About 10,000 Americans turn 65 each day. Many may soon leave the workforce and claim the Medicare benefits they believe they’re entitled to after paying Medicare taxes for decades in the workforce.
But they may be in for a rude awakening. Even after paying tens or hundreds of thousands of dollars in Medicare taxes over their working careers, beneficiaries spend thousands of dollars more each year for coverage during retirement.
That coverage doesn’t always guarantee them timely access to the doctors or specialists they might like to see. It’s no wonder seniors are increasingly opting 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’re elderly. To fund certain parts of the program, the government levies a 2.9% payroll tax.
That money adds up. According to the Urban Institute, an individual currently in his mid-twenties earning less than $23,400 annually will pay $60,000 in Medicare taxes by the time he turns 65. If that same individual made $83,000 each year over his lifetime, he’d pay $220,000 in total Medicare taxes.
In a new survey, nearly 60% of respondents reported not knowing that Medicare premiums vary by plan and income. Roughly the same share didn’t know there were different deductibles for the parts of Medicare that cover hospital care, outpatient care, and prescription drugs.
The deductible for Part A, which covers hospital and inpatient services, is $1,556 this year. The deductible for Part B, which covers outpatient visits, is $233. And the maximum deductible for Part D, Medicare’s prescription drug benefit, is $480 this year.
That means seniors could pay more than $2,000 out of pocket -- in addition to the thousands they may already be spending on premiums, depending on their income -- before Medicare even begins paying for their care.
Altogether, the average couple with Medicare will need $300,000 to cover their healthcare costs after they retire, according to a report from Fidelity Investments. But that estimate only accounts for the out-of-pocket costs of Medicare Parts A, B, and D -- not the cost of other health-related services the government won’t cover.
To help seniors cover the out-of-pocket costs the government recommends purchasing a Medigap plan. But these supplemental insurance plans can cost an additional $300 each month.
Most seniors don’t have nearly enough savings to cover these expenses. The Fidelity report revealed that half of workers who have spent time thinking about retirement expenses believe they’ll need $50,000 or less to pay for medical care. Unsurprisingly, more than one in ten Medicare beneficiaries have delayed care because they can’t afford it.
Medicare isn’t free. Those approaching -- or in -- retirement need to prepare for that reality.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes. This piece originally ran in InsideSources.