Medicare expenses: understanding your out-of-pocket costs

Maryalene LaPonsie | May 13, 2011

When the government created Medicare in the 1960s, it provided an affordable health insurance option for millions of seniors and disabled individuals. While Medicare does provide comprehensive medical coverage, it is important to remember that it is not free health insurance. As a Medicare beneficiary, you will be responsible for paying premiums, co-payments and deductibles.

Medicare Part A Expenses

Original Medicare is split into two parts: A and B. Medicare Part A is your hospital insurance. Most people do not have to pay a premium for this coverage. It was included in the Medicare taxes you paid while working. For those who did not pay Medicare taxes, the government may charge a Part A premium of up to $461 per month.

In addition to hospital services, Part A benefits include blood, home health care, hospice and skilled nursing. For these, you can expect to pay the following out-of-pocket expenses:

  • Blood: While some hospitals may be able to get blood at no cost from a blood bank, others have to pay for it. You are responsible for paying the hospital costs for the first three pints of blood received per calendar year
  • Hospice: You pay 20 percent of the Medicare-approved cost for durable medical equipment such as wheelchairs or oxygen. In addition, there is a $5 co-payment for hospice related prescriptions such as those for pain management. Finally, you must cover 5 percent of the Medicare-approved amount for short-term respite care.
  • Hospital: Out-of-pocket costs for hospital stays are calculated per benefit period. A benefit period starts on the day you are admitted to the hospital and ends 60 days after your discharge. For each benefit period, you must pay a $1,100 deductible for inpatient hospital care. There is no additional co-insurance requirement up to day No. 60. Then you pay $275 per day for day Nos. 61-90. After that, your out-of-pocket cost increases to $550 per day for day Nos. 91-150. After day No. 150, you pay all hospital costs out-of-pocket. Inpatient services at psychiatric hospitals are limited to 190 days per lifetime.
  • Skilled Nursing Facility: Like hospital stays, Medicare uses a benefit period to calculate your cost for care at a skilled nursing facility. You pay nothing for the first 20 days of service. Then, your out-of-pocket expenses are $137.50 per day from 21-100 days. After day No. 100, you pay the total cost of care at a skilled nursing facility.

Medicare Part B Expenses

Part B is the portion of your Medicare health insurance that pays for doctor visits, outpatient care preventive care and clinical laboratory services. Unlike Medicare Part A, there is a monthly premium for Part B coverage. Most new Medicare recipients will pay a standard premium of $110.50 per month although your premiums could be higher depending on your income.

Your out-of-pocket expenses for Medicare Part B services generally include:

  • $155 annual deductible
  • 20 percent of the Medicare-approved amount for eligible outpatient services and doctor visits
  • 45 percent of the Medicare-approved amount for outpatient mental health services

Reducing Your Medicare Out-of-Pocket Expenses

Although Medicare is already affordable health insurance, there are ways to further reduce your out-of-pocket expenses. The first is by purchasing a Medigap supplemental health insurance policy. These plans are strictly regulated by the government and intended to cover the gaps in Medicare coverage. The standardized plans will help pay Part A and Part B deductibles and co-insurance as well as non-covered services.

A second option may be to purchase a Medicare Advantage plan, also known as Medicare Part C. These plans combine both Medicare Part A and Part B into one health insurance policy. In addition, many Medicare Advantage plans offer additional benefits such as vision and dental coverage. While you will have to pay a monthly premium in addition to the Part B premium, Medicare Advantage plans may offer more comprehensive benefits and lower co-payment requirements.

Both Medigap and Medicare Advantage are sold by private health insurance companies and not the government. It is important to know that Medigap is a supplemental health insurance policy that you would buy in addition to Medicare Part A and Part B. Medicare Advantage replaces original Medicare, and you do not need a Medigap policy if you purchase this type of Medicare.

Get your free quotes

Are you currently insured?

We work with trusted
companies like: