroll at a later date, you could face a late-enrollment penalty.

The cost of your Medicare Part D premium for a Medicare Part D Prescription Drug Plan or Medicare Advantage Prescription Drug plan depends on the specific plan you choose. Be aware that in addition to the monthly premium you pay for a Medicare Part D Prescription Drug Plan or Medicare Advantage Prescription Drug Plan, you may have to pay an income-related monthly adjustment if your income from two years ago, as reported on your IRS tax return, was above a certain limit.

Medicare Supplement plans (Medigap)

These policies, also known as Medigap plans, are privately sold, optional policies that are designed to help cover many out-of-pocket costs associated with your Original Medicare coverage. They don’t include drug benefits, but they help with some Original Medicare costs, like deductibles, copayments, and coinsurance.

In 47 of the 50 states, there are up to 10 standardized Medigap plans, designated with a letter (Medigap Plan A, B, C, D, F, G, K, L, M, N, plus a high-deductible Plan F). The other three states, which are Massachusetts, Minnesota, and Wisconsin, each offers its own set of Medigap plans. No matter where you live, though, if you enroll in Medigap, you must continue paying your Medicare Part B premium.

Medigap plans only supplement Original Medicare. They don’t work with Medicare Advantage plans, so you won’t need or be able to buy both types of plans.

Avoid late-enrollment penalties

Some beneficiaries are automatically enrolled in Original Medicare when they turn age 65 or in some cases when they’re receiving Social Security Disability benefits for 24 months, have end stage renal disease (ESRD), or Lou Gehrig’s Disease (also known as amyotrophic lateral sclerosis, or ALS).

If you’re not automatically enrolled in Medicare Part A, and you don’t sign up for it during your seven-month Initial Enrollment Period, you could be subject to a late-enrollment penalty. You are required to sign up for Medicare three months before you turn 65 and no later than three months after the month of your 65th birthday. Beneficiaries who are not eligible for premium-free Medicare Part A and fail to sign up during the seven-month Initial Enrollment Period may end up paying 10% more on their monthly Medicare premium for twice the number of years they could have had Part A, but didn’t sign up. For example, if you were eligible for Part A for two years but didn’t sign up, you’ll have to pay the higher premium for four years.

If you don’t enroll in Medicare Part B during your IEP, or you drop Part B coverage, you may have to pay a 10% penalty for each year you could have had Medicare Part B but didn’t. You’ll need Part B coverage if you ever want to enroll in a Medicare Advantage plan, or add a Medicare Supplement plan. If you wait two years after your IEP to enroll in Medicare Part B, you will probably have to pay an additional 20% on your monthly premium, for as long as you have Medicare Part B.

In some cases, though, you may actually save money by delaying your enrollment in Medicare Part B. For example, if you currently have employer-sponsored group coverage (either through your work or through your spouse’s work), you may delay enrollment in Part B and sign up later with a Special Enrollment Period when you stop working or that health coverage ends (whichever happens first). In this situation, you generally do not have to pay a late-enrollment penalty if you have health coverage based on current employment, and delaying Part B enrollment in this case would allow you to save money on Part B monthly premiums.

You may also be subject to a late-enrollment penalty for Medicare Part D (prescription drug coverage), if at any time after your IEP is over you remain without creditable drug coverage for 63 days in a row or more, and then decide to add this coverage later.

Considering the Medicare premium penalties and additional health-care costs you may incur if you don’t have adequate health insurance coverage, it may be a good idea to enroll in Medicare at the right time. Avoiding those extra costs may help you better plan your health-care costs for retirement.

Figuring out your Medicare costs

Now that you have an idea of some of the costs, how do you put it all together? Obviously, no one can predict the future, so it may make best sense to make your best guess based on your own health history, your family health history, your financial situation, and other factors about your life that could affect your finances during retirement. Of course, your out-of-pocket costs after retirement will depend on a variety of factors. Example of costs in one scenario:

There may be several different ways you can combine Medicare coverage options. The example below focuses on one possibility. Your actual costs depend on many different factors, such as whether and when you enrolled in Medicare Part B, how many doctor visits you have, and how many prescription drugs you take.

Let’s assume you’re enrolled in Original Medicare (Part A and Part B) and a stand-alone Medicare Part D Prescription Drug Plan. Assuming you qualify for premium-free Medicare Part A, you might estimate that you’ll pay $1,560 in Part B premiums during 2018 ($130 per month, the average amount beneficiaries pay who enrolled in Part B before 2018). If you get any doctor services, like screening tests that aren’t covered at 100%, assume you’ll pay at least the $183 deductible. That works out to roughly $1,743 for 2018. After you reach your yearly Medicare Part B deductible, you may have to pay 20% of the Medicare-approved cost for other Medicare Part B-covered services.

If you have experienced any health problems, you may need to add to this estimate. See Medicare.gov for details on what Medicare Part B covers.

Then, add in your monthly Medicare Part D Prescription Drug Plan premium, which might cost you about $35.02 per month, which is the national base beneficiary premium (about $420 per year in 2018). Then, add in the copayments for any prescription drugs you take. (Your actual plan costs and prescription drug costs will vary among plans.)

So, in this scenario, your costs could be over $2,163 for the year—and that’s if you stayed healthy and costs didn’t rise!

However, if you take prescription drugs to treat your health condition(s), your costs might be higher if you’re not enrolled in a Medicare Prescription Drug Plan.

When planning health-care costs for retirement and trying to decide whether to enroll in Original Medicare or a Medicare Advantage plan, it’s important to compare all associated costs including monthly premium amounts, out-of-pocket costs such as deductibles, copayments, and coinsurance that you will incur under each plan. You can use the plan comparison tool on this page to get started.

As you can see, there’s a lot to consider when you’re choosing the type of Medicare coverage that may best meet your needs. Premiums and deductibles may vary depending on the Medicare plan you select, and, in the case of Medicare Advantage and Medicare Part D Prescription Drug Plans, coverage details can also vary.

What else can I explain for you? There are links down below that you can use to schedule a phone appointment or have me email you with personalized information. Want to compare plans on your own? Scroll back up and use the Compare Plans button on the right side of the page. Or, for personalized assistance, just call us to reach a licensed insurance agent by phone. Ask for me by name, or speak to the next available licensed insurance agent.

Call Medicare.com’s licensed insurance agents at 1-844-847-2660, TTY users 711; Monday through Friday, 8AM to 8PM ET.

Medicare has neither reviewed nor endorsed this information.

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Jory Cross |
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