Contrary to what many people think, Medicare coverage is not free.
In the case of Original Medicare, as provided by the federal government, Part A covers hospitalization insurance, and Part B covers medical insurance. And, since prescription drug coverage is not included, most people also purchase an optional Part D prescription drug plan.
Each of these parts includes out-of-pocket expenses in the form of:
Premiums, or the monthly fee you pay to access the service.
Deductibles, or what you have to pay before your plan starts coverage.
Copays, or the fixed amount you pay for each doctor visit, prescription drug or service.
Coinsurance, or the percentage you pay of the costs after meeting your deductible.
Let’s look at five steps you can take to prepare for future medical expenses under Original Medicare.
Consider a supplement insurance (Medigap) plan
One of Original Medicare’s major advantages is that you can visit any doctor or specialist without needing a referral or limiting yourself to any particular geography or network. But the downside is that Original Medicare covers only 80% of approved Medicare expenditures and leaves you liable for the remaining 20%, with no upper limit.
The best way to handle the 20% open-ended exposure is to buy an optional supplement insurance, or Medigap, plan from a private insurer. Each lettered plan (Plan A, Plan B, Plan C, etc.) is standardized by the government and will cover the same amount of your bill no matter what insurance company you buy it from. But you will have to add a Medigap monthly premium to your budget – in addition to your Part B premium of $170.10 or more – and your premium will depend on a few demographic factors and where you live.
Minimize your premiums
Under Original Medicare, you will be responsible for these monthly premiums: (1) Part A premiums will be free if you worked a minimum of 40 quarters over your work career, which almost everyone has. (2) Part B monthly premiums in 2022 equal a minimum of $170.10. (3) Part D premiums depend on the plan you select each year during the enrollment period. So how can you minimize them?
Sign up on time
Your initial Medicare enrollment window begins three months before the month you turn 65 and ends three months after that month. But every 12-month period you do not enroll in Part B after becoming eligible adds a 10% penalty on your Part B premium, and that penalty stays in effect for the rest of your life. (One exception is if a qualified employer health care plan still covers you.) For Part D, you can be penalized for any period of 63 straight days or more when you don’t have drug coverage. That penalty exists for as long as you have Medicare drug coverage.
Medicare calculates the penalty by first setting the “national base beneficiary premium,” which is $33.37 in 2022. Then it multiples 1% of that premium by the number of complete months you’ve gone without coverage. For example, if you go 30 months without coverage, your lifetime penalty will be $10.01 each month (30 times 1% of $33.37).
Avoid ‘Income-Related Monthly Adjustment Amount’ surcharges, or IRMAAs
The standard Part B premium ($170.10 in 2022) assumes you are not a high earner. People with higher incomes pay higher premium costs. Each year, Social Security will determine, based on how much income you reported two years earlier, if you should pay an IRMAA surcharge, which can range from $238.10 to $578.30 per month. If possible, defer income strategically to lower your tax return and lower your Part B premiums. Be sure to file a reconsideration request to appeal a IRMAA surcharge, especially as you reach retirement and your income drops. If you can prove the decrease, Social Security may reduce or end your IRMAA surcharge.
Get help from Medicare Savings Programs
If you have limited monthly income and personal resources, a Medicare Savings Program might lower your Part B and Part D premiums. First, research the Medicare website to see if you are eligible. And if so, apply through the Medicaid office at the Department of Health and Human Services (HHS) in your state.
Minimize your deductibles
The Part A (hospitalization) deductible is the largest. In 2022, you pay a $1,556 deductible for each benefit period (and not the calendar year). A benefit period starts the day you are admitted to a hospital and ends when you’ve been discharged for at least 60 days. If you are readmitted after 60 days, you start another benefit period. But Medigap plans cover Part A deductibles.
With Part B, in 2022, you pay the first $233 of expenses as a deductible. Then Original Medicare covers 80% of the Medicare-approved expenses. Some Medigap plans covered the Part B deductible in the past, but since early 2020, all new plans do not.
Part D deductibles depend on the plan you select each year and should be considered as you compare the cost of premiums, deductibles and individual drugs you take.
Depending on your income level and your resources, you might also be eligible for help with deductibles through the Medicare Savings Programs.
Minimize copays and coinsurance
If you don’t have a Medigap plan, you’ll want to find other ways to limit your copays and coinsurance. Remember that with Original Medicare you are free to visit any doctor in the country and are not limited by networks or referrals. So, before undertaking any non-urgent surgery, be sure to contact the doctors and hospitals to get estimates of the costs involved. And if you are considering more than one doctor to treat you, contact the offices of each one and compare the costs of visits and other anticipated services.
Choose the best Part D prescription plan
Your Part D prescription drug plan is provided by a private insurer who has the option of changing covered medications and their pricing. Fortunately, you are free to change plans every year during the annual enrollment period. When your insurer sends you information on the following year’s coverage, review your current and expected drug needs. Then use the Medicare website research tool to find the lowest deductibles and individual drug prices for next year’s ideal plan.
And be sure to research Extra Help, a government program to help individuals with limited income or resources pay premiums, deductibles and coinsurance for a Medicare Part D plan.