What are the Hidden Costs of Medicare?

While Medicare is often viewed as a safety net for retirees and those with disabilities, it’s important to understand that it doesn’t cover everything. Many people are surprised by the hidden costs that can arise from gaps in coverage, out-of-pocket expenses, and unexpected fees. By knowing what to expect, you can budget effectively and avoid financial surprises down the road.

Monthly Premiums for Parts B and D

Medicare Part A (hospital insurance) is usually premium-free if you or your spouse worked and paid Medicare taxes for at least 10 years. However, Medicare Part B, which covers doctor visits and outpatient care, comes with a monthly premium. In 2024, the standard premium for Part B is $174.70 per month, although it can be higher if your income exceeds certain thresholds (up to $594.10 depending on your income).

For Medicare Part D (prescription drug coverage), premiums vary depending on the plan you choose, but the national average is around $31.50 per month in 2024. Like Part B, higher-income individuals may pay an additional surcharge for Part D, called the Income-Related Monthly Adjustment Amount (IRMAA).

Deductibles and Coinsurance

Medicare enrollees are also responsible for deductibles and coinsurance. For Part A, there is a $1,632 deductible per benefit period in 2024. If you're hospitalized, you also pay coinsurance starting at $0 for the first 60 days and escalating significantly after 90 days.

For Part B, there’s an annual deductible of $240 in 2024. After that, you typically pay 20% of the Medicare-approved amount for services like doctor visits, outpatient therapy, and durable medical equipment. That 20% can add up quickly if you have multiple medical needs or chronic conditions.

Prescription Drug Costs

Prescription drugs can be another significant hidden cost. Even with Medicare Part D or a Medicare Advantage Plan that includes drug coverage, you still have out-of-pocket expenses. These include:

• Copayments and coinsurance for each prescription

• A deductible, which can be up to $545 in 2024

• Potentially falling into the donut hole, or coverage gap, where you pay 25% of the cost of your medications until you reach catastrophic coverage

Some drugs, especially specialty medications, can be extremely costly, so it’s important to review your Part D plan’s formulary to ensure your medications are covered.

Medigap Premiums

Many people opt for Medicare Supplement Insurance (Medigap) to help cover the out-of-pocket costs of Medicare Parts A and B. While Medigap plans can save you money on things like copayments and coinsurance, the plans themselves have monthly premiums, which range from $150 to $300 or more depending on the plan and location. These premiums are an additional cost you need to budget for if you choose to enroll in a Medigap plan.

Dental, Vision, and Hearing Care

One of the biggest hidden costs of Medicare is that it generally does not cover dental, vision, or hearing services. Routine eye exams, glasses, dental cleanings, fillings, and hearing aids are not covered under Original Medicare. Many seniors are surprised to discover that these essential services, which can cost thousands of dollars annually, aren’t included. To mitigate these costs, some beneficiaries purchase stand-alone insurance or look for Medicare Advantage plans that offer some coverage in these areas.

Long-Term Care

Long-term care is another expense Medicare does not cover. Nursing home care, assisted living, and in-home care are only covered for short-term rehabilitation after a hospital stay, not for ongoing custodial care. According to the U.S. Department of Health and Human Services, nearly 70% of people turning 65 will need some form of long-term care in their lifetime. The average annual cost for a private room in a nursing home is over $100,000. You may want to explore long-term care insurance or other financial planning options to cover these potential expenses.

Late Enrollment Penalties

Failing to enroll in Medicare when you’re first eligible can also lead to unexpected costs in the form of late enrollment penalties. For Part B, this penalty is 10% for each 12-month period you were eligible but didn’t sign up. This increase lasts as long as you have Medicare. For Part D, the penalty is calculated as 1% of the national base beneficiary premium times the number of months you were without coverage.

Medicare Advantage and Hidden Costs

While Medicare Advantage plans often have lower premiums than Original Medicare combined with Medigap, they can have their own hidden costs. These plans typically come with networks of doctors and hospitals, and using providers outside the network can result in much higher out-of-pocket expenses. Additionally, many Medicare Advantage plans have higher copayments for services such as physical therapy, medical equipment, and specialized care.

Other Out-of-Pocket Costs

In addition to premiums, deductibles, and coinsurance, Medicare beneficiaries may face costs for services not fully covered, such as:

• Skilled nursing facility care after the first 20 days

• Ambulance services and emergency care

• Durable medical equipment like walkers or wheelchairs, which may require a percentage of the cost to be paid by the beneficiary

Budgeting for Medicare

To budget effectively for Medicare, it’s important to look beyond just the premiums and consider the full range of costs you may face. While it’s impossible to predict every health expense, you can prepare by:

1. Choosing a Medigap or Medicare Advantage plan based on your health needs and financial situation.

2. Reviewing drug formularies each year during open enrollment to ensure your prescriptions are covered.

3. Setting aside savings for out-of-pocket expenses, particularly for dental, vision, hearing, and long-term care.

4. Staying informed about your Medicare coverage and any changes in premiums or costs.

Conclusion: Plan Ahead for Hidden Costs

While Medicare provides vital health coverage, it’s not free, and there are several hidden costs that beneficiaries should be aware of. By understanding these potential expenses and planning ahead, you can budget more effectively and avoid being caught off guard by unexpected healthcare bills.