Patricia Barry - Medicare For Dummies

All stand-alone Part D plans charge monthly premiums. The amounts vary among plans, ranging from $12.20 to a high of $76.40 a month in 2020, with most charging around $32 a month. Most Medicare Advantage plans combine both health and drug services under one premium, but some charge no premiums at all. Both types of plans can change their premiums every calendar year.

You can’t be charged more than a certain amount in any one year for the annual Part D deductible, whether you’re enrolled in a stand-alone plan or a Medicare Advantage plan. In 2020, the maximum deductible was $435 ($415 in 2019). But many plans charge lower amounts or, in some cases, nothing at all.

Two factors determine your Part D co-pays:

The amount your plan charges for each specific drug you take: Flat dollar co-pays stay the same all year, but those that are percentages of the cost of the drug can fluctuate throughout the year as the full price goes up or down. (I explain how plans determine co-pays in Chapter 14.)

Which phase of coverage applies to you in Part D’s annual cycle: Are you in the deductible, initial coverage, doughnut hole, or catastrophic coverage phase when you fill prescriptions at different times of the year? (I explain the four phases of Part D coverage in Chapter 2.)

Part D plans can change the co-pays they charge for each drug every calendar year. And co-pays vary widely among different plans, even for the same drug. Both of these issues are good reasons to carefully compare plans each year to ensure you get the best deal. I explain how to do so in Chapter 15.

Part D doesn’t place a flat cap on your drug expenses in any one year, but you do get some relief if your costs rise over a certain level during the year. When that happens, catastrophic coverage kicks in, meaning that your drugs cost far less — no more than 5 percent of the full cost — until the end of the calendar year. However, to qualify for catastrophic coverage, you must spend quite a bit out-of-pocket, as I explain in Chapter 2.

Under the Medicare Advantage program, you can choose to receive your Medicare benefits through a private health plan, such as an HMO or a PPO, as an alternative to traditional Medicare. If you enroll in a Medicare Advantage plan, you must accept its terms, conditions, and specific costs.

Most plans require a monthly premium, always in addition to the one you pay to the government for Part B services. The average number of Medicare Advantage plan choices increased from some 33 plans in 2019 to 39 plans in 2020. Plan premiums range from zero to more than $300 a month. Yes, that’s right, from zero — $0 a month. Low premiums don’t mean that these plans are inferior; usually it’s because they’re offered in dense urban areas where competition is fierce and they want your business. In 2020, average monthly premiums decreased 14 percent to $23 from $26.87 in 2019.

Most Medicare Advantage plans don’t charge annual deductibles of their own for medical services, apart from the standard Part B deductible. However, some do; the average Medicare Advantage deductible was $1,408 in 2020. Plans that include prescription drug coverage in their package of benefits may charge an annual Part D drug deductible up to a certain limit ($435 in 2020), but some charge less and some charge none. Most Medicare Advantage plans don’t charge a deductible for hospital stays.

In Medicare Advantage plans, co-pays are very different from those in traditional Medicare:

You may pay a flat dollar co-pay for each medical service rather than a percentage of the cost. For example, a plan may charge $25 to see a primary-care doctor and $35 to see a specialist instead of charging traditional Medicare’s 20 percent. However, co-pays based on percentages are becoming more common in Medicare Advantage plans.

Co-pays vary enormously from plan to plan and, within a plan, can change from year to year, but the amount you’re charged in January for any specific service can’t be increased for the rest of the year.

Some types of plans, especially PPOs, charge higher co-pays if you go to doctors and other providers outside of their contracted networks.

Most plans don’t charge a fixed deductible for a hospital stay as traditional Medicare does but instead charge daily co-pays that vary greatly from plan to plan. This arrangement may or may not work out less expensively than a fixed deductible, as I discuss in Chapter 11.

Plans that offer routine vision, hearing, and/or dental care as extra benefits either charge co-pays for these services or offer them as optional packages that you can get only by paying a separate premium.

Medicare Advantage plans can’t charge you more than traditional Medicare for some services, such as chemotherapy treatment for cancer, dialysis for kidney failure, and medical equipment.

Medicare Advantage plans, unlike traditional Medicare, are required to set annual limits on the expenses (deductibles and co-pays) for covered services that people enrolled pay each year. Limits can depend on the type of plan and whether the cost is in network or out of network. Contact your plan for details.

For most of its history, Medicare had no means-testing; everybody paid the same premium for its services. Even today, nobody is denied Medicare coverage on the basis of being wealthy. But since 2007, as a result of the 2003 Medicare Modernization Act, people with incomes over a certain level have been required to pay higher premiums for Part B. And under the 2010 Affordable Care Act, those same people must pay more for Part D, too.

Looked at another way, it means that people who pay these higher premiums are receiving a smaller subsidy from the federal government for their health care. The feds provide a hefty chunk of money toward Part B and Part D services out of general revenues (that is, taxpayer dollars) — about 75 percent of the actual costs — while beneficiaries as a whole contribute about 25 percent through premiums. So the rationale for the higher-income surcharge was based on fairness; surely wealthier people can and should pay more than 25 percent of the cost of their Medicare.

Most people, of course, don’t pay the higher premiums. Nonetheless, the income cutoffs aren’t so high that they affect only millionaires. So you need to know whether you’re likely to be asked to pay the surcharge — and what you can do about it if you are and think it’s unwarranted. The following sections examine those issues in detail.

You’re required to pay higher premiums for Part B and Part D services if your modified adjusted gross income (MAGI), as shown on your latest federal tax return, say 2019, is greater than $87,000 (if you’re a single person) or $174,000 (if you’re married, living together, and filing joint returns).