The steep cost of coverage

A common misperception is that healthcare insurance is free for retirees. That’s true of Medicare Part A for most Americans, but it’s not true for Medicare Part B, Medicare Advantage, Medicare Part D, or Medigap plans.

an older couple sits at a table drinking coffee while using their laptops.

IMAGE SOURCE: GETTY IMAGES.

Medicare Part A provides coverage for hospitalizations, skilled nursing, and rehabilitation after a small deductible is met and up to specific limits. For instance, you have to start contributing to the costs if you require a hospital stay that lasts longer than 90 days. Part A is premium free for most people, but if you didn’t qualify for it by paying Medicare taxes during your working years, then you could pay monthly premiums as high as $422 in 2018.

Medicare Part B provides some coverage for basic healthcare services, such as primary-care doctor visits and lab work. Once recipients meet a $183-per-year deductible, they pay 20% co-insurance for covered services.

Americans must pay a premium for Part B coverage, and if they fail to sign up for it at age 65, they can face stiff penalties in the form of higher monthly premiums. Part B premiums are subject to an income-related monthly adjustment amount, and in 2018, Part B premiums ranges between $134 and $428.60 per month, depending on the modified adjusted gross income (MAGI) reported on your tax return two years ago.

For convenience, here’s a table showing Part B premiums in 2018, based on 2016 MAGI.

MAGI, Filing As an Individual MAGI, Filing Jointly Monthly Premium
$85,000 or less $170,000 or less $134
Above $85,000 up to $107,000 above $170,000 up to $214,000 $187.50
Above $107,000 up to $133,500 above $214,000 up to $267,000 $267.90
Above $133,500 up to $160,000 above $267,000 up to $320,000 $348.30
Above $160,000 above $320,000 $428.60

Data source: Medicare.gov.

Medicare Advantage insurance bundles together Medicare Part A and Medicare Part B coverage, and it usually also includes coverage for healthcare services that are traditionally uncovered by Part A and Part B, such as hearing aids and drugs. In 2018, retirees have to pay the Part B insurance premium plus $30, on average, for their Medicare Advantage coverage. However, because these plans are sold by private insurers and each plan may provide slightly different coverage beyond the Part A and Part B requirements, their premiums can vary considerably.

If you prefer traditional Part A and Part B coverage instead of Medicare Advantage, then you can purchase a Medicare Part D plan to cover drug costs. These plans are subject to deductibles, cost-sharing, and coverage limits, and like Medicare Advantage, they’re sold by private companies, so prices can vary. Overall, the average Part D plan premium is $33.50 in 2018, but you could pay more than that, depending on your income. The following table shows the income adjustments to premiums based on income levels for 2018, based on yearly income in 2016.

Filing As an Individual Filing Jointly Monthly Premium
$85,000 or less $170,000 or less Your plan premium
Above $85,000 up to $107,000 above $170,000 up to $214,000 $13.00 + your plan premium
Above $107,000 up to $133,500 above $214,000 up to $267,000 $33.60 + your plan premium
Above $133,500 up to $160,000 above $267,000 up to $320,000 $54.20 + your plan premium
Above $160,000 above $320,000 $74.80 + your plan premium

Data source: Medicare.gov.

It’s also possible that retirees will combine their Medicare coverage with Medigap plans that are also sold by private insurers. As a refresher, Medigap plans help cover deductibles and other cost-sharing requirements when Part A and Part B Medicare falls short. There’s a slate of different Medigap coverage levels, and premiums differ from plan to plan and level to level, but in my home state of New Hampshire, the monthly premiums for someone in good health range between $108 to $357. You can get a good idea of how much these plans cost in your home state by using this Medicare plan search tool.

A retiree in a bow tie shrugging his shoulders.

IMAGE SOURCE: GETTY IMAGES.

What else should I know?

According to the Bureau of Labor Statistics, the average person age 65 and up is spending $5,877 per year on healthcare, including $4,029 on healthcare insurance. That’s a lot of money when you consider that the average retired worker is collecting only $16,848 in Social Security in 2018.

It’s unlikely that health insurance costs are going to fall anytime soon, either. Medicare spending is growing because aging baby boomers are living longer and requiring more medical care, and innovations such as robotic surgery and personalized medicine are increasingly expensive. As a result, it’s likely retirees will be paying even higher Medicare premiums in the future.

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Jan 14, 2018 at 8:00AM