Understanding Deductibles & Penalties
Like all insurance plans, Original Medicare has deductibles for both Parts A and B. In addition, Medicare Part D plans usually have an annual deductible. And Medicare Part C plans, better known as Medicare Advantage plans, may also have yearly deductibles but some do not.
What Does Medicare Cost?
The Medicare program employs a cost-sharing model that includes monthly premiums, deductibles, and coinsurance or copayments. The Centers for Medicare and Medicaid Services (CMS) sets the rates, working within the budget they’re allotted by the White House each year.
Medicare premiums and deductibles vary for each “part” of Medicare.
Original Medicare includes two parts: A and B.
Medicare Part A is commonly referred to as hospital insurance, because it covers inpatient services received in a hospital or skilled nursing facility.
Medicare Part B is commonly referred to as medical insurance. Part B covers outpatient services, including doctor visits, mental health care, lab work, and durable medical equipment.
Medicare Advantage plans (Part C) are sold by private insurance companies. Every Advantage plan must provide the same benefits you get with Original Medicare, but most Part C plans also provide additional coverage, such as prescription drugs, routine vision and dental care, and hearing aids.
Medicare Part D provides prescription drug benefits. These plans are also sold by private insurance companies also. You may join either a standalone Part D prescription drug plan (PDP) or a Medicare Advantage Prescription Drug plan (MA-PD).
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The Medicare Part A Deductible
Unlike most types of insurance plans, the Medicare Part A deductible is figured by benefit period, not annually. A benefit period begins the day you are admitted to the hospital as an inpatient and ends once you go 60 consecutive days without receiving inpatient care.
The Medicare Part A deductible is $1,484 per benefit period in 2021. You pay $0 copays for the first 60 days you receive inpatient hospital care. After that, your Part A copays are:
$371 per day for days 61 through 90
$742 per day for days 91 through your 60 lifetime reserve days
NOTE: If you have a Medicare Advantage plan or Medicare Supplement Insurance (more commonly known as Medigap), your plan may pay some or all of these costs.
Before Medicare Part A will pay for care received in a skilled nursing facility, you must first spend at least 3 consecutive days as a hospital inpatient. In addition, the Skilled Nursing Facility care must be related to your hospital stay and happen within the 60-day benefit period.
Part A coinsurance for skilled nursing facility care is $0 for the first 20 days and $185.50 per day through day 100. You are responsible for all costs from day 101 and beyond.
Additional Medicare Part A Costs
Although around 99 percent of Medicare beneficiaries qualify for premium-free Part A, that remaining 1 percent accounts for hundreds of thousands of people. If you or your spouse did not work and pay the Medicare payroll tax for 40 quarters (10 years), the standard Medicare Part A premium is $471 in 2021. If you paid Medicare taxes for at least 30 quarters but less than 40, the standard premium is $259 per month.
The Medicare Part A Late Enrollment Penalty
People who delayed Part A enrollment for a full 12 months and who do not qualify for a Special Enrollment Period (SEP) may also owe a late penalty. The Part A late enrollment penalty is 10 percent for twice the number of years you could have had Part A but did not.
1 year = 2 years paying the penalty
2 years = 4 years paying the penalty
And so on.
Please note that, when it comes to calculating Medicare late enrollment penalties, Medicare does not looks at calendar years but 12-month periods starting from when you could have enrolled but did not.
The Medicare Part B Deductible
The 2020 Medicare Part B deductible is $203. This is an annual amount that you must spend out-of-pocket before your Part B benefits kick in.
Additional Part B costs include:
Standard Part B premium is $148.50 per month in 2021. Most people pay the standard premium. However, if your yearly, modified adjusted gross income exceeds $87,000 (filing singly) or $174,000 (married filing jointly) you will also have to pay an additional Income Related Monthly Adjustment Amount known as IRMAA.
The Medicare Part B Late Enrollment Penalty
If you do not sign up for Medicare Part B during your Initial Enrollment Period (IEP) and do not qualify for a Special Enrollment Period, you may owe a late enrollment penalty.
The late penalty is 10 percent of your premium for every 12-month period in which you could have signed up but did not. So, one full year is 10 percent, two full years is 20 percent, and so on. However, unlike Part A, you will pay the late enrollment penalty for the entire time you have Medicare Part B.
This is why we strongly encourage people to talk to an agent or broker who knows the rules and can explain when you need to enroll in Part B. Delaying could cost you thousands of dollars over your lifetime.
The Medicare Advantage (Part C) Deductible
All of your Part C costs vary according to your Medicare plan. This includes the deductible, copays, premium, and coinsurance (if applicable).
The Medicare Part D Deductible
The standard Medicare Part D deductible is $445 in 2021. However, some prescription drug plans set a lower yearly deductible. In addition to the deductible, most Part D plans have monthly premiums and copays or coinsurance payable at the time of purchase. Please check with your plan to verify out-of-pocket costs for Part D.
As with Medicare Part B, high earners enrolled in Part D may owe the IRMAA surcharge.
If you have a Medicare Advantage Prescription Drug plan, you may have a separate deductible for your prescription drug coverage.
The Part D Late Enrollment Penalty
As with Parts A and B, there is a late enrollment penalty for Part D. Like Part B, you pay this penalty for the entire time you have Medicare prescription drug coverage.
Unlike Parts A and B, you begin accruing this late fee once you go 63 consecutive days without creditable prescription drug coverage. In this case, “creditable” means a prescription drug plan that provides comparable benefits to Part D at a similar price. (In other words, a prescription discount card is not the same thing as a prescription drug plan.)
The Part D late enrollment penalty calculation is based on a percentage of the national base beneficiary premium, which changes every year. In 2021, the base beneficiary premium is $33.06.
You pay 1 percent of this “base” premium for every month you go without creditable prescription drug coverage, then round that number to the nearest dime. If you go 6 months without coverage, the calculation looks like this:
$33.06 X 1% X 6 = $1.9833
Rounded to the nearest dime, your late penalty would be $2. This is then added to your monthly premium every month for the entire time you have Medicare prescription drug coverage.
Compare Your Medicare Plan Options
When comparing your Medicare plan options, look carefully at both benefits and the total out-of-pocket costs. I can help you compare Medigap, Part D, and Medicare Advantage plans in your area and explain the subtle differences between the plans and help you choose a plan that covers all your doctors and prescriptions at the lowest cost to you.
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Call 207-370-0143 or schedule a meeting.