Attention Seniors – Medicare Isn’t Free – InsideSources

About 10,000 Americans turn 65 every day. Many may soon leave the workforce and claim the Medicare benefits they think they are entitled to after paying Medicare taxes for decades in the labor market.

But they risk having a rude awakening. Even after paying tens or hundreds of thousands of dollars in Medicare taxes over the course of their working careers, beneficiaries spend thousands more each year on coverage during retirement.

This coverage does not always guarantee them quick access to the doctors or specialists they would like to see. It’s no wonder seniors are increasingly opting for private Medicare Advantage plans, which often offer more value than the conventional government-administered Medicare program.

People start paying Medicare long before they’re old. To fund parts of the program, the government levies a 2.9% payroll tax. Technically, workers pay half and employers pay half. But economically, everything is compensation for the employee – so everything comes from the employee’s paycheck.

High-income earners pay an additional Medicare surcharge of 0.9%.

This money adds up. According to the Urban Institute, someone in their mid-twenties who earns less than $23,400 a year will pay $60,000 in health insurance taxes at age 65. If that same person earned $83,000 each year during their lifetime, they would pay $220,000 in total. Medicare taxes. A couple in their twenties earning $134,900 a year, meanwhile, would pay $375,000.

Once Americans reach age 65 and enroll in Medicare, they face premiums, deductibles, and copayments that can run into the thousands of dollars a year.

In a new survey, nearly 60% of respondents said they were unaware that Medicare premiums vary by plan and income. About the same proportion did not know that there were different deductibles for parts of Medicare that cover inpatient care, outpatient care, and prescription drugs.

The deductible for Part A, which covers hospital and hospital services, is $1,556 this year. The deductible for Part B, which covers outpatient visits, is $233. And the maximum deductible for Part D, Medicare’s prescription drug benefit, is $480 this year.

That means seniors could be paying more than $2,000 out of pocket — on top of the thousands they may already be spending on premiums, depending on their income — before Medicare even starts paying for their care.

After reaching their deductible, patients must cover a portion of their treatment costs through copayments and coinsurance. And since Parts A and B don’t have maximum payouts, there’s no limit to what seniors could face in terms of cost sharing, no matter how sick they get or how much care they need.

In total, the typical couple with Medicare will need $300,000 to cover health costs after retirement, according to a report by Fidelity Investments. But that estimate only takes into account out-of-pocket Medicare Parts A, B, and D — not the cost of other health-related services the government won’t cover.

Seniors who are in hospital for an extended period could rack up additional bank bills. Medicare will cover the first 60 days of a hospital stay. But on day 61, a patient has to pay $389 per day until day 91, when the daily bill rises to $778. If she has to stay in the hospital long enough – or come back to the hospital often – she might have to pay the full cost of the extra days in the hospital.

Likewise, Medicare will not cover extended stays in skilled nursing facilities. And even though there’s a 70% chance that someone who turns 65 today will need long-term care in the future, Medicare won’t cover that either.

To help seniors cover out-of-pocket costs for all of these services — and others that Medicare doesn’t cover, such as hearing, dental and vision — the government recommends purchasing a Medigap plan. But these supplemental insurance plans can cost an extra $300 each month.

Most seniors do not have enough savings to cover these expenses. The Fidelity report found that half of workers who have spent time thinking about retirement expenses believe they will need $50,000 or less to pay for medical care. Not surprisingly, more than one in 10 Medicare beneficiaries have delayed care because they cannot afford it.

Health insurance is not free. Those approaching or approaching retirement should prepare for this reality.

About John Tuttle

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