October 14, 2021
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.
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.