In the last blog post, I outlined key findings from a recent Vanguard white paper on healthcare spending in retirement. In this post, I’ll break down the various parts of understanding Medicare—traditional Medicare—as you consider your healthcare needs in retirement.
As you may already know, Medicare is divided into parts A, B, C and D and details on each are as follows:
Medicare Part A – In understanding Medicare options, you should know that Medicare Part A covers in-patient hospital care, hospice care and on a limited basis, home healthcare services ordered by your doctor. If you paid into the social security system for a a minimum of 10 years, there is no charge for Medicare Part A.
Medicare Part B – Medicare Part B covers medically-necessary services, which includes doctor visits, physical therapy, home health services and other outpatient care. It also covers some preventive services. The list of what’s included under this category was expanded by the Affordable Care Act.
There is a charge for Medicare Part B, and it is typically deducted from your social security check. How much you pay depends upon your income in retirement. In 2018, the monthly amount ranged from $134 to $428.60.
Medicare Part C – Part C covers privately administered Medicare plans typically known as Medicare Advantage plans. Most retirees participate in traditional Medicare as opposed to Medicare Advantage, so we’ll forego covering those plans in this article.
Medicare Part D – Part D covers prescription drugs, and is the most recent addition to Medicare, having been established in the last decade. For those on original Medicare, Part D is an addition that is administered by private insurers and differs in terms of what medications are covered as well as which pharmacies participate.
In addition to the premiums, deductibles and co-pays one expects with insurance coverage, Part D also has what’s popularly known as a “donut-hole,” in which the participant pays for the entire cost of any prescriptions purchased. This begins when prescription drug spending reaches $3750, and continues until expenses exceed $5000, although the donut-hole is scheduled to go away at the end of 2018.
Needless to say, Part D is complex and warrants its own “understanding Medicare” post. We’ll also cover Medigap plans, which are supplemental policies that cover costs not covered by traditional Medicare. For now, if we break down the cost of Medicare Part A and B with no additional coverage from Medigap policies, here are the relevant items:
Part A – No cost for most participants
Part B – Premiums range from $134 to $428.60
Deductibles/Copays – In understanding Medicare options, remember that there are deductibles and copays with Medicare just as there are with private insurance. The amounts depend upon the type of service in question, and many of these fees can be defrayed by a Medigap policy. More information on fees the plan participant can expect to incur are available at the government Medicare website here.