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Medicare may come as a relief when you become eligible at 65 years old. Not only does it guarantee health insurance regardless of pre-existing conditions, but costs won’t increase based on your age. You only pay more when you use more medical services (or your annual income goes up significantly). Generally speaking, costs are lower than they would be with private insurance.
That does not mean healthcare for enrollees is cheap. Medicare leaves many costs on the table – costs that many enrollees do not plan for and may not even know about. It’s up to you, the savvy consumer, to learn where your dollars will be spent on healthcare. As a retiree on a fixed income this becomes more important than ever. The more you know, the better you can plan for your financial future.
Most every insurance has the following out-of-pocket elements. Medicare also imposes penalties for signing up too late for Part B or Part D. All rates below are for 2022.
1. The deductible
This is the amount you will pay out of pocket before your coverage kicks in and Medicare starts paying for medical services.
This is the amount you pay each month for Medicare, whether or not you use any healthcare services.
3. Income-Related Monthly Adjustment Amount (IRMAA)
Medicare adds an increased amount to your Part B and Part D premiums based on your income. They rely on your income taxes from two years ago to decide how much you will pay.
If you earn less than $91,000 as a single individual, less than $91,000 as a married person filing as an individual, or less than $182,000 as a married couple filing jointly, you will not pay an income-related monthly adjustment amount (IRMAA). If you earn more than those amounts, you’ll pay an IRMAA surcharge, which increases incrementally based on your earnings.
4. Late enrollment penalties
Medicare requires you to enroll in the program within designated periods. Otherwise, you will face late penalties that are added to your monthly premium.
5. Copays and coinsurance
This is the fixed amount or percentage amount respectively that you pay for each Medicare-covered service or medication, after you’ve paid any applicable deductible (for the benefit period or year, depending on which part of Medicare is being used).
6. Non-covered services
Medicare provides broad coverage but does not cover everything. Original Medicare, for example, does not cover routine dental care, dentures, routine eye care, corrective lenses, dentures, hearing aids, or long-term nursing home care.
Coverage is also limited for acupuncture (i.e., must meet specific criteria for low back pain) and cosmetic surgery (i.e., must have a medical indication).
Your out-of-pockets are directly affected by the healthcare provider you see. Make sure you take this into consideration before you schedule any appointments.
7. Doctors that don’t participate in Medicare
Not every doctor agrees to accept Medicare for payment. This can be tricky when you need to see a specialist and there are few in your area. Providers who opt out of Medicare do not accept Medicare patients but could sign a private contract with you. Those contracts will vary but will likely leave you to pay more than you would have if the doctor had not opted out of Medicare.
8. Doctors that don’t accept assignment
These doctors do accept Medicare for payment but they do not accept assignment, meaning that they do not agree to Medicare’s standard rates. In order to participate in the Medicare program, however, they agree to not charge more than 15% above Medicare’s approved rates, for any service covered by Medicare. This additional amount is known as the limiting charge, and some states restrict it to a smaller amount.
9. Doctors outside of your Medicare Advantage plan network
Original Medicare has a nationwide network of providers, meaning you can see any doctor that takes Medicare. The same is not true for Medicare Advantage.
Medicare Advantage plans are built on a local network of providers. If a doctor takes Medicare but is not in your plan’s network, your plan could require you to pay more in cost-sharing for any medical services received. There are protections in place, however, that do not allow out-of-network providers to charge you more than what you would pay under Original Medicare.
And if your plan is a PPO that covers out-of-network medical care, your combined in-network and out-of-network out-of-pocket charges can’t exceed $11,300 in 2022 (not counting prescription drug charges).
10. Inpatient vs. observation stays
Staying overnight in a hospital does not necessarily mean you are admitted as an in-patient. You pay for inpatient hospital stays with a Part A deductible and a 20% Part B coinsurance for any physician services. When you are placed under observation, Part B provides your only coverage. You are responsible for 20% of the cost of any services you receive.
This adds up and explains why observation stays often cost more than inpatient stays, even if the care is the same. (Note that Medigap coverage will pay some or all of the 20% coinsurance for Part B services).
11. Lifetime reserve days
After spending 90 days in a hospital within a single benefit period, you have 60 lifetime reserve days to use. These days cost you $742 each in 2021 and extend coverage for your hospital stay for days 91 onward. After you use up those 60 days – the only ones you will ever get – Medicare stops paying for extended days altogether.
12. Skilled nursing facility three-day rule
When you leave a hospital, you may be too sick to go home. Unfortunately, Medicare will only cover a short-term stay in a skilled nursing facility (SNF) if you were in the hospital for three days as an inpatient, not counting the day you were transferred to the SNF. If your hospital stay does not meet those requirements, you could be left to pay for your SNF stay on your own.
Medicare Advantage plans can opt out of this rule and could potentially provide SNF coverage after a shorter inpatient stay. Additionally, certain Accountable Care Organizations (ACOs) can apply for a waiver of the three-night rule.
Certain out-of-pocket costs are specific to Medicare Advantage and Part D plans.
13. Maximum out-of-pocket limits
Original Medicare has no cap on out-of-pocket expenses. CMS, however, sets a cap on expenses known as the Maximum Out of Pocket Limit (MOOP) for Medicare Advantage plans. Only services also covered by Original Medicare (Parts A and B) are considered in the MOOP, so prescription drug charges will be counted separately under the Advantage plan’s integrated Part D benefit.
In 2022, HMOs have a $7,550 limit for any costs incurred within the plan’s network. PPO plans have a $7,550 MOOP on in-network and a $11,300 cap on combined in- and out-of-network services. With that in mind, know that these plans do not generally cover out-of-network costs unless they have gone through an approval process.
14. Medicare Part D coverage gap
Also known as the donut hole, the Part D coverage gap increased how much you paid for medications after you spent a certain dollar amount ($4,430 in 2022 and $4,660 in 2023).
The Affordable Care Act (ACA) technically closed the donut hole in 2020. However, that only means that costs during that time cannot exceed 25% of the retail costs. If your usual copays and coinsurance were less than 25%, you could still see an increase in costs during the donut hole. You leave the donut hole after your drug spending (including the substantial value of the manufacturer discounts that apply during the donut hole) reaches $7,050 in 2022, $7,400 in 2023.
At this point, you enter a phase of catastrophic coverage where drug costs drop off significantly but do not end. Particularly for people who need high-cost medications, out-of-pocket expenses can continue to be significant at this phase, as enrollees must continue to pay up to 5% of the cost of their medications.
Tanya Feke M.D. is a licensed, board-certified family physician. As a practicing primary care physician and an urgent care physician for nearly ten years, she saw first-hand how Medicare impacted her patients. In recent years, her career path has shifted to consultant work with a focus on utilization review and medical necessity compliance. She currently works as a physician advisor at R1 RCM, Inc., where she performs case reviews for hospitals nationwide.
Dr. Feke is an expert in the field, having Medicare experience on the frontlines with both patients and hospital systems. To educate the public about ongoing issues with the program, she authored Medicare Essentials: A Physician Insider Reveals the Fine Print. She has been frequently referenced as a Medicare expert in the media and is a contributor to multiple online publications. As founder of Diagnosis Life, LLC, she also posts regular content about health and wellness to her site at diagnosislife.com.