Medicare is the nation's largest health-insurance program, but many Americans don't understand it well, particularly those who aren't yet 65 years old. There are several popular misconceptions about the Medicare program's financial state, what it covers, and what it costs. With that in mind, here are five common Medicare myths, and the truth behind each one.
1. Medicare is broke
Despite what you may have heard, Medicare is not broke, bankrupt, or whatever other word you want to use. Medicare hospital insurance had nearly $200 billion in reserves at the end of 2015, the most recent year for which finalized data is available. And, substantially all of the program's costs were covered by the payroll taxes collected from American workers. What's more, Medicare is expected to run a surplus every year through 2020.
But that's where the good news ends. After 2020, Medicare is expected to swing to an annual deficit, which will continue for the foreseeable future. Here's a thoroughgoing discussion of the problem, but in a nutshell, with the retirement of the massive baby boomer generation, there simply won't be enough taxpayers contributing to the program to take care of all of the beneficiaries. The trust fund's reserves are expected to be completely depleted in 2028, after which point the incoming payroll taxes will only be enough to cover about 87% of the program's costs. There are ways this could be fixed, such as by raising Medicare taxes, but for now, that's where the financial state of Medicare's hospital insurance program stands.
2. All parts of Medicare are taxpayer-funded
To clarify the financial condition of Medicare even further, it's important to point out that not all parts are taxpayer-funded.
Specifically, when you see discussions about Medicare's funding problem, that only refers to Medicare Part A (hospital insurance). Part A is funded by workers' payroll taxes and the Medicare Hospital Insurance Trust Fund.
Parts B (medical insurance) and D (prescription drug coverage) are financed through beneficiary premiums and general revenue. Taxes and the health insurance trust fund are not used to support them. If, for example, it is determined that Medicare Part B needs more revenue next year to cover its promised benefits, the premiums that beneficiaries are required to pay can rise.
3. Medicare will cover all of your health expenses in retirement
Most people who are already receiving Medicare benefits know that this isn't true, but it remains a common myth, especially among younger Americans.
- Deductibles: Medicare Part A has a $1,316 deductible per benefit period for hospital stays, and Part B has a $183 deductible for 2017.
- Coinsurance payments: Hospital stays of longer than 60 days have a coinsurance payment, in addition to the deductible.
- Part B co-pays" After you meet the $183 Part B deductible, Medicare generally covers 80% of medical services. The other 20% is your responsibility.
A Medigap plan can help you cover these, but you'll need to pay an additional premium for one of these plans. In addition, Medicare won't pay for long-term care, dental care, eye examinations for glasses, dentures, or hearing aids.
4. Medicare enrollment is always automatic
Automatic Medicare enrollment at age 65 is a half-myth. What I mean is some people are automatically enrolled in Medicare, while others must sign up.
Specifically, if you're already receiving Social Security benefits when you turn 65, have gotten disability benefits for at least 24 months, or have ALS (Lou Gehrig's disease), you'll automatically get Medicare Parts A and B on the first day of the month you'll turn 65.
If none of these three conditions applies to you, you'll need to sign up, which you can do online at the Social Security Administration's website in about 10 minutes. Be sure to sign up during your initial enrollment period, which is a seven-month time frame beginning three months before the month in which you'll turn 65. Whether you are enrolled automatically or will need to sign up, here's a quick guide to some important information you should know before you get Medicare.
5. Medicare is free
Another half-myth. Medicare Part A is free, if you've earned at least 40 Social Security credits throughout your career or otherwise qualify for benefits. However, Part B, which is the Medicare you'll use to go see your doctor, has a monthly premium you'll have to pay. The standard Part B premium is $134 in 2017 for new beneficiaries, and this is adjusted annually. In addition, high-income beneficiaries are required to pay higher premiums -- up to $428.60 per month for the highest-income seniors. The majority (about 70%) of Medicare beneficiaries pay their premiums directly through their Social Security benefits, so while you may not have to write a check each month, it's important to realize that you will have to pay for your Medicare benefits.