What Medicare costs
Premiums, deductibles, and coinsurance, oh my!
Medicare is funded partly by payroll deductions, similar to Social Security. The deduction is 2.9% of wages, usually half paid by the employee and half paid by the employer. These funds are placed in a trust fund that the government uses to reimburse doctors, hospitals, and private insurance companies. The rest of the funding for Medicare comes from those who are enrolled in the program. Yes, Medicare charges premiums and has deductibles and co-pays.
Part A has no premium required for most people. Over 99 percent of enrollees are not required to pay a premium for Part A because they have at least 10 years of work history while paying Medicare payroll taxes.
If you do have to pay a Part A premium, this page shows the current amount.
Medicare Part B has a monthly premium. The Medicare Part B premium is determined each year at an amount needed to pay for 25 percent of the average cost of coverage. The standard premium, which is the premium paid by most enrollees, applies to those with annual household incomes that do not exceed a certain level. If your household income is higher than this amount, your premium will increase by an amount that depends on your income.
See this page to see current Part B premiums
For Part D, your cost depends on the prescription drugs you have and the pharmacy you use.
Most Part D plans also have monthly premiums. As of 2011, enrollees with higher incomes must pay an additional premium to the federal government that is based on their income. This extra premium, called the Income-Related Monthly Adjustment Amount (IRMAA), is deducted from Social Security benefits.
In addition to premiums, Part A and Part B have annual deductibles. You must pay the cost of your medical treatment and medications until the deductible is met, and then Medicare benefits begin paying. Many Part D plans also include deductibles, though some plan have no deductible.
This page shows the current premium and deductible costs of Part A, B, and D.
Even after you’ve met the annual deductible, Medicare doesn’t pay the entire amount of the cost of treatment. Rather, Medicare pays 80% of the amount it allows for that treatment, and you pay the other 20%. The part you pay is called coinsurance.
Many doctors accept Medicare, but many don’t. A doctor who doesn’t accept Medicare cannot bill Medicare for your treatment, leaving you responsible for the whole cost.
Additionally, providers who accept Medicare may not accept the Medicare allowed amount for their payment. Doctors who are “on assignment” have agreed to accept the amount Medicare charges for the service you receive as their payment. Doctors who are not on assignment can charge up to 15 percent more than this amount, which you will have to pay.
So if you have medical treatment for which Medicare allows $100, and you go to a physician who is on assignment with Medicare, the doctor has agreed to accept $100 for the service. Your cost will be 20% of $100, or $20.
If you go to a physician who accepts Medicare but is not on assignment, the doctor could charge up to $115, and your total cost will be $20 + $15 = $35.
Finally, if you go to a physician who does not accept Medicare, they can charge whatever they like and Medicare will not pay any of it.
The Medicare physician search page enables you to find physicians who accept Medicare.
Because Medicare does not cover the full cost of treatment, and includes premiums and deductibles, many people purchase Medicare supplemental plans, also known as Medigap, from private insurance companies to help cover these out-of-pocket expenses.
As mentioned previously, Medicare has deductibles and often premiums for all parts. Additionally, Medicare pays only 80% of the Medicare-allowed cost of treatment. The other 20%, called co-insurance, is what you must pay. Many people choose to purchase Medicare supplements, called Medigap policies, which are sold by private insurance companies and pay the premiums, deductibles, and co-insurance. Some supplement policies also pay for treatment outside of the U.S.
Medicare supplements require a monthly premium to be paid, just like most insurance policies. If you and your spouse both require Medigap policies, you generally must each purchase your own policies; most Medicare supplements only cover one person. Medigap policies generally don’t cover vision or dental care, hearing aids, eyeglasses, or private nursing or long-term care. The insurance company must allow you to renew your Medigap policy even if you have health problems; you cannot be dropped from coverage as long as you pay your premium.
Get more information about Medigap at this page.
Next: Enrolling in Medicare