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4 Reasons Medicare Might Cost More Than You Think

By Maurie Backman - Jan 28, 2020 at 8:01AM

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Sorry, seniors -- you may be underestimating your out-of-pocket healthcare spending.

Medicare provides health coverage to millions of seniors 65 and over. But that coverage comes at a cost -- one that tends to catch seniors off-guard for the following reasons.

1. Premiums can rise from year to year

Though Medicare Part A, which covers hospital care, is generally free for enrollees, Part B, which covers outpatient care, charges a premium. The same holds true for Part D, which covers prescriptions. The cost of Part D will vary based on the plan you choose, but since there's only a single Part B option (not various plans like Part D), you'll generally pay a standard premium unless you're a higher earner (more on that in a minute). That premium, however, can increase from year to year. In 2019, for example, it was $135.50 per month, and this year, it's gone up to $144.60. And who knows what it will look like in 2021?

2. If you're a higher earner, you get hit with a premium surcharge

If you have a higher-than-average income during retirement, whether because you're still working part-time, have a generous pension, or saved well in a 401(k) or IRA, Medicare will cost you more. Income-related monthly adjustment amounts, or IRMAAs, kick in once your annual exceeds $87,000 as a single tax filer, or more than $174,000 as a couple filing a joint return. IRMAAs apply to premiums for both Parts B and D, and they're incremental so that the higher your income is beyond the aforementioned thresholds, the more Medicare costs you.

Doctor holding x-ray reading while older man lying in bed looks on


3. You'll probably need supplemental insurance

Your out-of-pocket costs under Medicare can be unpredictable when you account for copayments, deductibles, and coinsurance. As such, it's often advisable for seniors on Medicare to purchase supplemental insurance, or Medigap. Medigap can cover some of these costs, but it will also cost you. The amount you'll pay for Medigap will vary based on the plan you choose, but there are other factors, like your age and where you live, that will influence your costs as well.

4. You may need to cover certain expenses completely out of pocket

Many seniors are shocked to learn that Medicare won't pay for common services like dental care, vision exams, and hearing aids. And unfortunately, Medigap won't pay for these services either. The result? You may be looking at hefty bills when you go to get your teeth cleaned, have your eyes checked, get new eyeglasses, or undergo hearing exams.

Know your costs

Underestimating your costs under Medicare could wreak serious havoc on your retirement budget. Rather than let that happen, do some research to see what sort of expenses you're looking at under Medicare. At the same time, be prepared to shop around for your Medigap and Part D drug plans to secure the best coverage at the most affordable cost.

Another option? Look into getting a Medicare Advantage plan. Advantage is an alternative to original Medicare that often offers more comprehensive coverage at lower premium costs. There are drawbacks to Advantage, like being limited to a specific provider network, that you need to be aware of, but it's an option worth exploring nonetheless, especially if money is tight.

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