What Medicare Doesn’t Cover

Medicare Parts A and B (known as “Original Medicare”) don’t cover all your healthcare-related expenses. In fact, the program has significant gaps: many of which you’ll need to plan for to ensure healthcare expenses don’t derail your retirement plans.

Original Medicare, defined

Our country’s Medicare program consists of four parts (A, B, C, and D), with each covering specific services. With respect to Part A and Part B, the government pays providers directly for patient services and the following are covered: patient care in a hospital or skilled nursing facility, in-home hospice, limited home healthcare services (Part A), and medical services and supplies necessary to treat health conditions (Part B).

While almost all doctors and hospitals in the United States accept Original Medicare, supplemental coverage is still needed to ensure most health-related expenses are accounted for. Here’s why…

Medicare doesn’t cover long-term care

According to the U.S. Department of Health and Human Services, there is almost a 70% chance someone celebrating a 65th birthday today will need some type of long-term care (LTC) services in the years to come. An estimated 20% will need care for more than five years. Unfortunately, many people incorrectly assume that Medicare covers long-term care, but the truth is that it doesn’t—except in very limited circumstances.

Long-term care is also very expensive. For example, recent Genworth data estimates median annual home health aide costs are $68,526 (and growing!) in the state of New Jersey. Even if you plan on retiring in a warmer locale like Florida, know that median costs are $57,200 in the Sunshine State. Fortunately, there are a few options to ensure your long-term care needs are covered—which you can read about here.

Medicare doesn’t cover deductible and copays

Did you know there is a $1,556 Medicare Part A deductible for an in-hospital stay per occurrence? Moreover, if you remain in the hospital for more than 60 days, you must pay a portion of daily expenses ($389 in 2022) up until the 90th day. After 90 days, you’re on the hook for $778 per day. The annual Part B deductible is currently $233, and once this is met, you are typically required to pay 20% of the Medicare-approved amount for most physician services, outpatient therapy, and durable medical equipment. Consequently, your out-of-pocket expenses can add up rather quickly.

This is where Medigap (also known as Medicare Supplement) plans and Medicare Advantage (also known as Medicare Part C) plans can help. Private insurance companies approved by Medicare sell these policies to help fill in the gaps.

Medigap policies are standardized—as required by the federal government—regardless of which insurance company sells them. This means companies can only offer policies from a list of about ten standardized plans, each denoted by a letter: A, B, C, D, F, G, K, L, M, and N. It also means a Medigap plan with a given letter will offer the exact same benefits no matter where you buy it—with the exception of Massachusetts, Minnesota, and Wisconsin, which standardize their policies in a different way.

Currently, Plan G is the most popular and comprehensive plan. According to the Medicare website, a non-smoking 65-year-old male in Bergen County, New Jersey will pay anywhere in the monthly range of $143 to $454 for Medigap Plan G. A non-smoking female with a similar profile would pay a little less, with monthly premiums ranging from $132 to $395.

Similar to private health insurance, most Medicare Advantage plans operate like a health maintenance organization (HMO) or preferred provider organization (PPO). HMOs require patients to see physicians and providers in the plan’s network and service area for the lowest costs. Conversely, PPOs allow members to see out-of-network practitioners but also often require higher payments for such care.

If you join a Medicare Advantage plan, you’ll still have Medicare but will get most of your Part A and Part B coverage from your Medicare Advantage plan rather than Original Medicare.

The average monthly premium is $19 across all Medicare Advantage plans.

Medicare doesn’t cover overseas expenses

Original Medicare doesn’t cover any medical care needs beyond U.S. borders, whereas a Medigap plan can help travelers in such situations—with some plans covering up to 80% of emergency care costs abroad. Some Medicare Advantage plans offer this coverage as well.

Medicare doesn’t cover vision, dental, and hearing aids

Medicare doesn’t provide coverage for routine dental visits, teeth cleanings, fillings, dentures, or most tooth extractions. Likewise, routine eye exams and eyeglasses are not covered either. Need to get your hearing checked or the help of a hearing aid? Unfortunately, you’re out of luck with Original Medicare. Medicare Advantage plans can help here, however, as many cover all of the above as well as transportation to doctor’s visits in some cases.

Medicare doesn’t cover prescription drugs

Original Medicare doesn’t provide coverage for outpatient prescription drugs, but you can buy a separate prescription drug policy through either Medicare Part D or a Medicare Advantage plan.

Medicare-approved private insurance companies administer Medicare Part D, which helps pay for both brand-name and generic drugs. You must have Medicare Part A and/or Part B to qualify for this optional plan.

The average Medicare Part D premium is around $40 a month, but you might need to pay more depending on your location, income, and tax filing status.

Upon reaching the 2022 spending limit of $4,430 (the combined total of what you and your plan have paid for), you’ll enter what’s known as the “donut hole”: a coverage gap whereby you’re responsible for 25% of prescription drug costs.

However, once you’ve paid $7,050 in 2022 for out-of-pocket covered drug costs, you’ll leave the “donut hole” and enter “catastrophic coverage” territory. Despite the scary-sounding name, this simply means you’ll pay significantly lower copays or coinsurance for covered drugs for the remainder of the year.

In sum: what Medicare doesn’t cover

As you can see, healthcare isn’t cheap. In fact, Fidelity estimates that the average couple will need to cough up $300,000 for medical expenses during retirement—and that number excludes long-term care! Coupled with the fact that Medicare isn’t the simplest of programs to navigate, and you can see how speaking with an expert—such as a financial planner—can help you better plan for your future in this respect.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.