In the U.S., 10,000 people turn 65 every day and that number is supposed to grow to 12,000 by 2024. According to the 2020 Census data, the baby boomer generation is an estimated 73 million and gaining momentum.
If you are turning 65 and entering Medicare, you’re probably wondering about all of your options. For those already age 65, the Open Enrollment Period (OEP) is from October 15 to December 7. Choosing the right plan should help with minimizing health care costs in retirement, but often retirees are sold insurance that isn’t sufficient or doesn’t suit their needs.
A Fidelity report found that an average couple will need $300,000 to cover medical expenses in retirement, excluding long-term care. Of that amount, 44% goes to co-payments, co-insurance, and deductibles for doctor and hospital visits. Medicare Part B and D premiums, including doctor appointments and hospital visits, account for 39%, and 17% to generic, branded, and specialty drug costs.
As you can tell, it’s important to understand how Medicare works, including the different parts, premiums, and plans available.
Parts A and B
Medicare Part A is hospital insurance, covering inpatient hospital stays, skilled nursing care, hospice care, and limited home health care services. The Part A deductible is $1,556 in 2022 covering up to 60 days of hospitalization. Anything longer than that becomes expensive and coverage runs out after 150 days.
To qualify for Part A, you needed to work at least 40 quarters (or 10 years) and an at-home spouse automatically qualifies. If for some reason you worked less than 40 quarters but more than 30, you’ll pay a monthly premium of $274 in 2022; and if you worked less than 30 quarters, the costs will be $499.
Medicare Part B is medical insurance, covering medically necessary and preventative services, ambulance services, durable medical equipment, mental health, inpatient, outpatient, partial hospitalization, and a limited amount outpatient prescription drugs. Part B has a yearly deductible of $233 in 2022 and your premiums are based on your modified adjusted gross income (MAGI) from two tax years prior (e.g. 2022 Medicare Part B premiums are based on your 2020 federal tax return).
Example #1: Single Individual
If you’re a single individual and had less than or equal to $91,000 of MAGI in 2020, your 2022 Medicare Part B premium will be $170.10.
Example #2: Married Couple
If you and your spouse file jointly and have less than or equal to $182,000 of MAGI in 2020, your 2022 Medicare Part B premium will also be $170.10.
Depending on how you file and your MAGI, monthly premiums can be as high as $578.30 in 2022. The higher your tax bracket is, the Medicare B premiums will increase on a sliding scale. Although you don’t have to opt into Medicare Part B, doing so, later on, will increase your monthly amount by 10% for each 12-month period you could’ve had but didn’t sign up.
The combination of Medicare Parts A and B is Original Medicare and your copays, coinsurance, deductibles, and out-of-pocket expenses should only amount to 20%.
Part C is Medicare Advantage, which is a type of plan that provides benefits covered under Part A, Part B, and typically Part D, often referred to as Medicare replacement, as the majority of your coverage will be directly from the insurance company, not Original Medicare.
Medicare supplements are sold through private insurance companies and can pay the additional costs above Original Medicare’s 20% as well as copays, coinsurance, deductibles, and out-of-pocket expenses not covered with Medicare Advantage. Plans might also cover travel outside of the U.S. not generally offered with Original Medicare.
The types of Medicare supplements to choose from include:
- Plan A
- Plan B;
- Plan D;
- Plan G (and high-deductible G);
- Plan K;
- Plan L;
- Plan M; and
- Plan N.
If you’re already age 65, you may also have the option of purchasing Plan C and F (and high-deductible F). Each insurance company is priced differently so make sure to check with all of the available ones in your state as the price discrepancy can be substantial from one to another.
Prescription drug coverage is Part D, which is offered as a standalone option or bundled with a Medicare Advantage plan. Drug plans are run by insurance companies approved by Medicare and costs vary from one to the other, depending on the tier (e.g. generic, branded, or specialty medications).
The tiers of your medications will determine if you reach the coverage gap–or “donut hole”–after the plan has spent a certain amount for covered drugs, which is $4,430 in 2022. At that point, you will be responsible to pay for 25% of your prescription drugs until you’ve hit catastrophic coverage or $7,050 out-of-pocket in 2022. Catastrophic coverage is there to minimize costs going forward after paying out-of-pocket during the donut hole.
If you don’t get a Part D prescription drug plan, there will be a penalty assessed by multiplying 1% of the national base beneficiary premium ($33.37 in 2022) by the number of full, uncovered months of credible coverage, rounded to the nearest $.10. With all prescription drug plans, you should review your choices every year as benefits may change.
Be sure to review your Medicare coverage options before making an uneducated decision as you might be one hospital trip away from a costly mistake.