How to Plan for Unexpected Costs in Medicare

Summary: Discover strategies to help manage your cost of Medicare, such as covering premiums, copayments and out-of-network expenses, to help ensure financial preparedness in health care planning.

Medicare can be confusing, and there are many moving parts. Understanding the true cost of Medicare, including potential unexpected costs of coverage, is important to help you prepare your budget.

The annual enrollment period (October 15–December 7) offers a window to change Medicare plans, and it’s important to learn the different costs associated Medicare plans to help you steer your financial and healthcare planning. In other words, understanding the cost of Medicare can help you choose a plan that best fits your budget and your needs.

Let’s explore some of the costs of Medicare and practical strategies to help manage them, ensuring that you are well-prepared for any financial surprises.

How much does Medicare cost?

Medicare costs vary depending on the type of coverage you choose and the services you receive. The key to understanding its true cost lies in getting to know how the Medicare program is structured.

The cost of premiums, deductibles, copays, and coinsurance for Original Medicare Part A and Part B is generally set annually by the U.S. Centers for Medicare & Medicaid Services (CMS). Every October, CMS announces the Medicare costs for the following year.

Medicare costs usually increase every year and are generally based on your income from two years prior. For 2024, for instance, your Medicare costs will be based on your 2022 gross yearly income.

Original Medicare Part A

Original Medicare Part A is hospital insurance that includes coverage for in-patient hospital care, care in a skilled nursing facility, hospice care, and some home health care.

If you’re over 65 years of age, you may not need to pay a monthly premium for Original Medicare Part A if you (or your spouse) have paid Medicare taxes while working for at least ten years. However, if you don’t qualify for premium-free Original Medicare Part A coverage, you can enroll and pay a monthly premium, which can be up to $505 per month¹.

Note that you may also have to pay a deductible of $1,632 per benefit period² before Original Medicare Part A coverage begins. The maximum benefit period is 60 days of hospitalization plus 30 coinsurance days.

Original Medicare Part B

Original Medicare Part B is medical insurance that covers certain doctor services, outpatient care, medical care, and preventive services. Original Medicare Part B cost includes a standard monthly premium of $174.70 in 2024³, which may vary based on income, and an annual deductible of $240⁴ before its coverage kicks in.

Medicare Parts A and B are together referred to as Original Medicare.

Medicare Part C (Medicare Advantage)

Medicare Part C, also referred to as Medicare Advantage, is an alternative to Original Medicare that offers the benefits of Parts A and B, along with additional benefits like vision, hearing, and dental coverage.

The private insurance company that you choose to administer the plan will set the cost of Medicare Part C. The cost of Medicare Advantage plans will vary depending on factors such as the specific plan, your location, and coverage options.

Remember that if you enroll in Medicare Advantage, you will have to bear its cost in addition to the standard monthly premium for Part B.

Medicare Part D

Medicare Part D provides prescription drug coverage and is provided by private insurance companies – it is not included in Original Medicare. Medicare Part D cost will vary based on your income, prescriptions needed, and the plan you choose.

Medicare Supplement Insurance (Medigap)

Original Medicare generally covers about 80% of health care costs. Depending on your needs, you may also want to factor in the cost of a Medicare supplement insurance (also known as Medigap) plan. Medicare supplement insurance plans can help cover healthcare costs like deductibles, copays, and coinsurance that aren’t covered in Original Medicare. Certain Medicare supplement insurance plans may be the right fit for you if you want additional health coverage beyond Original Medicare, prefer a steady, predictable bill, or you often travel outside the U.S. However, bear in mind that Medicare supplement insurance cannot be used in conjunction with Medicare Advantage plans.

The federal government standardized all Medicare supplement plans, ensuring that plans with the same letter designation (e.g., Plan G or Plan F) offer the same basic benefits, regardless of the private insurance provider you purchase the plan from. However, premium costs for those plans and quality of service can vary depending on the insurer.

Other costs associated with Medicare plans

In addition to understanding costs associated with additional coverage options like Medicare supplement insurance and Medicare Advantage plans, it’s important to carefully review the details of any Medicare plan you’re considering so you can avoid potential unexpected costs. These costs may include copayments, coinsurance, out-of-pocket maximums, and coverage for services like dental, vision, and hearing care.

Here are some common costs associated with Medicare plans:

Copayments and coinsurance

With Original Medicare, you may be responsible for coinsurance, which is the portion of the costs of a covered health care service you pay after you’ve paid your deductible. Coinsurance amounts can vary based on the specific services received. These costs can add up, particularly if you need frequent or specialized care.

While Original Medicare usually doesn’t have copays, they may be a factor if you elect to enroll in additional coverage options, like Medicare Advantage or Medicare supplement insurance. You’ll likely be responsible for copayments for doctor visits, hospital stays, and other services.

Out-of-pocket maximums

There are no out-of-pocket maximums with Original Medicare, but there can be with some additional Medicare plans. Those limits can be high, especially if you have a $0 monthly premium. Once that maximum is reached, you no longer have to pay for covered services during the year. Some Medicare supplement plans, such as Plans K and L, have a defined out-of-pocket maximum limit.

Out-of-network costs

With Original Medicare, you can see any provider who accepts Medicare. However, if you elect to enroll in additional coverage options, there are some Medicare plans that may have network restrictions where coverage is limited to in-network providers, so you may not be able to keep your preferred doctors. While you can still use out-of-network providers, that may carry significantly higher costs. You may even be responsible for paying the full bill.

Prescription drug costs

Original Medicare does not cover prescription drug costs. If you need prescription coverage, you may want to explore Medicare Part D coverage. Medicare Part D provides prescription drug coverage and is not included in Original Medicare coverage. It must be purchased separately. With Part D, you may be responsible for premiums, deductibles, and copays to take advantage of the coverage.

Additional coverages

Medicare plans typically don’t include benefits for dental, vision, and hearing coverage. If you decide this additional coverage is important to your health care needs, you’ll need to factor in costs associated with these separate plans. Some Medicare Advantage plans can include this coverage, but it comes with additional costs, such as higher premiums or specific service fees.

How to manage and plan for unexpected costs of Medicare

Here are a few strategies to help you manage your Medicare cost and plan for any surprises.

1. Understand your coverage: Regularly review your Medicare plan to ensure that it still meets your needs. You can also compare the plan you have to other plans offered. If you find another plan that offers better coverage for your needs or lower costs, you can change plans during the annual enrollment period. You can switch back to Original Medicare, too, during this time.
2. Maximize your benefits: By using the preventive services covered by your plan and leveraging any of your additional plan benefits, you can potentially maintain your health and help avoid higher costs down the line.
3. Get to know the network providers: Familiarize yourself with the doctors, specialists, and facilities that are covered by your plan. Using in-network providers could help minimize costs.
4. Consider getting additional insurance: As you regularly review your Medicare coverage, consider any additional coverage you might need based on your evolving health care requirements. Not all plans provide the same coverage, and you may need additional insurance. Keep in mind that Original Medicare typically covers 80% of health care costs, so it’s important to evaluate additional options to help cover expenses such as copays, coinsurance, and deductibles.

The bottom line:

Planning for Medicare’s cost is important for avoiding financial strain and helping to ensure that your healthcare needs are met. By understanding the various parts of Medicare and its potential unexpected costs, you can make informed decisions about your coverage.

Regularly reviewing your plan, making use of preventive services, budgeting for out-of-pocket expenses, and exploring additional insurance options are all crucial strategies for making the most of your Medicare plan.

If you’d like to know more about Medicare, head over to the Mutual of Omaha Medicare Advice Center to learn more. With a free, seven-question tool, we can help you determine which Medicare plan may be the right fit for you.