The first question when considering your healthcare after age sixty-five is often, “How much does Medicare cost?” One of the most common misconceptions we hear at Medicare Dana when talking to folks is the misunderstanding that Medicare is free. I hate to be the one to tell many people that Medicare is not free, and that’s why it is critical to start talking about Medicare and planning for the associated costs as early as possible. Planning early for Medicare costs means you’ll have more accurate data to plan accordingly for your retirement and the allotment of your income in these years.
There is One Part of Medicare that is Free…You’re Not Wrong!
When you turn 65, if you have worked at least 10 years, or 40 quarters, paying into Medicare taxes, you qualify for premium free Medicare Part A. If you do not qualify with your own working credits and are married to someone or have an ex-spouse who does, you may be able to obtain premium free Medicare Part A from their working credits. If you do not fall into any of those categories, you may be able to purchase Medicare Part A and pay a monthly premium. However, if you have worked at least 30 hours but not quite 40 hours, and paid into Medicare taxes during those working years, Social Security will prorate your premium. Contact Social Security for more details. For the remainder of this article we will be referring to costs for folks who qualify for premium free Medicare Part A.
The Cost of Medicare with Premium Free Medicare Part A
Now let’s break down the cost structure of Medicare. Medicare Part A, as mentioned above is premium free, so that means $0 a month. Medicare Part B is where the costs come into play. Every year there is a standard Medicare Part B premium that is based on income. The standard Medicare Part B monthly premium in 2021 is $148.50. High wage earners have an added monthly fee called IRMAA- Income-Related Monthly Adjustment Amount. Although some call it a tax, it is not a tax per se, but an added charge if your income is above a certain level. Your income is based on your wages (including tips), income from businesses/investments, interest earned, unemployment benefits, and alimony.
Medicare Part B premiums are based on income tax returns from two years prior. This means that 2021 Medicare Part B premiums are based on your filed 2019 income tax returns. High wage earners can use the table below to determine their Part B monthly premium amounts (in 2021).
|Your Monthly Premium Will be Based on Your Income|
|Your Annual Income||Your Monthly Premium|
|Equal or below $88K||Equal or below $176K||$148.50|
|$88K - $111K||$176K - $276K||$207.90|
|$111K - $138K||$222K - $276K||$297.00|
|$138K - $165K||$276K - $330K||$386.10|
|$165K - $499K||$330K - $749K||$475.20|
|$500K +||$750K +||$491.60|
If you are qualified to enroll in premium free Medicare Part A and paying the standard Medicare Part B premium, your monthly cost breakdown is as follows:
|Part A||$0 +|
Original Medicare with a Supplement Plan or Medicare Advantage (AKA Medicare Part C)
Here is where there is a fork in the road for people as there are two ways to obtain complete Medicare coverage: Original Medicare with a Supplement plan or Medicare Advantage (also called Medicare Part C).
Whichever route you choose; Original Medicare with a Supplement or Medicare Advantage, you still must pay the Medicare Part B monthly premium. Further monthly costs vary pending your plan of choice. Medicare Part A and Medicare Part B costs described above (along with the IRMAA for high wage earners) carries over to either the Medicare Supplement plan or the Advantage plan costs. Remember, Medicare Part A (hospital insurance) and Medicare Part B ( doctor’s visits and outpatient medical insurance) combined is Original Medicare. Original Medicare covers a lot financially, but not 100% of costs. Supplement plans are designed to offer financial coverage of the gaps with Original Medicare. Medicare Part C is a separate program that bundles your Medicare Part A, Medicare Part B, and Medicare Part D costs and coverage. Joining Medicare Part C is opting out of Original Medicare, where your benefits are obtained through private insurance companies, not the federal government.
So now we are looking at this cost breakdown:
|Part A||$0 +|
|Or Medicare Advantage Plan / Medicare Part C|
What's the Difference?
I talk at length on the difference in coverage and costs between Original Medicare and a Supplement and Medicare Advantage plans in other videos and blogs. For all the details of what each version entails, check out our video. Generally speaking, Supplement plans with Original Medicare have a higher monthly premium on the front end with little to no out of pocket expenses on the back end. You pay no copays for hospitalizations, doctor visits, lab work, etc., and there is a cap on out-of-pocket costs. And there are no preauthorization’s or referrals needed for treatment.
Medicare Advantage plans typically have a lower monthly premium on the front end, with higher out of pocket costs on the back end. You pay copays and coinsurances for hospitalizations, doctor visits, lab work etc., have a high in network deductible, and no cap on out of out-of-pocket costs. And there are preauthorization’s or referrals needed for treatment.
Medicare Part D Prescription Drug Plans: The Final Element
The last cost to consider for a full Medicare package is Medicare Part D Prescription Drug Plans. Many Medicare Advantage Plans combine Medicare Part D to bundle services, those are called Medicare Advantage Prescription Drug Plans, MAPD. If you are enrolled in a Medicare Advantage Prescription Drug plan, your monthly premium includes the Part D portion. For those that chose to enroll in an Original Medicare with a Supplement plan, you will need to purchase a stand-alone Medicare Part D Prescription Drug plan. As a standalone policy, the Medicare Part D Prescription Drug plans are customized to your medical needs which lowers your individual cost. Those that take high tiered and expensive medications would most likely not be on the same plan as someone with low tiered inexpensive medications.
Monthly premiums for the Medicare Part D Prescription Drug plans vary, starting from $7.30 to over $150 (in 2021) pending your medications. Co-pays vary as well based on the plan itself. Medicare penalizes you for not having credible drug coverage so whether you are taking medications or not, it is important you enroll in a Medicare Part D Prescription Drug plan or you may obtain a Late Enrollment Penalty (LEP) for the life of your time on Medicare! I dive deep into everything you need to know about the Medicare Part D Prescription Drug plans and LEPs in our ultimate guide. Check it out for more detailed information!
So now we are looking at this cost breakdown:
Original Medicare with a Supplement
|Part A||$0 +|
Medicare Advantage Plan
|Part A||$0 +|
|Medicare Advantage Plan||$X +|
Remember when I mentioned that IRMAA charge that is added to Part B premiums for high wage earners? There is also an IRMAA charge added to Part D premiums for those same high wage earners. High wage earners can use the table below to determine their Part D monthly premium amounts (in 2021).
|For 2021, Additional Premium Costs Based on Income|
|Your Annual Income||What you pay in addition to your regular Part D premium|
|Equal or below $88K||Equal or below $176K||$0|
|$88K - $111K||$176K - $276K||$12.30|
|$111K - $138K||$222K - $276K||$31.80|
|$138K - $165K||$276K - $330K||$70.70|
|$165K - $499K||$330K - $749K||$70.70|
|$500K +||$750K +||$77.10|
How Much Does Medicare Cost? It Depends!
After examining all the different elements of Medicare and the corresponding plan options, you can see that there are no one-size-fits-all solutions when it comes to Medicare costs. There are so many factors to consider including your wages, overall health, prescriptions, and what your state’s individual offerings are.
It takes time and effort to consider the options and run different scenarios for Medicare Plans. Working with an independent insurance agent helps you analyze all the various options available at the lowest cost and is free of charge! When you work with Medicare Dana, you obtain expert help in choosing the right plan for your needs at no additional cost. It’s like having your own personal Medicare expert to guide you and answer all your Medicare questions. If you are heading into retirement or if you have questions about whether you are getting a good rate on your Medicare Plan, give us a call today or contact us via our website form for a free consultation. Protect your health and wealth by making informed decisions about your Medicare plans. We can’t wait to hear from you!