The Unexpected Costs of Medicare
With a little planning, seniors on Medicare can minimize their out-of-pocket expenses.
Seniors can save hundreds – or even thousands – on Medicare costs through careful planning.
Created in 1965, Medicare was intended to answer growing reports of impoverished seniors languishing or dying because they lacked health insurance. Since then, Medicare has acquired a reputation as the ultimate government entitlement, a system of low-cost, taxpayer subsidized health care provided at the stage in life when retirees need it most.
But the broad-reaching health care insurance system comes with costs that many seniors – including those already using the plan – don't see until the bills show up. Those out-of-pocket expenses, according to experts, can range from hundreds of dollars in monthly premiums and office visit copays to six-figure bills for surgery and hospitalization for things like joint-replacement operations, a procedure common among older Americans.
Those costs, which add up quickly, can stress or even break a household budget, particularly for retirees getting by on fixed incomes. Even declining to sign up for Medicare when you first become eligible, experts say, can cause a lot of pain in the wallet later on.
"A lot of people looked at Medicare as this Promised Land – 'Everything is covered, until the end of time,'" says Nicole Duritz, vice president of health education and outreach for AARP, a nonprofit advocacy group. "I don't think people have a great understanding of how the system works. They're surprised at how much they'll have to contribute."
Compared to individual or group health insurance plans, "Medicare is unique in that it has no out-of-pocket spending limits," says Nancy Metcalfe, a health policy analyst at Consumer Reports.
That's because Medicare plans are typically private health insurance policies that are government-subsidized. Nothing is completely covered, and no expense is 100 percent paid for. Though the subsidies paid to the insurance companies help keep costs low for seniors, the plans vary and usually require beneficiaries to pay some premiums.
There's good news, however: Metcalfe and others say a little planning, homework and realism can go a long way toward helping Medicare consumers keep more of their hard-earned money in their pockets.
That means seeing past the monthly premium payment to take a hard look at what may be some uncomfortable things – including a realistic assessment of your finances, anticipating how healthy you'll be during your sunset years and choosing what services you might need in a worst-case scenario.
Updated on Oct. 15, 2014: This article was originally published on Oct. 18, 2013 and has been updated to reflect new costs.
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