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Not Just Premiums: 75% of Medicare Beneficiaries Say They’re Worried About Uncapped Out-of-Pocket Costs for Care

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As retirees look into the future, many are worried about the rising costs of health care. (In fact, it’s a topic we wrote about here on the Blog just last week.)  Now this week we’ve come across another article on the subject of health care costs, this one appearing on the CNBC website, written by reporter Sarah O’Brien. According to the article, new research reveals just what it is about rising health care prices that worries most retirees – and it’s not premiums.

No, for three-fourths of Medicare beneficiaries, their biggest fear is how to afford potentially-uncapped out-of-pocket costs. People are still worried about rising premiums, to be sure, but the number is far smaller – about 43 percent. The worry about out-of-pocket costs becoming out of control seems justified, the article implies, since basic Medicare (Parts A and B) has no out-of-pocket maximum. For that matter, neither does Part D (prescription drug coverage) under current law, but that’s changing in 2025.

Health Care Costs Present the Greatest Risk

“For retirees,” O’Brien begins, “health-care costs can be among the most unpredictable expenses they face over the course of their golden years. While many of them worry about affording their monthly Medicare premiums, their bigger concern is their out-of-pocket costs, according to a recent 14-page report from eHealth.

According to the eHealth analysis, 75 percent of respondents said they are either “very” or “somewhat” worried about affording those out-of-pocket costs, which include deductibles, copays and coinsurance. “That compares with 43 percent who worry about their ability to pay their premiums,” says O’Brien. The eHealth report is based on a February survey of more than 4,500 Medicare beneficiaries.

We were curious how many Medicare beneficiaries have no supplemental coverage, so we checked out this 2021 analysis from the Kaiser Family Foundation. The report goes back a few years, but it revealed that roughly 1 Medicare beneficiary in 10 – 6.5 million people based on today’s numbers – “were covered under traditional Medicare with no supplemental coverage, which places them at greater risk of incurring high medical expenses or foregoing medical care due to costs.” That’s no small number of seniors in financial jeopardy.

Basic Medicare Has No Out-of-Pocket Limit

The vulnerability of relying only on basic Medicare may come as a shock to some beneficiaries. That’s because, as O’Brien states bluntly, “If you have only basic Medicare, there is no cap on what you might spend in any given year.”

There are options for supplemental coverage which we’ll discuss below – and most beneficiaries take advantage of some form of protection. But as noted above, millions do not. “With no secondary coverage, there is no out-of-pocket maximum, which leaves a beneficiary financially exposed,” Medicare insurance broker Elizabeth Gavino told CNBC’s O’Brien.

Several Coverage Options Put a Lid on Out-of-Pocket Costs

“Exactly how much you spend on Medicare depends on both your coverage choices and your use of the health-care system. However, you may be able to pinpoint a worst-case scenario to help you budget,” O’Brien suggests.

Coverage starts with what’s termed “basic” Medicare (also called “original” Medicare) which consists of Part A (hospital coverage) and Part B (outpatient care). This hugely popular program covers about 65 million people, mostly seniors 65 or older, although some 7.7 million are younger beneficiaries who are permanently disabled.

The two most common options to supplement Medicare are Medicare Advantage plans and Medigap plans. Most Medicare Advantage plans include some form of prescription drug coverage and typically offer other extras such as dental and vision. Premiums, deductibles, and copays vary from plan to plan, since these are offered by private insurers. But there are two elements common to all MA plans: they limit which doctors you can see (the bad news) and they also limit how much you pay out of pocket each year for covered services (the better news).

While about half of Medicare beneficiaries opt for Medicare Advantage, thanks to aggressive marketing, millions of others choose to pair Parts A, B, and D coverage with a Medigap plan. This is the option preferred by many experts, including Rajiv Nagaich, because coverage is available from any doctor, hospital, or clinic that accepts Medicare. Premiums can be pricey, depending on where you live and what coverage you buy, but out-of-pocket costs are capped, if not paid entirely. Some Medigap plans cover copays and coinsurance entirely.

When You’re Hospitalized, the Meter is Running

One medical cost that can quickly get out of hand is the bills that come with hospitalization. As O’Brien explains, your Medicare Part A coverage (for which you generally pay no premium) will charge you a deductible, currently $1,600, when you are admitted to the hospital.

“That covers the first 60 days of inpatient care in a benefit period,” O’Brien writes. “Days 61 through 90 come with coinsurance of $400 per day, and then it’s $800 daily beyond that (so-called lifetime reserve days). And for skilled nursing facilities, a daily coinsurance of $200 kicks in for days 21 through 100.”  Yes, it’s confusing, but it’s also expensive, unless you have supplemental coverage to limit your out-of-pocket costs.

Many Medigap plans will cover all or most of those hospitalization costs, says the CNBC article. With Advantage Plans, it’s a bit more complicated. O’Brien spoke with Danielle Roberts of the firm Boomer Benefits who explained that, because the cost-sharing differs from plan to plan, “they will all vary but at least their hospital spending would count toward the plan’s out-of-pocket maximum, meaning it would be capped.” Roberts explained that maximums for MA plans can be as high as $8,300 for in-network coverage, but there are “good plans with considerably lower limits,” some in the $3,000 or $4,000 range.

When it Comes to Part B Copayments, “The Sky is the Limit”

Hospitalization only represents one danger of high medical copays. If you’re among the millions with no supplemental insurance, the ongoing medical treatments paid for under Medicare Part B can create a huge uncapped liability, O’Brien warns.

“Part B — which comes with a standard monthly premium of $164.90 in 2023 — has a deductible of $226,” she explains. “But after that, you pay a 20 percent coinsurance for covered services with no cap on how high that goes.” In practical terms, says Danielle Roberts of Boomer Benefits, “It means the sky is the limit on the 20 percent coinsurance.”

Roberts adds, “Imagine trying to cover 20 percent of eight weeks of chemotherapy or for dialysis for the rest of your life or until you get a transplant. In my opinion, this is the most important thing that you want to get covered.” Supplemental insurance is the best protection against skyrocketing costs, Roberts told O’Brien. “Both Medigap and Medicare Advantage Plans do a good job of this, since most Medigap plans cover the 20 percent [coinsurance] and Advantage Plans have caps on Parts A and B spending,” she said.

Prescription Pain: Part D Out-of-Pocket Costs Currently Uncapped

For people on expensive prescriptions, the news just gets worse. “Under current law, there is no out-of-pocket limit associated with Part D,” O’Brien warns, “regardless of whether you get your coverage as a standalone policy or through an Advantage Plan.” Part D deductible alone can be up to $505 in 2023, no matter how you get the coverage. 

She adds that there is some relief under Part D: these plans come with catastrophic coverage that kicks in once out-of-pocket expenses reach $7,400 in a given year, according to Roberts. After hitting that threshold, “you pay only a small coinsurance or copayment for covered drugs for the rest of the year,” she said.

But there’s hope on the horizon. New regulations stipulate that, starting in 2025, annual out-of-pocket spending for each beneficiary under Part D will be capped at $2,000. This is important for those with Medigap coverage, because, unlike Medicare advantage, these plans do not cover any Part D costs.

The bottom line: don’t assume that your Medicare coverage alone will protect you against uncapped out-of-pocket costs. We urge you to seek good advice from someone who knows the ins and outs of Medicare who can recommend the right supplemental coverage for you.

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at www.cnbc.com)

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