How Much Premium Will You Need To Pay In Medicare

Kevin Wenke

Kevin Wenke

Owner at Decision Tree Financial. CFP. CLU

The amount of premium you will pay while on Medicare will depend largely on which plan you decided to take and possibly the amount of money you make.

Original Medicare

If you chose Original Medicare, you have the option of pick up Medicare Part B which provides financial assistance to pay for the cost of physician services.

The cost most individual will pay for Part B coverage as per US Government’s site in 2020 is $144.60. However, high income earners will need to pay more under the Income Related Monthly Adjustment Amount (IRMAA) which can be as high as $491.60 in 2020.

An individual enrolled in Medicare may also chose to enroll in a Medicare Part D prescription drug plan. These plans, issued by private insurance companies, vary widely in cost.

Generally speaking, the higher the premium, the broader the coverage. In addition, like IRMAA with Plan B premiums, Part D premiums can be subject to “surcharges” for high income earners.

Moreover, Medicare Part D plans also have deductibles and co-insurance amounts. There are not out-of-pocket limits on these plans. An important cost consideration when looking at a prescription drug plan is to know how the plans corridor deductible, known as the Medicare Part D donut hole, is designed.

Another option an individual enrolled in Original Medicare has is picking up a Medicare supplement, or Medigap, plan. These optional coverages provide benefits that Medicare alone does not.

Medigap plans can also pay deductible and co-insurance amounts for Part A and B. These plans, also issued by private insurance companies, vary in cost by the plan type and the state the insured resides.  They can be priced one of three ways:

  • Community rated – Everyone who has a policy pays the same amount.
  • Issue Age-related – Based on the age the insured was when they took out the policy.
  • Attained Age – Which is the actual age one has attained meaning the premium increases as one gets older.

Medigap plans, by law, are standardized by “letters” and pay the same benefits regardless of which company issues the policy.

Medicare C – Medicare Advantage Plans

Medicare advantage plans have premiums policy holder must pay. Many times, the premiums are equal to the premium required for Medicare Part B.

Since the individual enrolled in a Medicare Advantage Plan is no longer enrolled into Medicare, and instead has chosen to have a private health company manage their health care, the Part B premium is allocated to the insurance company issuing their policy.

Medicare advantage premiums can be higher or lower depending on the company and coverage. In addition, Medicare Advantage plan participants will pay deductibles and co-insurance amount.  These plans have out-of-pocket limits that the issuing insurance company must state to the policy owner as well.

The maximum out-of-pocket limit is $6,700 for in-network services and $10,000 for out-of-network services. Medicare set the maximum, but some plans voluntarily establish lower limits.

After reaching the limit, Medicare Advantage plans pay 100% of eligible expenses.

Facts to know about Medicare Advantage out-of-pocket limits:

  • This limit excludes monthly premiums and prescription medications.
  • Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans have a limit on in-network care of $6,700. PPO plans also have a limit of $10,000 in- and out-of-network combined.
  • Only Medicare-covered services count toward the out-of-pocket limit.
  • Services not usually covered by Medicare, such as hearing, vision, and non-emergency transportation, and prescription medications are not counted in the limit.
  • Each plan determines its maximum out-of-pocket limit and the limit can change every year.

Additional Medicare Costs

Medicare requires prompt enrollment when you are eligible. Failure to enroll when during your initial enrollment period could result in substantial penalties as well as no coverage which could cause catastrophic losses.

Medicare Part B – If you do not enroll in Medicare Part B during your initial enrollment period, you will have to wait until the next Medicare general enrollment period.

This could leave you without coverage for an extended period of time. When you do enroll (Between January 1 and March 30 each year) your coverage will not take effect until the following July 1st and you will be subject to a 10% premium surcharge for each year you missed. The premium surcharge is a penalty assessed every year for the rest of your life.

Medicare Part D – If you do not enroll in Medicare Part D coverage when you are first eligible, You will be without coverage until the next General enrollment period which, for this part of Medicare, is between October 15 and December 7 each year. However, unlike Medicare Part B, your coverage starts

If an individual signs up for Medicare Part B for the first time during it’s open enrollment, an individual can also pick up a Medicare D prescription drug plan up to 3 months after their Plan B enrollment.

For enrolling late into a Medicare Part D, the plan requires a life-time 12% annual surcharge be assessed.

How to keeping Medicare costs low.

If you are like most people, you will want to eliminate surprise healthcare costs in retirement when possible. Believe it or not, a well-structured Medicare insurance plan is very effective at managing health care costs in retirement.

There are a few coverage gaps, such as long-term care, that need to be covered through other methods, but if you pick the correct Medicare path and have the right policies in place, you will have the health care coverage you need when you need it.

By the way, do you know more than 52% people eligible for Medicare in the United States admits that they do not understand the Medicare. Due to which they encounters Medicare Enrollment mistakes. If you want to avoid the mistakes, which most people do, enroll for our 40 Mins Free Medicare Orientation Course now!

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