Understanding Medicare Cost-Sharing
What is Medicare Cost-Sharing?
When you use Medicare, you share the cost of your care by paying premiums, deductibles, copayments, co-insurance, and out-of-pocket maximums. If you receive a paycheck, part of your check will be set aside for Medicare. You pay for the program when you work and pay again when you use it.
When you sign up for Medicare, you will have to choose which parts to use. Part A, hospital coverage, is what you’ve been paying for with your Medicare deductions from paychecks. If you have not contributed enough, you may have to pay for Part A. Part B, which covers doctors and outpatient services also has a cost; this is taken out of your Social Security payment provided you have spent enough quarters paying into the system. Once you have Parts A and B, you can either buy original Medicare with its supplements or buy a Medicare Advantage Plan.
You need to consider the premium cost of any Medicare or Medicare Advantage plan as well as how much it will you cost to use it when you are sick. The cost to use the plan includes the cost of deductibles, copayments, co-insurance, and the out-of-pocket maximums specified by your contract.
See KFF’s Medicare’s Income-Related Premiums Under Current Law and Proposed Changes for specific premium amounts and projections.[1]
There is no way to predict what the future holds for any of us, so you always need some guesswork to decide out how much to pay for medical insurance and balance it against the other cost-sharing provisions of your plan. Premiums are only one piece of the puzzle.
We Explain Cost-Sharing Terms.
Cost-Sharing includes your cost of premiums, deductibles, copayments, co-insurance, and out-of-pocket maximums. You share the cost of your medical services with your insurance company. Your share is your responsibility and will come out of your pocket unless you are a disabled or low-income elderly person who qualifies for both Medicare and Medicaid.
Premiums are payments for your insurance policy. Medicare Part A is free if you have enough earned quarters of Social Security income. All other Parts of the insurance program cost money. Many people have Part B, which provides doctor’s visits and outpatient care, deducted automatically from their Social Security payments. The other costs of original Medicare, with or without a Medigap plan, or of Medicare Advantage plans need to be paid out of pocket.
Deductibles are the amounts you pay out-of-pocket before your plan starts paying its share.
Copayments are fixed amounts you pay before your plan pays the rest. For example, you might pay $30 to see your primary care doctor, $45 to see a specialist, and a fixed amount for a prescription based on the drug formulary of your policy.
Coinsurance is the percentage of your medical bill that you are expected to pay out-of-pocket. For example, you may have to pay 20% of the bill for a covered service while your plan pays 80%.
Out-of-Pocket Maximums are amounts you agree to in your insurance contract as being the limit of what you will pay per year for covered services. Once you reach that amount, your plan agrees to cover all other covered services for the rest of the year.
