Medicare Cost Sharing
Throughout our working lives, we have FICA taxes deducted from our paychecks. These funds are used to pay for future Medicare Part A premiums. However, the government deducts only enough to pay for future hospital care. Beneficiaries must pay for Medicare Part B and D premiums monthly once they enroll.
This comes as a surprise to many people, but if you think about it, Medicare works very similar to health insurance coverage that we have throughout our working years. We pay a monthly premium, usually through payroll deduction, for our share of our health insurance premiums.
Then on the back end, we also have cost-sharing for our various healthcare services. We pay copays at the doctor and at the lab facility. Our plans also have a deductible that we must pay out of pocket before our benefits kick in.
Medicare works the same way; it is not free. The federal government spends billions of dollars on healthcare for Medicare beneficiaries every year, and each beneficiary must pay his or her own share.
Let’s review what Medicare Cost-Sharing is expected of us when we retire and enroll in Medicare.
Original Medicare has two parts. Part A covers your hospital inpatient care. Part B covers your outpatient care. Each of these parts has a deductible which you must pay before your benefits kick in. These benefits typically go up a bit each year.
For Part A, the hospital deductible in 2018 is $1340 per benefit period. When you are admitted to the hospital, a new Medicare benefit period begins. You pay the Part A deductible and then Medicare covers the rest of your Part A expenses for up to 60 consecutive days in the hospital. The benefit period ends 60 days after you have discharged from the hospital.
Should you enter the hospital again after the last benefit period ends, a new benefit period begins, and you will pay the Part A deductible again.
On the Part B side, there is just a small annual deductible. In 2018, this deductible is $183. Once you have satisfied that deductible, Medicare will pay 80% or your outpatient expenses for the remainder of the year.
People who enroll in Part D may also encounter a deductible. Medicare has minimum guidelines each year for Part D plans. For example, in 2018, plans can charge up to a $405 deductible before the plan begins covering your outpatient medications. Plans can collect this entire deductible, or they have the option to charge you a lower deductible. Always consult the plan’s Summary of Benefits to determine what deductible the specific plan will expect you to pay.
Medicare Copays and Coinsurance
After you have met your deductible for each part of Medicare, you will see that Medicare pays a share and you pay a share. This comes in the form of copays or coinsurance that you must pay.
For Part A, Medicare covers all qualified expenses for the first 60 days. If your hospital stay extends beyond 60 days, you will begin paying a daily copay on the 61st day. This copay increases at day 91 and then you enter your lifetime reserve days. Your hospital benefits run out at Day 150.
Many people enroll in a Medigap plan to help cover these gaps. Medigap plans will also extend your hospital coverage for an additional 365 days.
After you have satisfied your deductible on the Part B side, Medicare will pay 80% of your covered services. You are responsible for the other 20%. This is called your coinsurance. There is no annual cap on your potential coinsurance spending. However, most Medigap plans will cover this expense for you.
If you have a Part D drug plan, your cost-sharing after the deductible may include copays or coinsurance. Drugs on the formulary are classified by Tier. You might find that you owe a $5 copay for preferred generic drugs in Tier 1. Copays get higher for brand-name drugs. Tier 5 is for very expensive specialty drugs, and you’ll usually pay a coinsurance amount for those medications. Coinsurance varies from 25% to 33% depending on the plan you choose.
Medicare Part C
Some individuals choose to enroll in a Part C Medicare Advantage plan instead of Original Medicare. These plans pay instead of Medicare and have their own premiums and cost-sharing for their members. When you enroll in one of these network-based care management plans, you will get your care through the plan’s network of providers. At enrollment time, your agent will give you a Summary of Benefits that will show all the covered services and what copays or coinsurance you are responsible for under the plan at the time of service.
While Medicare is not free and does require you to share in some of your medical care costs, it does cover most of the cost of care. You can protect yourself from too many cost-sharing expenses by choosing supplemental coverage through a Medigap plan or in a Medicare Advantage plan. With the right coverage in place, you can have peace of mind about any unforeseen medical needs in the future.