Medicare Out-of-Pocket Costs You Should Know and Expect

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When it comes to Medicare premiums, deductibles, copays and penalty fees, it’s best to be prepared so you can avoid some of the most common and costly misunderstandings.

The Cost of Original Medicare Premiums

Most people don’t have to pay a Medicare Part A (hospital) insurance premium when they come of Medicare-eligible age (typically age 65). However, if you paid Medicare taxes for less than 30 quarters (by working and paying taxes for 7.5 years) during your life or have a disability and have exhausted other entitlements, Medicare Part A could cost you roughly $499 a month ($5,652 a year).

Medicare Part B (medical) insurance will cost about $170 each month ($1,782 a year) in 2022 for most people, but you’ll pay more if your individual income is more than $91,000, and people who file jointly with their spouse will pay more if their joint income is more than $182,000.

If you’re on original Medicare and opt to purchase Part D health insurance to cover the cost of your prescription medications, as most people do, the Centers for Medicare and Medicaid Services estimates that a stand-alone premium will cost you an average of $30 a month, and premiums vary from plan to plan. Similar to Part B, people with Medicare who have higher incomes will pay higher premiums for Part D plans.

The Cost of Medicare Advantage Premiums

Premiums for Medicare Advantage plans vary based on the insurer and county. The average premium for a Medicare Advantage plan in 2022 is $19 per month. Medicare Advantage is an insurance plan purchased from a private insurance company as an alternative to original Medicare. The plans receive payments from the federal government to provide Medicare’s benefits to enrollees. Although your premiums may be lower with a Medicare Advantage plan, the network of doctors covered by the plan will likely be smaller. Medicare Advantage plans can also require prior approval before obtaining services or can deny coverage for health care received. However, with a Medicare Advantage plan, you won’t need a separate prescription drug plan, and some coverage for dental, hearing and vision care may be included.

You can not purchase additional Medigap coverage with Medicare Advantage as you can with original Medicare. Unlike original Medicare, Medicare Advantage plans have a cap on how much you can spend out of pocket for Medicare covered hospital and physician services (Part A and Part B).

Deductibles and Copayments With Medicare

Deductibles are the money you must pay out-of-pocket for health care before your insurance coverage kicks in. In 2022, the Medicare Part A deductible is $1,556 during each benefit period. Once you’ve paid this amount, you’ll owe $0 for hospital stays lasting up to 60 days.

If your stay is longer than 60 days, you will pay daily coinsurance of $389 starting on day 61 and continuing through day 90 of your hospitalization. From days 90 to 150, the coinsurance amount increases to $778 per day.

The Part B deductible in 2022 is $233. After you pay this, you’ll be expected to pay 20% of the Medicare-approved amount for doctor and hospital services, outpatient therapies and durable medical equipment such as blood sugar meters, walkers and commode chairs.

Medicare Advantage Plans (Part C) and Part D coverage may also have deductibles, depending on the plan and insurance company you have chosen. In 2022, a stand-alone Part D plan can’t charge more than $480 in deductibles. Your copayment for medication can depend on many factors, including whether it is a name-brand or generic drugs, and which pharmacy fills the prescription.

Understanding Out-of-Pocket Maximums 

Original Medicare (parts A and B) has no out-of-pocket maximum.

“There is no cap on the limit that somebody can pay under Part B, and that’s usually one of the selling points of a Medicare Advantage plan where Medicare Advantage plans do cap,” says Joel Mekler, a health benefits professional, Medicare expert, and writer of the “Medicare Moments” weekly column in the New Castle (Pennsylvania) News.

Many people with original Medicare opt to purchase a Medigap plan to avoid the potential risks of having no out-of-pocket maximum. These plans cover 100% of the Medicare Part A coinsurance and hospital costs up to a year after your Medicare benefits have run out, as well as other costs for Part B care.

For people who choose a Medicare Advantage plan, which does have an out-of-pocket maximum, you might still need to pay a deductible.

“A maximum out-of-pocket is not a deductible,” explains Jaime Fenimore, a Medicare specialist and broker out of Pittsburgh, Pennsylvania. “Deductibles have to be paid before the plan pays anything. The plan keeps track of your copays and coinsurance throughout the year, and if the total ever reaches the MOOP (maximum out-of-pocket), the plan pays 100% of your costs for the rest of the year.”

Importantly, Medicare Advantage plans’ out-of-pocket maximums only include costs for Part A and Part B services. Any costs you pay for Part D drugs or for supplemental benefits like dental or hearing do not count toward the maximum and are not included. Even if you reach your out-of-pocket maximum, you will still need to pay for your supplemental benefits and the cost-sharing for your prescription drugs.

Medical Costs Not Covered by Medicare

When preparing your budget, keep in mind that original Medicare doesn’t provide coverage for certain health care expenses, including non-medically necessary foot care, long-term care, routine dental visits, hearing aids, cosmetic surgery or routine vision care. Also, should you need more than 100 days of skilled nursing care, original Medicare won’t pay for it.

“You may be in a hospital and there’s a difference between being under observation in a hospital and being admitted to a hospital and Medicare will cover one, being admitted, and may have some restrictions on observation,” says Shub Debgupta, founder and CEO of Precision Health, a health analytics company based in Arlington, Virginia.

All individuals with a Part D plan, either a stand-alone drug plan or a Medicare Advantage drug plan, also need to look at the formulary – the list of covered medications – very closely.

“Some drugs are covered under part B of Medicare,” notes Fenimore. But those same drugs aren’t covered by a Medicare part D prescription drug plan. “This matters because the standard coinsurance for drugs covered by Medicare Part B is 20%, not your regular copay structure under your drug plan.” Examples of drugs covered by Part B insurance include injectable osteoporosis medications and oral cancer drugs, drugs typically administered in your doctor’s office.

Late Enrollment Penalties

Three months before you turn 65, you’ll enter into a seven-month enrollment period during which you can sign up for Medicare. Many people are surprised to learn that by not enrolling in Medicare when they first become eligible, they’re opening themselves up to higher health care costs for the rest of their lives.

If you have to buy Part A because you are not eligible for premium-free Part A, but you don’t purchase it during the initial enrollment period, you will need to pay a 10% monthly penalty for twice as long as you went without coverage.

On the other hand, if you fail to enroll in Part B when you first become eligible, your premium will increase by 10% for each 12-month period that you could have been covered but weren’t. This penalty applies for as long as you have Part B coverage.

The Part D penalty depends on how long you went without Part D or creditable drug coverage. The exact amount is calculated by multiplying 1% of the national base beneficiary premium by the number of full months the beneficiary went without drug coverage. In 2022, the national base beneficiary premium is $33.37. The national base premium may change each year, so your penalty amount may also change each year.

By thinking about the potential costs of premiums, deductibles, copayments and coinsurance, you’ll be better equipped to choose whether original Medicare or a Medicare Advantage plan is the right choice for you. Enrolling in a plan during the appropriate time frame could save you a bundle in the long run and help you to get the most value from your Medicare plan.

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