How Much Should I Pay for Medicare?

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The United States federal government offers medical insurance, called Medicare, to American seniors aged 65 years and older and those who qualify earlier due to disability.  If you work in the United States and pay payroll taxes, you may notice that a portion of your paycheck goes to Medicare. When people near Medicare eligibility, they assume there are no costs associated since they have paid Medicare taxes throughout their careers. So, if you are nearing Medicare eligibility and are wondering, “How much should I pay for Medicare,” let’s take a look at Medicare’s costs for the year 2021.

Part A (inpatient coverage)

Medicare Part A covers inpatient services, such as your room and board at the hospital, as well as skilled nursing and hospice. 99% of Medicare beneficiaries qualify for a premium-free Part A. You can be eligible for a $0 premium for Part A as long as you or your spouse have worked 40 quarters, which is ten years, in the United States and paid payroll taxes during that time.

If you are short 40 quarters, but you have between 30 to 39 quarters, you will have a pro-rated monthly premium of $259 in 2021. If you have less than 30 quarters, you will pay the full Part A premium of $479 in 2021.

The Centers for Medicare and Medicaid Services (CMS) set the Part A deductible and coinsurance every year, which you will be responsible for if you are ever an inpatient at a hospital. In 2021, the Part A deductible is $1,484 per 60-day benefit period; this is a $76 increase from 2020.

After you pay the Part A deductible, Medicare will cover your inpatient stay in full up to 60 days. After day 60, your daily copayment would be $371 for days between 61 and 90. If your hospital stay exceeded past day 90, you would pay $742 per day up until day 150. After day 150, you would be responsible for the remainder of your stay in full.

Part B (outpatient coverage)

Medicare Part B provides coverage for Medicare-approved outpatient services. For example, Medicare Part B covers doctor’s visits, durable medical equipment, chemotherapy, ambulance rides, and much more. You would pay the Part B premium, whether you paid payroll taxes for ten years or not.

When you are eligible for Medicare, the Social Security office pulls your IRS tax returns two years prior to determine your monthly Part B and Part D premium. In 2021, if your income from two years earlier – in this case, in 2019 – was $88,000 or less, or if your joint income was $176,000 or less, you would pay the standard Part B premium, which is $148.50 in 2021.

If you are in a higher income bracket, you will be subject to an Income Related Monthly Adjustment Amount (IRMAA) on top of your monthly premium. For example, if your income were more than $88,000 and up to $111,000, your Part B premium in 2021 would be $207.90.

If you are charged with an IRMAA and no longer make the same income you did two years prior, you can file an IRMAA appeal.

There is also a deductible you must pay when you receive outpatient services. In 2021, the annual Part B deductible is $203. Once you pay the Part B deductible, you will pay a 20% coinsurance for Medicare-approved outpatient services, and Part B covers the other 80%.

Part D (prescription drug coverage)

You get Part A and Part B through the federal government. However, private insurance companies sell Part D drug plans. Medicare Parts A and B do not cover prescription drugs. Therefore, you would want to consider purchasing a Part D plan for drug coverage, or you will pay for your medications in full at the pharmacy.

Since private insurance companies sell these types of plans, there is no set premium for Part D. All Part D plan premiums vary, as you can find some plans as low as $8 and others as high as $90. As mentioned above, you can be subject to an IRMAA charge for Part D if you are in a high-income bracket. If so, then you will pay more for Medicare Part D monthly.

There are four stages in Part D plans, and the first stage is the Medicare Part D deductible. In 2021, the Part D deductible is $445. However, a carrier can lower the Part D plan’s deductible but cannot increase it past $445. It’s always beneficial to shop plans to ensure you are in a cost-effective plan and that the plan covers your needed medications.

Summary

Medicare has costs in the form of premiums, copayments, and deductibles. Medicare’s costs can change from year to year, so it’s always good to be in contact with a reputable Medicare broker who stays up to date with Medicare’s changes. You can also refer to Medicare.gov for more Medicare information.