Retirement planning is all about looking at your expected costs and budget. One essential part of that planning is your health care, including your expected Medicare premiums and other out-of-pocket expenses.
Since your premiums can vary yearly and depend on your coverage, it helps to know more of the ins and outs of Medicare premiums. That information can help you better plan your future and budget for health care expenses.
Here's what you need to know.
What Are the Different Types of Medicare?
There are four distinct parts to Medicare: A, B, C and D. Here's a more in-depth look at each:
- Medicare Part A: This is known as hospital insurance, but it covers a variety of in-patient services, including some nursing homes, hospice and home health care.
- Medicare Part B: This is the medical insurance side of the program, covering doctor's visits, medical supplies, and outpatient and preventative care.
Medicare Parts A and B combine into what's known as Original Medicare. All U.S. citizens are eligible for Medicare once they turn 65.
- Medicare Part C: This is known as Medicare Advantage. Private insurance companies run it as an alternative to Original Medicare since it essentially combines Parts A and B into one bundled plan.
- Medicare Part D: This is for prescription drug coverage. Original Medicare doesn't pay for prescriptions, so private insurers offer Part D to help cover those costs.
How Can You Join a Medicare Plan?
There are a couple of different ways to join a Medicare plan. When you turn 65, you have a window known as the initial enrollment period to sign up for Medicare. If you're already receiving Social Security benefits when you turn 65, you're automatically enrolled in Medicare Part A.
During this period, you can sign up for Original Medicare or any Medicare Advantage (Part C) and drug coverage plan (Part D) you'd like. Keep in mind that you will have to choose between Original Medicare or Medicare Advantage. You can't enroll in both. If you decide to enroll in Original Medicare and want supplemental insurance to help with coverage gaps, you could also enroll in a Medigap plan during this window.
You can switch your plans during yearly open enrollment periods, which run from October 15 to December 7 for Original Medicare and January 1 to March 31 for Medicare Advantage. So, you can go from Medicare Advantage to Original Medicare and vice versa, depending on your needs.
What Is a Premium?
A premium is a monthly fee for your health care or prescription drug coverage. If you've had private employer-sponsored insurance or had coverage through the Affordable Care Act's insurance marketplace, you've probably paid a premium each month.
While your premium takes care of most of your insurance coverage, you may also need to pay out-of-pocket costs. Typically, Original Medicare covers about 80% of your health care needs. The rest, you'll pay out-of-pocket.
You may also help fill in those costs by paying for a Medigap plan and a prescription drug plan. If you enroll in a Medicare Advantage plan, you'll pay monthly premiums just as with other private coverage.
What Are the Medicare Premiums for 2022?
For Original Medicare, premiums may vary for Parts A and B. For anyone 65 and older who has worked for ten years and paid Medicare taxes, Part A is free. However, if you haven't met those qualifications, you'll pay a premium of up to $499 a month for Part A, depending on how long you've worked.
If you're under 65 and haven't enrolled in Medicare yet, go to the my Social Security site and double-check your eligibility for Medicare Part A.
Your monthly premiums for Parts B and D are higher if your modified gross adjusted income in 2021 was more than $91,000 as an individual or $182,000 as a couple. The Social Security Administration has a chart of the additional premium amounts for Medicare Parts B and D.
Private insurers run Medicare Advantage (Part C) and Medigap plans. So, these premiums will depend on the type of coverage you choose. In addition, with Medicare Advantage and Medigap, there are no premium adjustments based on income. High-income earners pay the same as those in lower brackets.
If you are someone with a low or fixed income, there are programs to help cover some of the costs of your Medicare premiums. Speak with your local Medicare office to see the programs available that you may qualify for based on your income.
Do Medicare Premiums Change Each Year?
Your premium costs may change yearly, regardless of what type of Medicare coverage you've enrolled in. For Original Medicare, changes in premiums are announced toward the end of the year.
The Centers for Medicare & Medicaid Services (CMS) will notify enrollees of the changes and costs of Medicare Part A and B premiums, as well as deductibles and co-pay amounts. In addition, CMS will announce any income-related premiums and adjustments for Parts B and D.
For Medicare Advantage, Medicare Part D and Medigap plans, your insurer will also let you know before the end of the year about premium changes. Your current private health care insurer will provide that information.
How Do You Pay Medicare Premiums?
For most people, Medicare tries to make paying for premiums easy. For example, if you don't need to pay for Medicare Part A and already receive Social Security benefits, the premium for Part B is taken out of your monthly check.
If you enroll in Original Medicare before you've started claiming your Social Security benefits, you'll get a bill each quarter, so that's something to watch out for, especially if you're surprised at the amount at first. Your bill will cover the upcoming three months of premiums. So if you've signed up for Medicare to start in April, you'll get a statement in March that covers April, May and June. According to CMS, your bill should arrive around the 10th of the month.
With Medicare Advantage, Medigap plans and Part D plans, you'll need to check with your insurer, but these bills will typically be monthly.
There are four ways to pay your Original Medicare premiums:
- Online through your Medicare account
- Sign up for Medicare Easy Pay, which sets up recurring payments through your checking or savings account.
- Pay by mail using your credit or debit card, or check with the payment coupon you'll get with your bill.
- Check if your bank has an online bill pay service and pay Medicare through it.
Keep in mind that when you first sign up for Original Medicare or recurring payments, it may take a few weeks to process paperwork and your deductions to begin. So check back in regularly to make sure everything is set.
The Bottom Line
Knowing the ins and outs of Medicare can feel a little daunting at first. However, once you understand how it works, you'll be able to go through your options and choose the right plans for your needs and budget.