About 10,000 Americans turn 65 every day. Many could soon leave the workforce and claim Medicare benefits that they believe they are entitled to after paying Medicare taxes for decades to the workforce.
But they could be in a rude awakening. Medicare is not free. Those approaching retirement must prepare for this reality. Even after paying tens or hundreds of thousands of dollars in Medicare taxes throughout their careers, beneficiaries spend thousands of dollars more each year on coverage during retirement.
This coverage does not always guarantee them timely access to the doctors or specialists they would like to see. It is not uncommon for seniors to increasingly opt for privately administered Medicare Advantage plans, which often offer more value than the conventional government-administered Medicare program.
People start paying for Medicare long before they grow up. To fund certain parts of the program, the government charges a 2.9% payroll tax. Technically, workers pay half and employers pay half. But financially, it’s all compensation for the employee, so everything comes out of the employee’s payroll. People with high incomes pay an additional 0.9% Medicare surcharge.
That money adds up. According to the Urban Institute, an individual who is now 20 years old and earning less than $ 23,400 a year will pay $ 60,000 in Medicare taxes when he or she turns 65. If that same person earned $ 83,000 each year in his or her lifetime, he or she would pay $ 220,000 in total Medicare taxes. A mid-twenties couple who pulls out $ 134,900 each year would pay $ 375,000.
Once Americans turn 65 and enroll in Medicare, they face premiums, deductibles, and copayments that can reach thousands of dollars a year.
In a new survey, nearly 60% of respondents reported that they did not know that Medicare premiums vary by plan and income. Approximately the same fee was unaware that there were different deductibles for Medicare parts that cover hospital care, outpatient care, and prescription drugs.
The Part A deductible, which covers hospital and inpatient services, is $ 1,556 this year. The Part B deductible, which covers outpatient visits, is $ 233. And the maximum D-deductible benefit, Medicare prescription drug benefit, is $ 480 this year.
This means that seniors could pay more than $ 2,000 out of their own pocket, in addition to the thousands they are already spending on premiums, depending on their income, before Medicare starts paying for their care.
After reaching their deductible, patients must cover part of their treatment costs through copayments and co-insurance. And because parts A and B have no disbursement limits, there is no limit to what seniors can face when it comes to cost sharing, no matter how sick they are or how much care they need.
In all, the average Medicare partner will need $ 300,000 to cover their health care costs after retirement, according to a Fidelity Investments report. But this estimate only takes into account the out-of-pocket costs of Medicare Parts A, B, and D, not the cost of other health-related services that the government will not cover.
Older people who are in a hospital for an extended period of time could accumulate additional bills to break the bank. Medicare will cover the first 60 days of a hospital stay. But on the 61st, a patient has to pay $ 389 a day until the 91st, when the daily bill goes up to $ 778. If you have to stay in the hospital long enough or return to the hospital often, you may be waiting for the full cost of the extra days in the hospital.
Medicare will not cover extended stays in specialized nursing facilities. And while there is a 70% chance that someone who turns 65 will need long-term care in the future, Medicare won’t cover it either.
To help seniors cover the out-of-pocket costs of these and non-Medicare-covered services, such as hearing, dentistry, and vision, the government recommends buying a Medigap plan. But these additional insurance plans can cost an additional $ 300 each month.
Most seniors do not have enough savings to cover these expenses. The Fidelity report revealed that half of workers who have spent time thinking about retirement expenses believe they will need $ 50,000 or less to pay for health care. Not surprisingly, more than 1 in 10 Medicare recipients have delayed care because they can’t afford it.
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