How to pick the Medicare plan that fits your budget

Choosing a health care plan is always a balance between what the plan costs and what you think your expenses will be. Your annual health care costs don’t have to be a surprise. With a little research, you can estimate upcoming medical expenses and choose a Medicare plan accordingly.

The basic Medicare costs you need to know are premium, deductible, copay and coinsurance (two forms of cost-sharing), and out-of-pocket maximum. Before we dive into calculating costs, it’s important to understand the definitions of these terms.

This is the amount you must pay each month to keep your coverage. Whether you stick with Original Medicare (Parts A and B) or choose a Medicare Advantage (Part C) plan, you must pay the Part B premium.

• In 2023, the Part B premium is $164.90 for most people.
• If you haven’t earned enough work credits, you may also pay the Part A premium (up to $278 or $506 in 2023).
• Some Medicare Advantage plans charge an additional premium, but many don’t.

For certain services, such as hospitalization, you must meet a deductible before Medicare or Medicare Advantage starts to pay. 

• For 2023, the Part A deductible is $1,600. 
• For 2023, the Part B deductible is $226. 
• Each Medicare Advantage plan has its own deductible, so check the plan documents for details.

If you choose Original Medicare or a Medicare Advantage plan, you’ll pay a set amount called a copay or copayment, when you receive care or fill a prescription. For example, you might pay $25 to see a doctor, $40 to see a specialist, and $5 to fill a generic prescription. Each Medicare plan is unique. Your plan documentation will outline your expected costs.

For some services you receive, you’ll owe a percentage of the cost, which is known as coinsurance.

• If you need to be hospitalized under Medicare Part A, you’ll pay coinsurance of $400 per day after 60 days in the hospital and $800 per day from day 91 to day 150.
• For outpatient services under Medicare Part B, you’ll usually pay 20% of the Medicare-approved cost.
• Medicare Advantage plans also have coinsurance amounts, so check the plan documents for details.

An out-of-pocket maximum is the most you’ll have to pay for covered services each year (including copays, coinsurance, and deductible).

Original Medicare: There’s currently no out-of-pocket maximum under Original Medicare. In some instances, beneficiaries may choose to enroll in Medicare Advantage (Part C) or Medicare Supplement Insurance (Medigap) plan for that reason.

Medicare Advantage: As noted above, Medicare Advantage plans have an out-of-pocket maximum. For 2023, the out-of-pocket maximum is $8,300 for in network services and may be higher for out-of-network services. It’s worth noting, some plans may offer lower out-of-pocket maximums. The plan policy you select will detail your out-of-pocket maximums.

Medicare Supplement (Medigap): Most Medigap plans will cover your Part A and B coinsurance. A few also cover your Part A and B deductibles. Two Medigap plans (K and L) have out-of-pocket maximums, but they also cover less of your out-of-pocket costs (for example, 50% or 75% of Part B coinsurance instead of 100%).

Let’s say you’re looking at a Medicare Advantage plan with these features:

• $0 premium
• $0 deductible
• $4,500 out-of-pocket maximum for in-network services
• $25 copay for doctors
• $40 copay for specialists
• $5 copay for generic prescription medications

Here’s what your costs would look like if you don’t need a lot of care:

• Your total annual cost would be the Part B premium ($164.90 premium x 12 months = $1978.80) plus any copays you owe.
• If you see your primary care doctor twice and a specialist once, you would pay $90 in copays ($25 primary care + $25 primary care + $40 specialist).
• If you’re on two generic prescription medications that you refill monthly, your medication cost would be $120 ($5 x 2 prescriptions x 12 months).

Based on the examples above, your total out-of-pocket costs would be, $1978.80 for Part B premium + $90 for doctors’ visits + $120 for prescriptions = $2,188.80 per year.

Of course, most Medicare beneficiaries need more care than what’s in this example. If you see several specialists, take more expensive medications, or spend time in the hospital, your care could cost much more.

That’s where the out-of-pocket maximum comes in. If your Medicare Advantage plan has an out-of-pocket maximum of $4,500, as described previously, that’s the most you would have to pay for covered services, no math required.

For example, to better help you understand your healthcare expenses, let’s say you live in Oklahoma. You remain on Original Medicare but add a Medigap plan (N) that costs $201.55 per month. Assuming it covers all your out-of-pocket costs, your total annual spending would be $4,396.60. That’s the Part B premium of $1,978.80 plus the Medigap premium of $2,418.60.¹

If you’re still unsure about finding the right coverage, our Medicare Plan Experts² can help you find the plan that best fits your needs.