A Primer on Medicare: Key Facts About the Medicare Program and the People it Covers
How much do beneficiaries pay for Medicare benefits?
Medicare has varying premiums, deductibles, and coinsurance amounts that can change annually to reflect changes in program costs. Taken altogether, Medicare has relatively high cost-sharing requirements for covered benefits and, unlike typical large employer plans, traditional Medicare does not place a limit on beneficiaries’ annual out-of-pocket spending. (See Appendix 1: Medicare Benefits and Cost-Sharing Requirements, 2015)
- Most beneficiaries do not pay a monthly premium for Part A services, but are required to pay a deductible before Medicare coverage begins. In 2015, the Part A deductible for each “spell of illness” is $1,260 for an inpatient hospital stay.
- Beneficiaries are generally subject to coinsurance for Part A benefits, including extended inpatient stays in a hospital ($315 per day for days 61-90 and $630 per day for days 91-150 in 2015) or skilled nursing facility ($157.50 per day for days 21-100 in 2015). There is no coinsurance for days 1-60 of an inpatient hospital stay or days 1-20 of a skilled nursing facility stay, and there is no cost sharing for home health visits.
- Beneficiaries enrolled in Part B are generally required to pay a monthly premium ($104.90 in 2015).
- Beneficiaries with annual incomes greater than $85,000 for a single person or $170,000 for a married couple in 2015 pay a higher, income-related monthly Part B premium, ranging from $146.90 to $335.70. The income amounts that are used to determine who pays the income-related premium and how much they will pay are fixed at their current levels through 2019. Approximately 5 percent of all Medicare beneficiaries paid the income-related Part B premium in 2014.
- Part B benefits are subject to an annual deductible ($147 in 2015), and most Part B services are subject to coinsurance of 20 percent. No coinsurance or deductible is charged for the annual wellness visit or for preventive services that are rated ‘A’ or ‘B’ by the USPSTF.
Part C (Medicare Advantage):
- Medicare Advantage plan enrollees generally pay the monthly Part B premium and many also pay an additional premium directly to their plan.
- Medicare Advantage plans are required to place a limit on beneficiaries’ out-of-pocket expenses for Medicare Part A and Part B covered services ($6,700 in 2015). This limit is not applied to beneficiaries in traditional Medicare, nor is it applied to out-of-pocket expenses for prescription drugs covered under Part D. (See What is Medicare Advantage? for additional information.)
- In general, Part D enrollees pay a monthly premium, along with cost-sharing amounts for each brand-name and generic drug prescription; premiums and cost sharing vary by plan.
- Part D enrollees with higher incomes ($85,000 for a single person and $170,000 for a couple) pay an income-related monthly adjustment amount in addition to the monthly premium charged by their Part D plan. As with the Part B income-related premium, the income thresholds that determine who pays higher premiums for Part D coverage are fixed at current levels through 2019. (See What is the Medicare Part D prescription drug benefit? for additional information.)
Many people who are covered under traditional Medicare obtain some type of private supplemental insurance (such as Medigap or employer-sponsored retiree coverage) to help cover their Medicare cost-sharing requirements.
Supplemental insurance coverage can help beneficiaries pay their out-of-pocket costs for Medicare-covered services. Even with supplemental insurance, however, beneficiaries can face out-of-pocket expenses in the form of copayments for services including physician visits and prescription drugs as well as costs for services not covered by Medicare. Also, premiums for these policies can be costly: beneficiaries with Medigap supplemental policies generally pay higher premiums than those with employer-sponsored retiree health coverage. Moreover, while Medicaid, the Medicare Savings Programs (MSPs), and the Part D Low-Income Subsidy (LIS) program help to shield low-income beneficiaries from Medicare premiums and other out-of-pocket costs, not all low-income people on Medicare qualify for these programs. (See What types of supplemental insurance do beneficiaries have? for additional information.)
Many beneficiaries face significant out-of-pocket costs for both premiums and non-premium expenses to meet their medical and long-term care needs.
The burden of out-of-pocket spending for health care expenses is three times larger for Medicare households than non-Medicare households (Figure 5). In 2010, Medicare beneficiaries spent $4,745 out of their own pockets for health care spending, on average, including premiums for Medicare and other types of supplemental insurance and costs incurred for medical and long-term care services (Figure 6). Premiums for Medicare and supplemental insurance accounted for 42 percent of average total out-of-pocket spending among beneficiaries in traditional Medicare in 2010.
Of the remaining 58 percent of average total out-of-pocket spending on services, long-term facility costs are the largest component (accounting for 18 percent of total out-of-pocket spending), followed by medical providers/supplies (14%), prescription drugs (11%), and dental care (6%).
Out-of-pocket spending varies by beneficiary characteristics, including age, sex, and health status. Not surprisingly, more extensive use of services leads to higher out-of-pocket spending.
Spending on medical and long-term care rises with age among beneficiaries ages 65 and older and is higher for women than men, especially among those ages 85 and older (Figure 7). Beneficiaries’ health status and chronic conditions also are significant drivers of out-of-pocket spending, with average out-of-pocket spending on services rising as beneficiaries’ health status declines, and rising with the number of functional impairments and chronic conditions. Out-of-pocket spending is also higher among beneficiaries who have multiple hospitalizations and post-acute care use and those who live in long-term care facilities. These differences are driven primarily by variation in average spending on medical and long-term care services, rather than by variation in premium spending.1
Analysis of ‘high out-of-pocket spenders’ finds a disproportionate share of certain groups in the top quartile and top decile of total out-of-pocket spending (including both services and premiums).
In 2010, one in four beneficiaries spent at least $5,276 out of pocket on medical and long-term care services and premiums (the top quartile), and one in ten spent at least $8,292 (the top decile). Average total out-of-pocket spending among the top quartile—$11,501 in 2010—was more than twice as much as the average among all beneficiaries ($4,745), while among the top decile, it was four times as much ($19,103). Long-term care facility costs are a major component of spending for beneficiaries in the top quartile of total out-of-pocket spending. This group of ‘high out-of-pocket spenders’ includes a disproportionate share of older women, beneficiaries living in long-term care facilities, those with Alzheimer’s disease and ESRD, and beneficiaries who were hospitalized.2