Medicare is the health insurance program devised to help citizens aged 65 or older cover their medical costs. The program is also open to younger individuals with disabilities and end-stage renal disease.
Over 60 million Americans are enrolled in Medicare, and with hundreds becoming eligible for the program every day, the big question for most is what premiums you can expect to pay.
As a result of spiraling healthcare costs, advancing medical equipment, and longer life expectancy, it’s normal for Medicare costs to increase year on year gradually.
In 2022, enrollees can expect to see another rise in premiums and out-of-pocket costs.
The Medicare premium is the recurring monthly payment for the health benefits you are receiving. Medicare consists of several parts, with the most prominent being:
Medicare Part A covers in-patient hospitalization of a beneficiary. It provides skilled nursing facilities and other related health services. It is financed predominantly through payroll taxes.
Medicare Part B medical insurance caters to those not admitted by general medically necessary needs like doctor’s office visits, lab work, and x-rays, to name a few. Premiums and federal reserves finance part B.
Medicare Part D is specifically for prescription drug coverage and is a popular option for those reliant on drug usage for health reasons.
Medicare Part A is premium-free if the enrollee or their spouse worked 40 calendar quarters (10 years) in any job where you paid Social Security taxes in the U.S. Individuals who worked below 40 calendar quarters are not eligible for premium-free coverage and must pay Medicare Part A premiums.
The Medicare Part A inpatient hospital deductible that beneficiaries will pay when admitted to the hospital will be $1,484 in 2021, increasing $76 from $1,408 in 2020.
The Medicare Part A premium is dependent on the number of quarters the individual has worked in their lifetime. According to cms.gov, 99% of Medicare beneficiaries do not have a Part A premium, as they have at least 40 quarters of Medicare-covered employment.
Although Medicare Part A helps enrollees cover medical bills, deductibles and coinsurances must be paid by the enrollee.
In 2021, the deductible amount for Medicare Part A has risen to $1,484, increasing $76 from $1,408 in 2020. Likewise, the coinsurance amount for hospital stays and skilled-nursing facilities has seen a steady increase:
Although most Medicare enrollees do not pay any premium for Medicare Part A, those who do not qualify for premium-free Part A can face a late enrollment penalty if they do not enroll on time.
If you do not enroll in Medicare Part A when first eligible, your monthly premium may increase by 10%. This higher premium will be enforced for twice the number of years you didn’t sign up. For example, if you failed to sign up for three years, you’ll need to pay a higher premium for six years.
Unlike Medicare Part A, Medicare Part B requires a monthly premium from all enrollees. This premium is based on the beneficiary’s monthly income, meaning individuals in different income brackets pay varying premiums.
In 2022, the Centers for Medicare and Medicaid Services revealed an increase in Medicare Part B premiums and Medicare Part B deductibles.
The Medicare Part B premium is the monthly fee enrollees must pay – a figure that fluctuates depending on the income bracket they fall into.
The standard monthly premium for Medicare Part B enrollees was $148.50 for 2021, increasing $3.90 from $144.60 in 2020.
Alongside the monthly premium, enrollees are required to pay deductibles and coinsurances.
The annual deductible for all Medicare Part B beneficiaries is $203 in 2021, rising $5 from the annual deductible of $198 in 2020. This means individuals must pay $203 in fees before Medicare Part B covers outpatient services.
Once you meet that deductible, you will typically pay 20% coinsurance for covered services.
If you enroll in Part B after you have passed the Initial Enrollment Period, the monthly premium is multiplied by 10% for every 12 months you miss the deadline.
For example, if you delay signing up for six years, your monthly premium would be 60% higher for as long as you have Medicare. So, for the Part B premium in 2022 ($144.60), your monthly premium with the penalty will be $231.36 ($144.60 x 60% + $144.60).
According to the Kaiser Family Foundation, between 2020 and 2021, total Medicare Advantage enrollment grew by about 2.4 million beneficiaries. Medicare Advantage plans are purchased through private health insurance providers, so any increase in costs in 2022 will vary from plan to plan. It is best to check with your provider for updates to your Medicare Advantage premium rates.
In September, CMS is set to release the final 2022 premium and cost-sharing information for 2022 Medicare Advantage and Part D plans.
Unlike Medicare Part A and B, Medicare Part D plans are run by private insurance companies. This means the insurance companies themselves decide the monthly premiums, and certain insurers might choose to increase their rates more than others.
However, the federal government does set strict guidelines on how much you can be charged.
Although Medicare Part D premiums vary from plan to plan, there is standardization in how much insurers can charge if your annual income is above a certain amount.
If your income is over a certain amount, you may need to pay an income-related monthly adjustment amount (IRMAA) on top of your plan’s premium.
The Centers for Medicare and Medicaid Services has released projections for average basic monthly premiums for standard Medicare Part D coverage in 2022, which the agency expects will be about $33, a 4.9% increase from the $31.47 average premium in 2021.
“Today’s announcement follows the release of the Contract Year 2022 MA and Part D Final rule on January 15, 2021 that includes additional policies applicable to coverage for the 2022 plan year and will potentially lower beneficiary cost sharing on some of the most expensive prescription drugs,” said the Centers for Medicare & Medicaid Services in a press release, published in January, 2021. “This earlier release of the Rate Announcement, along with the policies announced in the 2022 MA and Part D Final Rule, will help Medicare Advantage and Part D plans better plan for 2022 plan costs, in light of the uncertainty associated with the COVID-19 pandemic.”
In 2022, the maximum deductible a private insurance company can set for a beneficiary is $480. This is the figure Medicare Part D enrollees must spend in out-of-pocket costs before their drug coverage starts.
The late enrollment penalty is a figure added to your Medicare Part D monthly premium if you go without Part D coverage or Medicare Advantage for 63 or more continuous days.
The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage. For each month you go without Medicare Part D coverage, 1% of the “national base beneficiary premium” ($33.06 in 2021) is rounded to the nearest $.10 and added to your monthly premium.
Your monthly Part A and Part B premium are tax-deductible. If premiums are deducted from your Social Security check, the payments will be removed from your taxes.
Additionally, medical services not covered by Medicare (vision care, nursing home care, and dental treatment), added insurance supplements, and out-of-pocket costs are also allowed deductions. Even expenses for hospital travel and medically necessary equipment in the house can be deducted from your taxes.
However, there is one catch.
A taxpayer can deduct medical expenses (premium included) only if the costs exceed 7.5% of adjusted gross income (AGI). Expenses incurred within 7.5% of AGI are not eligible for a tax deduction.
For example, if your AGI is $40,000 and you have $5,000 in medical expenses, you can include $2,000 of medical expenses in your itemized deductions. 7.5% of $40,000 is $3,000, meaning the $2,000 medical expense costs exceeding this threshold are tax-deductible.