Medicare provides valuable health insurance for individuals 65 or older and certain people with disabilities who are under age 65. But it also comes with complex rules and sometimes significant out-of-pocket costs. Here's what you can expect to pay for Medicare:
Premiums. Most beneficiaries pay the standard Medicare Part B premium of $134 per month in 2018. However, some Medicare beneficiaries pay different amounts. Medicare Part B payments are prevented by law from reducing Social Security payments, so some Social Security beneficiaries pay lower premiums because their Social Security payments have not increased enough to cover the current standard Medicare premiums. High-income retirees bringing in more than $85,000 ($170,000 for couples) pay higher Part B premiums, ranging from $187.50 to $428.60 monthly, depending on how high their income is.
Most Medicare beneficiaries don't pay a premium for Medicare Part A hospital insurance. The premium cost for Medicare Part D prescription drug coverage varies depending on the plan you select. Most Medicare beneficiaries have their premiums deducted from their Social Security check.
Deductible and coinsurance. Medicare Part B has a $183 deductible in 2018. After that, Medicare beneficiaries typically need to pay 20 percent of the cost of most doctor's services. "That can quickly add up if a lot of health services are needed over time," says Tanya Feke, a medical doctor and author of "Medicare Essentials: A Physician Insider Explains the Fine Print." There is no annual limit on how much you might need to pay out of pocket.
There are some services Medicare beneficiaries are eligible for that aren't subject to these cost-sharing requirements, such as a wellness visit once every 12 months and a variety of preventative care services, including flu shots and cardiovascular disease screenings. "Some preventive screening tests like colonoscopies and mammograms are free under Part B, but only if certain conditions are met," Feke says. However, if a problem is discovered during a preventive visit, it could lead to other medical services that do have an additional cost.
Hospital stays. If you are hospitalized, Medicare Part A has a $1,340 deductible. If you end up spending more than 60 days in the hospital, it will cost you $335 per day for days 61 through 90 and $670 for up to 60 lifetime reserve days after that. "Everyone with Part A has to pay each time they are admitted to the hospital," Feke says. "For people who need hospital services frequently, out-of-pocket costs could skyrocket." Once your lifetime reserve days are used up, you will become responsible for your own hospital expenses.
Supplemental insurance. Some Medicare beneficiaries buy supplemental insurance policies to cover some of the cost-sharing requirements of traditional Medicare as well as some additional services. A Medigap policy can help to make your health care costs in retirement more predictable. Many plans will cover some of Medicare Part B's out-of-pocket costs and longer hospital stays than traditional Medicare. "The out-of-pocket costs can be great or virtually zero, depending on what type of a supplemental Medigap plan you choose," says Ronald Kahan, a medical doctor and author of "Medicare Demystified: A Physician Helps Save You Time, Money, and Frustration." "The most comprehensive plan is Plan F. It's the most expensive, but it will also cover virtually every copay and deductible that you have."
Another option is to sign up for a Medicare Advantage plan, which means you will receive your Medicare Parts A and B benefits via a private insurance plan instead of original Medicare. Medicare Advantage plans have different cost-sharing requirements for medical services and sometimes more coverage restrictions than traditional Medicare. "If you're willing to see in-network doctors and only do referrals from your primary care physician, your out-of-pocket costs could be smaller," Kahan says. "You are trading off that low cost for the ability to go to any doctor you want when you want without a referral."
Prescription drug coverage. Most beneficiaries can choose among multiple plans for their stand-alone Medicare Part D prescription drug coverage, and each offers different prices and coverage. The average basic premium is $33.50 per month in 2018, and plans are allowed to charge deductibles of up to $405. Premiums are higher for people who go 63 or more days without prescription drug coverage after becoming eligible for Medicare and for high-income Medicare beneficiaries. To get the best value for your money, you will need to continue to compare plans each year because the prices and covered medications change annually. "I think it's worth looking at your prescription drug plan every year because sometimes plans change their level of coverage, and there are always new plans coming out," says Cindy Levering, a retired pension actuary in Baltimore and member of the Society of Actuaries committee on post-retirement needs and risks.
Avoid late-enrollment penalties. You can first sign up for Medicare during the seven-month initial enrollment period that begins three months before you turn 65. If you don't sign up for Medicare during this initial enrollment period, you could be charged a late enrollment penalty as long as you are enrolled in Medicare. Your Part B premiums will increase by 10 percent for each 12-month period you delayed Medicare coverage after becoming eligible for it. If you didn't sign up for Medicare because you receive group health insurance through your job or your spouse's job, you need to sign up for Medicare within eight months of leaving the job or the coverage ending to avoid the penalty.
Some medical services aren't covered. You will need to budget for commonly needed medical services that original Medicare doesn't cover, including eyeglasses, contact lenses, dental care and hearing aids. "Most retirees don't have dental insurance, and dental work is not covered by Medicare," Levering says. Most significantly, Medicare only covers up to 100 days of nursing home care, after which you will become responsible for further long-term care costs.
Emily Brandon is the author of "Pensionless: The 10-Step Solution for a Stress-Free Retirement."
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