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Understanding Medicare Costs – Key Factors to Consider

If you’re thinking about retirement, you may have wondered how much Medicare will cost and how far it will go to cover your healthcare costs. Many people underestimate the costs of Medicare and overestimate what would be included in your coverage. Healthcare costs often increase as you age, so it’s important to plan carefully so you can enjoy a comfortable retirement. This means understanding ahead of time how Medicare works and how to get cost-effective coverage.



Elements of Medicare

There are four elements or “parts” of Medicare coverage, which allows some flexibility to create a plan that works well for you and your financial situation. You can see a comprehensive overview of current costs here.

Part A covers serious medical needs, such as care received in a hospital, nursing home, or at-home care. In 2021, if you purchase Part A, you’ll spend up to $471 each month, typically if you have paid Medicare taxes for less than 30 quarters. The typical Part A premium is $259 per month if you paid Medicare taxes for 30-39 quarters. Additionally, you’ll have a deductible of $1,484 for each benefit period and coinsurance costs that increase over time and peak at $742.

Part B covers more regular medical costs, such as diagnostic care, physician services, and preventative services. The Part B monthly premium is $148.50 but may be higher depending on your income.

If you would like additional coverage beyond these elements, there are additional options. Medicare Advantage (Part C) is sold by private companies to give retirees more flexible options. They include health maintenance organization (HMO), preferred provider organization (PPO), private fee for service (PFFS), and special needs (SNP) plans. Costs will vary based on the plan you select. Medicare Advantage often includes a prescription plan, so you may not need Part D if you choose a third-party provider. However, you would most likely still need Parts A and B as most providers require them.

Finally, Part D covers prescriptions. Costs are based on a tier system, with some drugs costing more than others. Additionally, you’ll pay a premium that varies by plan, and individuals in a higher income range may pay more.

How to Decide How Much Coverage You Need

Most people opt to sign up for at least Parts A, B, and D. Many also elect to add additional coverage through Part C. If you want to use Medicare Advantage, the private companies will typically require you to have at least Parts A and B to reduce their own liability. As a general rule of thumb, you are unlikely to regret getting more coverage than you need. However, there are a few things to consider so you can select the coverage that fits your needs without paying too much in premiums.

Most medical costs, such as doctors’ office visits and hospital stays, are covered under Parts A and B, which is why most people sign up for at least those two parts. While Part A and Part B typically prevent extreme medical costs from arising, these don’t cover vision, hearing, prescriptions, or dental. That’s where Medicare Advantage plans and Part D come in. If you know you will have frequent visits to specialists, will need extensive dental work, or require expensive prescriptions, you may save more money by opting into Parts C and/or D. If not, you may find it’s less expensive to pay those costs out of pocket.

It’s important to note that you may pay a penalty if you add drug coverage later. Consequently, trying to wait until you need the additional coverage may not be the best strategy. Make sure to carefully review prescription coverage and check to see if any medications you take regularly are included before opting in.

Some people have a preferred primary care physician or specialist they’ve been seeing for years. Before choosing a plan, check to see if they are considered in-network. You may have to look elsewhere, but it’s also possible to continue seeing them if you find the right plan.

Once you’ve considered all these costs, you may have to make some decisions based on what you would like to spend on healthcare coverage. Selecting coverage in Parts C and D may depend more on your financial situation. For example, if you don’t have many prescriptions and you’ve been contributing to an HSA for many years, you may choose to forgo Part D and pay for prescriptions out of pocket.

Key Takeaways

Medicare costs can be confusing but planning ahead will go a long way towards ensuring a comfortable retirement. Start planning early by considering the costs you may incur so you can build them into your post-retirement budget. Many people don’t start planning for medical costs until it’s too late and they realize they can’t afford them, which may delay your retirement. You may want to consider speaking with your financial advisor about building these costs into your financial plan to ensure you stay aligned with your financial goals.

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Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.