Medicare, the federal government’s health insurance program for the elderly, now covers more than 40 million American age 65 or older. In 2011, Medicare spending reached approximately $554 billion, or about 15 percent of the federal budget. The program is funded by a 2.9 percent payroll tax paid by employers and employees, monthly premiums paid by enrollees, and the U.S. Treasury.
On average, Medicare covers about half of the health expenses incurred by its enrollees, who must pay the remaining costs either out of their own pockets, via supplemental private insurance policies, or with the help of Medicaid, the government’s health care insurance program for low-income individuals.
Many factors determine the bottom-line costs for each Medicare beneficiary, including the type of coverage chosen, the person’s income and assets, and whether the person has another insurance policy to pay for services not covered by Medicare’s four program parts.
Medicare Part A
Medicare Part A covers expenses associated with hospitalization, care in a skilled nursing facility, hospice care and some home health care. Seniors who have paid into the system for at least 10 years (or whose spouses have) can enroll in Part A at no cost.
Those who cannot enroll for free — including self-employed individuals — must pay a premium of up to $451 per month, with a higher price tag for upper-income individuals. In addition, there is a 10 percent penalty assessed to seniors who don’t sign up for Medicare when they first become eligible.
Costs for Part A enrollees
|Inpatient Hospital Care||• $1,156 deductible per benefit period*|
• $0 co-pay for days 0-60 of care during each benefit period
• $289 per day for days 61-90
• $578 per day for days 91+ (maximum of 60 days lifetime)
|Skilled Nursing Facility Care||• $0 for the first 20 days of care during each benefit period|
• $144.50 per day for days 21–100
• All costs for each day after day 100
|Hospice Care||• $0 for care|
• $5 co-payment for prescription drugs
|Home Health Care||• $0 for care|
• 20 percent of the approved amount for medical equipment
* A benefit period begins on the first day of admittance to a hospital and ends when the patient has been out of the hospital for 60 days in a row.
Medicare Part B
Medicare Part B covers all necessary outpatient services such as doctor’s visits, lab tests, preventive care, clinical trials, mental health care, physical and occupational therapies, and durable medical equipment and supplies.
Part B is not free, but it is optional. A senior must opt out of coverage, or an automatic deduction will be taken out of his or her Social Security check each month.
The standard Part B premium paid by most enrollees is $99.90 per month. Upper-income individuals will pay more — up to $319.70 per month. There is a penalty assessed to seniors who don’t sign up for Part B when they become eligible. The Part B deductible is $140 per year.
Costs for Part B enrollees
|Laboratory Services||• $0 for approved services|
|Outpatient and Preventative Services||• 20 percent of the approved amount for doctor’s fees|
• $0 for certain screenings and preventative services
|Home Health Services||• $0 for care|
• 20 percent of approved amount for medical equipment
|Mental Health Services||• 20 percent of approved amount for doctor’s visits|
• 40 percent of approved amount for professional services
• 20 percent of approved amount for each day in a hospital outpatient department or community mental health center
Medicare Part C
Medicare Part C allows individuals to enroll in Medicare health plans sold by private insurance companies that contract with Medicare to provide all Part A and B benefits, plus additional services, like prescription drug coverage.
Chief among Part C options are Medicare Advantage Plans. Different types include:
- Health Maintenance Organization (HMO) Plans
- Preferred Provider Organization (PPO) Plans
- Private Fee-for-Service (PFFS) Plans
- Special Needs Plans (SNPs)
To qualify for a Medicare Advantage Plan, a senior must be enrolled in Parts A and B. Each month, Medicare pays a fixed amount for an enrollee’s care to the company offering the plan.
Other Medicare Part C options include:
- Medicare Savings Accounts (MSA) Plans
- Medicare Demonstration Programs
- Medication Therapy Management Program
- All Inclusive care for the Elderly (PACE)
Coverage varies widely among these plans, as do prices, premiums and deductibles. It is important to get complete information from Medicare before enrolling in any Part C plan.
Medicare Part D: Prescription Drug Coverage
Medicare Part D covers prescription drugs and comes with a monthly premium based on the plan chosen and an individual’s income, as well as an annual deductible. The average monthly premium is estimated to be about $38; the standard annual deductible is $320. After the deductible is reached, Medicare pays all costs minus a copayment, which also varies from plan to plan.
A feature of Part D is a gap in coverage, known as the “doughnut hole.” Once the total cost of drugs reaches $2,930, an enrollee must pay for all drugs out-of-pocket, until costs reach $4,700 (starting in 2013, the enrollee’s cost will be reduced to 47.5% for covered brand-name drugs and 79% for generic drugs). At that point, Medicare kicks in again, paying 95 percent of costs for the remainder of the calendar year. The plan’s deductible and all co-pays, but not monthly premiums, count toward the $4,700 limit.
Medigap and Retiree Coverage
Private insurance companies provide Medigap policies to help cover costs that Medicare doesn’t, including co-pays and deductibles. Medigap plans require a monthly fee and participants must be enrolled in, and pay a monthly premium for, Medicare Part B.
The cost of a Medigap plan varies widely depending on the company, what the plan covers, and the enrollee’s age and location.
If a senior has retiree coverage from a previous employer, he or she must still enroll in Medicare Parts A and B, because Medicare is the primary insurer, always paying first. The retiree’s private health plan becomes the secondary insurer, filling in gaps in coverage.
Seniors need to compare program costs to discern the best combination of plans. For example, in some cases, retiree insurance plus Medicare might cost more than Medicare plus a Medigap policy.
How to Pay for Non-Covered Costs
Struggling with Medical Bills?
You have options to pay less than you currently owe!
Even though Medicare has vastly improved the ability of seniors to afford their health care, premiums, deductibles, co-pays and supplemental policies can still strain a retiree’s budget.
In order to remain solvent and still pay required health care costs, a senior may need to tackle other financial issues. For example, seniors with serious debt problems may need to seek out a debt management professional who offers debt settlement or debt consolidation programs.
Seniors with considerable equity in their houses may wish to apply for a home equity loan, a home equity line of credit or a reverse mortgage, allowing them to tap into the value of their homes to cover health care costs.