The Hidden Costs of Medicare

Experts say that with a little planning and a realistic outlook, seniors on Medicare can minimize their out-of-pocket expenses.

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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, tax-payer subsidized health care provided at the stage in life when retirees need it most.

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But the broad-reaching health care insurance system comes with costs that many seniors -- including those already in 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 in a tough economy. 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."

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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 are varied and usually require the 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 towards 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.

According to the Center to Preserve Medicare, 41.8 million seniors are covered by Medicare Part A, which covers hospitalization; 38.7 are beneficiaries under Medicare Part B, which covers routine medical care, and 37.4 million also use Medicare Part D, which covers prescription drugs. And while the federal government reports that Medicare spending overall is down and that reforms under the Affordable Care Act -- a.k.a. Obamacare -- has further reduced costs, seniors may experience sticker shock when it comes to what they have to pay for themselves.

Consider hospitalization costs for, say, a broken leg.

According to Medicare.gov, the government's official website, Medicare Part A generally covers most of the bills associated with that type of a hospital stay, including a semi-private room and medical procedures. But it doesn't cover incidentals like hospital-room TV or phone service, which can run as high as $50 per day.

Moreover, there are deductibles: Part A beneficiaries must pay $1,184 for the first 60 days of that hospitalization. For stays that last longer than two months -- extremely rare, but sometimes necessary for serious conditions like cancer -- patients without co-insurance have to pay as much as $300 per day.

"If you need long-term care, it's not covered," Metcalfe says.

Part B subscribers have coverage for outpatient doctor visits and medically necessary procedures and surgeries, according to Medicare.gov. But the co-pay percentages and deductibles for treatments or hospital visits, Metcalfe points out, aren't free.



Corrected 10/21/13: An earlier version of this article stated that Medicare was created as part of FDR’s New Deal. It was signed into law by Lyndon B. Johnson in 1965 and went into effect in 1966.

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