Plan Ahead for Medicare Costs
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There’s something everyone decades away from becoming eligible for Medicare needs to know.
Medicare is not free.
In fact, in 2021, many enrollees are spending at least a few hundred dollars a month to cover their out-of-pocket costs that include premiums, copays, and coinsurance.
That tends to shock and frustrate people who discover this just as they are signing up for Medicare.
I want everyone decades away from age 65 to understand this fact long before they have to deal with the cost.
Medicare Covers a Lot, But Not Everything
Much like the health insurance plan you had through work, or through the ACA marketplace, there are premiums, deductibles, and coinsurance that all enrollees will be expected to pay. (Lower-income enrollees are eligible for assistance.)
And we’re not talking small sums. At a minimum, every enrollee pays a monthly premium for a core part of Medicare, called Part B. Part B covers doctor appointments, tests, and exams that occur outside the hospital. (Part A, which typically doesn’t require paying a premium, covers most costs when you are admitted to a hospital.)
In 2021 the minimum monthly premium payment for Part B is $148.50. That’s per person. There is no combined coverage for spouses. Every person enrolls in Medicare separately from a spouse. So that’s a minimum of around $300 this year for a household with two Medicare enrollees. The official report from Medicare estimates that in 2030 the minimum monthly charge for the Part B premium will be $248.50. That means $500 in monthly premium costs for a couple in less than 10 years.
And that assumes you only have to pay the minimum. This year an individual with modified gross income below $88,000 and married couples with joint income below $176,000 pay the minimum for Part B. Above those thresholds you pay more.
And again, just like your health insurance through an employer, you can be expected to pay deductibles and coinsurance.
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If you choose to enroll in Original Medicare (about 60% of enrollees use this system) it is so very important to add a Medicare supplemental policy—what’s known as Medigap— to cover the expenses that Medicare expects enrollees to pay. For new enrollees, the Medigap plan that offers the best coverage is Plan G. Depending on where you live, a Plan G policy can cost $80 to $300 a month.
If you choose a Medicare Advantage plan, please don’t fall for the marketing that makes it sound like it’s free. It sure isn’t. While you don’t need to purchase Medigap with Medicare Advantage (and you’re not allowed to), when you use your insurance, you may face a 20% coinsurance cost. The maximum out of pocket for Part A (when you’re admitted to a hospital), and Part B (appointments, tests, and treatment outside a hospital) is $7,550 this year for Medicare Advantage enrollees. There’s no out-of-pocket max if you use Original Medicare, which is why you really need that Medigap policy to protect you.
Prescription drug coverage comes with its own costs, that I won’t overwhelm you with right now.
Saving for Future Medicare Costs
When I encourage you to save at least 10% of your salary—15% is even better—for retirement, part of the reason is that your retirement budget needs to account for the cost of participating in Medicare. I am telling you this not to depress you or scare you, but rather to empower you to plan ahead for this cost. That’s going to be so much better than finding out when you are retiring and enrolling in Medicare.
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Senior Vice President - Agricultural / Commercial Lender at The State Bank Group / Harvard Savings Bank
3yHow much of these Medicare costs can be covered by a HSA account?
SOX Control Testing and Internal Audit Professional
3yYou can apply for Medicare no more than 90 days before your 65th birthday, as I applied 5 months early and months later got a reject letter and had to reapply. Also if your birthday is on the first day of the month, then your Medicare coverage starts on the first day of the prior month. If you have an August 1st birthday, your coverage starts on July 1st so do not procrastinate. If you decide to get a Medicare Advantage wrap around add on policy that might cover dental, vision and expanded drug coverage, you will be amazed at how many choices there are. You will be bombarded with many offers and will be totally confused on what you should choose. I would recommend looking closely at what the company that administers your Medicare policy offers so you do not get caught in the middle with claim filings between 2 or more companies. If you want to continue working past 65 and stay with your employer’s healthcare plan, you will need to file a form with Medicare before your are 65 to notify them of this. Budgeting for healthcare insurance and related costs is one key part of retirement planning. A pretax healthcare savings account that you take with you after retirement can be a great source of funding for these expenses.
Sadly, many people believe Medicare is free, which makes “Medicare for All” sound appealing. It also does not include dental care
Author, Fundraiser, Educator, Speaker
3yMost people don't realize that many nursing homes won't accept Advantage plans, because they don't pay.