Understanding Medicare Premiums, Deductibles and Copays

The True Cost of Medicare

Medicare's Out of Pocket Costs
Medicare is not free. Learn what you will be expected to pay out of pocket. Jeffrey Coolidge/Stone/Getty Images

As much as people would like to think so, Medicare is not a handout. It is an insurance program and with that comes cost sharing. Cost sharing means that both you and Medicare contribute payments for certain tests and services. Here are the basic costs you should expect to pay for Medicare.

Monthly Premiums 

A premium is the dollar amount you spend every month to have access to an insurance plan, whether that is Medicare or a supplement plan.

If you do not pay your premiums, you will not be covered by that insurance plan. Each of Medicare's parts has a different premium cost.

Part A: For most Americans, Part A premiums are free! This applies to people who have contributed (or their spouse has contributed) 10 years worth of taxes to Medicare. This is measured in quarters, i.e. there are 4 quarters in 1 year. Anyone who contributes less than 40 quarters in taxes will have to pay a monthly premium. In 2016, those who worked 30 to 39 quarters in Medicare eligible employment will pay $226 per month. Those who worked less than 30 quarters will pay $411 per month.

Summary: You could pay anywhere from $0 to $4,932 per year in Part A premiums.

Part B: The cost of your Part B premiums will vary depending on how much money you make and whether or not you are married. The least you will spend each month would be $121.80 in 2016 for single people earning less than $85,000 per year and couples filing jointly who make less than $170,000 per year.

This number increases to $170.50, $243.60, $316.70 and $389.80 per month respectively for those with increasing incomes up to single people earning more than $214,000 per year and couples filing jointly who make more than $428,000 per year.

Summary: You could pay anywhere from $1,461 to $4,677 per year in Part B premiums.

Part C (Medicare Advantage) and Part D: These parts of Medicare are run by private insurance programs. Premiums will vary depending on the plans you choose.

Deductibles 

A deductible is a fixed dollar amount you pay before your insurance benefits kick in for that year. This is a cost that comes after you have already paid your premiums. If you never use your insurance, you will not need to pay a deductible that year but more likely, you will need to access your coverage.

Part A: You will pay a $1,260 deductible for qualifying hospital stays up to 60 days long and $0 for skilled nursing facility stays up to 20 days long after an approved inpatient hospital admission. You could pay multiple deductibles a year if you have multiple hospital admissions.

Part B: In 2016, the deductible for Part B is $166.

Part C (Medicare Advantage) and Part D: These parts of Medicare are run by private insurance programs. Deductibles will vary depending on the plans you choose.

Coinsurance and Copayments

Coinsurance and copayment are terms that are often confused.

A coinsurance is the amount you pay for an item or service as a percentage of the total cost. A copayment is the amount you pay for an item or service at a fixed dollar amount.

Part A: If you stay in the hospital longer than 60 days in 2016, you will pay a Part A coinsurance of $322 each day for days 61 through 90 of your stay while Medicare pays the rest. You will pay $644 per day for days 91 and over. Medicare will only cover 60 of these 91 and over days in your lifetime. After you use 60 of those days, all costs will fall to you. As for skilled nursing home stays, you will pay $161 each day for days 21 through 100 and you will be responsible for all costs after that.

Part B: For the majority of Medicare-covered services, you will pay 20 percent of the cost and Medicare pays the remaining 80 percent. Certain preventive care services are offered without any coinsurance as long as your doctor accepts assignment

Part C (Medicare Advantage) and Part D: These parts of Medicare are run by private insurance programs. Coinsurance and copayments will vary depending on the plans you choose. The majority of drug plans will have you make copayments. 

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