How Medicare Costs Can Pile Up

By Daniel Petkevich

Oct 11, 2022

Copy Link

An in-depth look at different scenarios leading to devastating bills

Know Your Options

Door 1 - Original Medicare: Parts A & B

• You are responsible for the Part A Deductible of $1,600 per 60 day benefit period for Hospital Coverage, the Part B Monthly Premium of at least $164.90 depending on your income, and 20% Coinsurance (Medicare will cover the 80%) for Medical Coverage.
• You can visit any hospital that accepts Medicare. 
• OM is the bare-bones package. Maybe you have a retirement health insurance plan that can pay secondary. If you go with this option, you are essentially paying the least upfront while leaving yourself most exposed to potential risks. 
• Drug Plan (Part D) is not included; it can be purchased separately.

Door 2 - Medicare Advantage

• You might have low or no monthly premium with some plans, but you will be responsible for the Maximum Out-of-Pocket Costs which are stipulated by your insurance carrier for each year you are on the plan. 
• There are two types of plans:
  • HMO - in-network only. If you pursue care outside their network, you will pay the cost totally out-of-pocket. 
  • PPO - you can pursue out-of-network medical services but you may pay a higher cost-share.
• No underwriting is required to change into Medicare Advantage. However, if you want to switch to a Medigap Plan, you need to go through underwriting if you don’t switch within your first year of eligibility.
• Drug Plan (Part D) is included.
• Medicare Advantage plans are often referred to as the Pay As You Go option. You will still have your Part B premium from Original Medicare; you will receive the same coverage as Original Medicare with some potential added benefits of vision, dental, and other services.

Door 3 - Medigap (also known as Medicare Supplement)

• You pay an additional monthly premium, but you don’t have any out-of-pocket costs on many plans. For this article, we’ll consider the most common Medicare Supplement: Plan G.
• You can visit any provider or hospital that accepts Medicare.
• In many cases, no underwriting is required to sign up. However, as mentioned earlier, you might need to go through underwriting if you are switching into this plan. We’ll talk through an example later about how this might play out, but what’s important to know is that it’s harder to join this plan later.
• Drug Plan (Part D) and other ancillary benefits are purchased separately.

The Common Catastrophe

Door 1 - Original Medicare

• This person thought they didn’t need to consider other forms of coverage since they were totally healthy. Maybe they had planned to spend more on healthcare and get better coverage as they entered their 70s or 80s, but they did not anticipate needing this much coverage so suddenly.
• Instead, they’re trying to make it through winter with only

  a hat and gloves

  . 
• Immediately after their fall, they are admitted as an inpatient to the emergency room; they pay the $1,600 deductible.
• This might seem like a manageable cost given the severity of a broken hip, but think of all of the potential complications of such a significant injury.
• They have surgery, physical therapy, nerve blocks for pain, and more. They would have to pay 20% coinsurance for all of the costs outside of the inpatient hospital admission. 
• After a few months, they elect to get hip replacement surgery. That’s another deductible of $1,556 since the benefit period is reset after 60 days from the first accident. Plus the 20% coinsurance of all the rehab and pain associated costs again. You can see how these costs will pile up. And with only Original Medicare, there is no Out-of-Pocket maximum to protect them.

  • From a 2018 study, the average cost of receiving treatment for a hip fracture is $40,000

    . They might be on the hook for at least 20% of that.
• How much does this cost over 2 years? 
  • Part A - $1,600 deductible + $1,600 deductible  = $3,200 
  • Part B - 
    • $226 deductible ($226 in 2023) × 2 = $452
    • $164.90 premium × 24 = $3,957.60
    • 20% of $40,000 = $8,000
  • Total = $15,609.60

Door 2 - Medicare Advantage

• This gives them more coverage than just Original Medicare, but they might still be leaving themselves exposed.
• Let’s say they picked an HMO plan because that was the cheapest option, and their PCP was in-network.
  • If they set up their Medicare Advantage plan in Florida, but break their hip in New York, all non-emergency services (like physical therapy, a follow up with the orthopedic surgeon, even the person reading the X-Ray results to the patient) will be out-of-network and not covered. They could still get in network coverage, but it would likely require getting on a plane with a recently surgically repaired hip. Sounds unpleasant.
  • If they wanted one specific doctor to fix their hip who happened to be out-of-network, they might have to pay the total cost out-of-pocket.
• A PPO plan gives them more flexibility to see someone out of their network if they are traveling. They will have their hard cap on spending with the yearly Out-of-Pocket Maximum, which will depend on their choice of plan.
• How much does this cost over 2 years?
  • Monthly Premium of $164.90 × 24 = $3,957.60
  • A realistic scenario with an ambulance ($300), 5 day hospital stay ($300 per day for first week), weekly physical therapy ($10 copayment), monthly specialist visits ($35 copayment), and monthly primary care visits ($10 copayment) will have them spending ($300 + $1500) + (104 × $10) + (24 × $25) + (24 × $10)
  • Total = $1800 + $1,040 + $840 + $240 = $3,920 + $3,957.60 = $7,877.60
  • A worst-case scenario will see them hit Max. Out-of-Pocket Cost of $5,500 per year × 2 = $11,000
  • Total = $14,957.60

Door 3 - Medigap (Specifically, Plan G)

• They picked the plan with the higher monthly premiums, but it might save them money in the long run by avoiding out-of-pocket costs. 
• Because they signed up for Medigap during their first window of eligibility, they didn’t have to go through Medical Underwriting which could deny them coverage or raise their premium.
• Medigap is the option that might cost the most on a monthly basis, but might also give them the most flexibility moving forward. 
  • They can see any doctor that accepts Medicare, there are no networks to fuss over.
• They have minimal or no out-of-pocket costs except monthly premiums. 
• Since they signed up for Plan G, they are also covered against Excess Charges, which can be up to 15% above what Medicare allows for a service.
• How much does this cost over 2 years?
  • Monthly Premium ($164.90 + $115) × 24 = $6,717.60
  • Annual Part B Deductible of $226 × 2 = $452
  • Total: $7,169.60

Making Your First Call the Right Call

Seeking Care Outside Your Network

Right Place, Right Time

• For Part B, 10% of your premium for each year you’re without coverage.
• For Part D, 1% of your premium for each month you’re without coverage.

Conclusion

• Your plan should fit your budget, risk preference, coverage needs, and your lifestyle.
• Evaluate if you should stick with the plan you are currently committed to, or if you can switch to a potentially better fit plan.
• You can switch plans annually, but your first choice of Medicare plan is crucial as it can close some doors.