Recently I have encountered several Medicare recipients who assume that Medicare is free. The answer is: not quite. Beneficiaries pay for Parts A and B and, in some cases, Part D. Without Parts A and B, you will not be able to select a Medigap or Medicare Advantage plan to supplement the 20% that Original Medicare doesn’t cover. Nor will you have the prescription coverage needed.
Let me explain. Realizing you will pay to obtain the primary benefit of Medicare is only the beginning. Overall, there are two separate costs—the cost of getting Original Medicare and the price of a supplement and prescription coverage. High-income earning individuals will also pay an Income Related Monthly Adjustment Amount (IRMAA).
Original Medicare Costs
Original Medicare consists of Parts A and B.
- • Most beneficiaries have worked ten years (or 40 quarters) and receive hospitalization (Part A) at no cost.
- • Everyone in the country, including our veterans, pays Part B’s medical portion at $170.10 in 2022.
- • A typical beneficiary does not have an added charge for prescriptions (Part D) except for their plan premium offered through private insurance companies.
Social Security assesses IRMAA on your modified adjusted gross income claimed on your tax return two years prior. For example, a couple reporting less than $183,000 on their 2020 MAGI pays $170.10 each for Part B, but they pay no additional cost for Part D. A couple making between $182,000 to $228,000 will pay $238.10 per month for Part B and $12.40 per month for Part D, totaling $250.50. See the IRMAA sliding scale below to match your income level.
The impact of the IRMAA is essential to understand when considering joining Medicare versus leaving employer coverage. Timing your retirement as it relates to your health insurance takes some planning. According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, the average monthly premium for employer-sponsored health insurance was $622.50 for employee-only coverage. Employers must pay 50% of their employee’s medical coverage. Often, employers further compensate highearners by paying the total price of the employee-only premium. To a beneficiary considering retirement, the cost of IRMAA may seem high yet is comparable to the same total benefit received when an employer is paying the entire premium. Therefore, choosing whether to pay the Medicare premium is entirely a choice of when you prefer to retire – not a loss of the total benefit.
Putting the employer comparison aside, and once Original Medicare is in place, it is beneficial to purchase a supplement to offset the costs that are not covered –80% as well as prescription drug coverage. If drug coverage is not purchased as you become eligible, you may pay a lifetime penalty once you buy the coverage. Penalties are for another discussion.
While this sounds daunting, a seasoned Medicare expert can assist you in preparing for the medical aspect of your retiree budget. The adage of know before you go is also true as you “age into Medicare.” Understanding if you will need to pay IRMAA and how much that premium will be is vital in your decision to join Medicare. Make sure you are working with a confirmed, reputable insurance broker to guide you in decision-making. The chart below shows how IRMAA amounts for Medicare Part B and Part D premiums in 2022.
About Dayna Schafer
Dayna is a Certified Medicare Insurance Planner™ a member of the National Association of Health Underwriters (NAHU), and a member of the Rise Community. Her agency, located in St. Petersburg, FL and newly expanding to Homosassa, Fl where she has helped thousands of individuals and Medicare beneficiaries understand their benefits.’ Previously, a director of human resources, Dayna understands the many phases of insurance purchases her clients go through. She feels the complexity in the needs of everyone she works with, and the need for quality, reliable guidance. To relentlessly seek out the right fit for her client’s healthcare needs, Dayna certifies with 10 insurers.