How much do Medicare beneficiaries pay for healthcare?
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The short answer is that the average American with "original Medicare" (Parts A and B) can expect to pay a total of $7,620 out of pocket for healthcare expenses this year. However, that number doesn't tell the whole story. Some of this amount comes from Medicare premiums, and some includes various costs such as prescription medications. In addition, total healthcare costs vary considerably by age and overall quality of health.
So let's see if we can answer the question a little more thoroughly.
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The average Medicare bill
According to Medicare.gov, the official website for Medicare, here's a breakdown of what the average "original Medicare" recipient in good health can expect to pay per month for healthcare costs in 2017.
A couple of notes on this data. First, the $109 monthly Part B premium only applies to the 70% of Medicare recipients who already pay their premiums directly from their Social Security benefits. The other 30% (including new Medicare beneficiaries) pay $134 per month, bringing the average annual out-of-pocket healthcare costs to $7,920.
Also notice that the "other premiums" category is listed as zero, because Medicare Part A generally doesn't have a premium. However, many retirees elect to carry Part C coverage, also known as Medicare Advantage, as well as Part D coverage, which is for prescription drugs. If a beneficiary is enrolled in either or both of these plans, then it would have the effect of raising premium expenses while reducing costs in other areas. I'll discuss these more in depth in the next section.
How much does the average Medicare beneficiary pay in premiums?
There are four "parts" of Medicare, known by the letters A through D. Medicare Part A (hospital insurance) and Part B (medical insurance) are collectively known as "original Medicare." These are the parts that virtually all U.S. senior citizens have. Part C is also known as Medicare Advantage, which is optional supplementary coverage to help with the expenses original Medicare doesn't cover. Part D is prescription drug coverage, which is also optional.
For nearly all retirees, Medicare Part A is free, meaning there are no premiums to pay. Part A has a deductible amount of $1,316 for hospital stays and an additional coinsurance requirement for longer stays in hospitals and skilled-nursing facilities.
Medicare Part B deductibles for 2017, as I mentioned earlier, are $109 per month for most retirees who pay their benefits out of their Social Security checks. For about 30%, the monthly Part B premium for 2017 is $134. For all Medicare Part B beneficiaries, there is a $183 deductible.
For Part C, a.k.a. Medicare Advantage or "Medigap" coverage, there's a wide range of coverage options and premiums, so quoting an average premium wouldn't be too helpful. You can choose a low-cost plan that will still leave you with a lot of out-of-pocket costs, or you can choose an expensive plan that will cover virtually every copay and deductible that you may have. Medicare offersa search tool that can help you compare the options available to you.
Finally, the average premium paid for Part D, prescription drug coverage, in 2016, was $41.46 per month. These plans can charge a maximum deductible of $360.
Out-of-pocket costs can vary by health and age
In addition to premiums and deductibles, there are several healthcare expenses not covered by Medicare. You'll notice in the chart above that dental services are not covered by Medicare, so unless you have a separate dental plan, you'll need to pay these costs out of pocket. The "other healthcare services" category in the chart includes expenses like eyeglasses, contact lenses, and hearing aids, all of which are also not covered.
As you may imagine, your overall health plays a big role in how much you should plan to spend on healthcare. According to a Kaiser Family Foundation study, the average Medicare beneficiary who reported being in poor health had out-of-pocket costs about 2.5 times as high as those who reported being in excellent health.
The U.S. government seems to agree. We already said that the average beneficiary pays $635 per month for healthcare expenses, including premiums. Here's what some high-cost conditions can do to that average premium:
Age also plays a big role. The same KFF study found that the average person in the 85-and-up age group has more than three times the out-of-pocket expenses of someone in the 65-74 age group, not counting premiums.
The bottom line on healthcare expenses for retirees
Above all, remember that these are just averages, and other than Medicare premiums, out-of-pocket healthcare expenses can vary tremendously in retirement from person to person. Therefore it may be a good idea to prepare by considering a Medicare Advantage plan and saving extra money before you retire for the specific purpose of paying for healthcare expenses.
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