[Edit: This post was published in 2011, but was updated slightly in 2015]
When most Americans turn 65, they enroll in Medicare, having made it through their early golden years and the scary no-man’s land of high-cost insurance coverage for the nearly elderly (late 50s, early 60s). New Medicare enrollees may give a sigh of relief to know they are guaranteed health insurance coverage for the rest of their lives. (EDITOR’S NOTE: For people who have not yet reached age 65, there’s a possibility that eligibility could change in the future – for example, some lawmakers have proposed plans to voucherize Medicare for those age 55 and younger.)
And while that’s true, enrollees often don’t realize that there are many things they’ll still have to pay for. Some are fairly obvious, but others are hidden amid bureaucratic small print. For instance, who knew that you pay extra when a doctor doesn’t “accept assignment” from Medicare? It’s up to the savvy consumer to be aware of all the ways medical costs can mount up even with a Medicare card in your pocket.
Out-of-pocket costs rise over time for beneficiaries
The most basic aspects of Medicare are universal for nearly everyone on the program: Part A hospital coverage, Part B outpatient coverage and optional Part D prescription drug coverage. Beyond that, though there are lots of variables. About 30 percent of Medicare beneficiaries are enrolled in Medicare managed care plans (HMOs and PPOs), otherwise known as Medicare Advantage, with coverage details that vary by insurance company and plan. You can also buy supplemental insurance to cover some of the out-of-pocket expenses of traditional Medicare.
Overall, out-of-pockets costs have grown steadily for the average Medicare recipient over the years. Medicare spending as a percentage of a person’s income rose from 11.8 percent in 1998 to 16.2 percent in 2006, reports the Center for Medicare Advocacy. Women, on average, paid more – 19 percent – and those with chronic conditions such as cancer or Alzheimer’s disease pay even more of their income – 22 percent – out of pocket.
According to the Kaiser Family Foundation, the average Medicare beneficiary spent $4,734 in total out-of-pocket costs in 2010, including nearly $2,000 in premiums. Total spending in addition to premiums fluctuated significantly based on age and health status. But although the 2010 total spending is about five hundred dollars higher than it was in 2006, some costs have come down in the ensuing years, thanks to the ACA. Deductibles and premiums for Medicare B are lower in 2015 than they were in 2011, and the donut hole in Medicare D is slowly closing, again thanks to the ACA.
But for retirees who are often on fixed incomes, it’s important to be aware that medical costs can be substantial even with coverage. That’s something younger people should include in their retirement financial planning.
It’s also important to pay attention to your bills, as bewildering as they may be, to be sure they’re correct. There’s an entire industry of patient advocates who help clear up medical billing problems. One of them is Harvey Matoren, President & CEO of Claims Security of America. “People on Medicare sometimes pay bills they should not be paying,” he says.
10 ways you may pay out of pocket under Medicare
1. Premium: If you worked enough during your life to contribute to Medicare, you don’t pay a premium for Part A. But everyone pays for Part B of original Medicare; in 2015, it’s $104.90 a month for those making less than $85,000 per year.
2. Yearly deductible: The amount you must pay for health care or prescriptions, before original Medicare, your prescription drug plan, or your other insurance begins to pay. In 2015, Medicare deductibles are as follows:
- $1,260 for each benefit period under Medicare A (a benefit period starts when you’re admitted to the hospital, and ends 60 days after you’ve been discharged, assuming you’re not readmitted during that time).
- $147 per year for Medicare B
- $320 for Medicare D (prescription drug coverage)
3. Copay or coinsurance: This is your portion of a particular medical service or supply expense. For most Medicare-covered services, you’ll pay 20 percent of the Medicare-approved cost, although if you have a Medigap plan, it will cover all of most of that.
4. Part D prescription drug “donut hole“: Under its current design, Medicare’s optional prescription drug coverage helps cover your costs up to a certain dollar amount, then drops off until you hit another higher number (the so-called donut hole). The ACA is closing the donut hole though. In 2015, you pay 45 percent of the cost of brand name drugs while in the donut hole, and 65 percent of the cost of generic drugs. Both of these amounts will be reduced to 25 percent by 2020, at which point there will no longer be a donut hole.
5. Doctor doesn’t participate in Medicare: Let’s say you get a referral to a new doctor or specialist. When you call to make an appointment, make sure you ask whether the doctor accepts Medicare, and your plan in particular if it’s Medicare Advantage (private HMO or PPO) or supplemental. It’s too late if you have the office visit and find out later the doctor expects you to pay yourself. “We’re seeing a number of providers opting out of the program,” notes Matoren.
6. Doctor doesn’t “accept assignment”: A doctor might see Medicare patients but wants to be paid his or her full fee, not just the amount that Medicare is willing to pay. As a result, you may end up paying the difference between what Medicare will pay and what your provider charges – up to 15 percent above the Medicare-approved amount. There’s no way to know that without asking specifically if the doctor not only takes Medicare, but “accepts assignment.” If you don’t, Matoren says, “the patient has an accounting nightmare” with the resulting billing.
7. Skilled nursing facility three-day hospitalization rule: If you need to spend some time in a skilled nursing facility because you’re a little too sick to be at home but not sick enough to be in the hospital, remember that you can’t just go straight to a nursing home. You have to spend three days in the hospital first to get Medicare to cover the skilled nursing facility stay.
8. Doctor is out of network on Medicare Advantage plan: If you’re enrolled in a managed Medicare plan, there will be a list of medical providers you can see and others who are not in your network. Be sure to check that list.
9. Non-covered items and services: Some things just aren’t covered by Medicare. These include routine dental care, cosmetic surgery, acupuncture, hearing aids and exams for hearing aids. (You may find coverage of some of these expenses through a Medicare Advantage or Medigap plan.)
10. Costs beyond your maximum benefit: It’s hard to exceed your maximum, but not impossible. For instance, a really extended stay in the hospital within a calendar year could hit the maximum, which is 90 days in a year. If you use exceed this maximum, Medicare gives you an extra 60 “lifetime reserve” days to use as you need. After that reserve, you’re on your own. This is one reason some people like Medicare Advantage plans, which generally have no lifetime maximum benefit.
Negotiate out-of-pocket costs
If you find yourself needing to get a medical service that isn’t covered by your Medicare plan, find out ahead of time how much it will cost you. Hospitals, outpatient surgery centers, imaging centers, laboratories and, increasingly, doctors’ offices have “self-pay” rates that you can find out before you get the service.
Remember that everything is negotiable, so ask the office manager if you can work out something less than the typical rate, maybe by paying ahead of time.