Medicare Costs: Why You May Pay More for Health Care

Aging is expensive. Medicare’s oldest beneficiaries — those ages 85 and older — often bear the brunt of out-of-pocket costs, due in part to expensive surgeries and long-term care costs.

People ages 85 and older spent $10,307 on average in 2016 — more than twice as much as beneficiaries between the ages of 65 and 74, according to a Kaiser Family Foundation analysis of 2016 MCBS data.

Elderly Medicare patients also allocated more income to these out-of-pocket costs than their younger counterparts.

Health care for the elderly is costly for the federal government, too.

Only 5 percent of Medicare beneficiaries die each year, but one-quarter of Medicare program spending occurs in the last year of life, according to a 2018 research paper published in the journal Science.

Medicare beneficiaries with one or more chronic conditions often face substantially higher out-of-pocket costs for prescription drugs, physician services and outpatient hospital care than the average beneficiary.

Almost a third — 32.5 percent — of the Medicare population reported having four to five chronic conditions in 2018.

According to an AARP analysis of 2017 MCBS data, beneficiaries in self-reported fair or poor health paid an average of $2,755 out of pocket for services — about 45 percent more than people in self-reported excellent or very good health.

Original Medicare beneficiaries with Parkinson’s disease spent more out-of-pocket annually — $3,768, on average — than enrollees with any other type of illness, according to the AARP report.

Cancer was the second costliest condition in 2017, with average spending of $3,397, followed by congestive heart failure at $2,950.

More than 1 in 10 Medicare beneficiaries — 11 percent — reported delaying care due to cost in 2018, according to MCBS data analyzed by RetireGuide.

Not surprisingly, beneficiaries with lower incomes are more likely to forgo care due to cost.

According to a Kaiser Family Foundation analysis of 2017 MCBS data, 26 percent of Medicare recipients with incomes under $20,000 had difficulty getting care or paying medical bills due to cost.

In contrast, just 7 percent of beneficiaries with incomes of $40,000 or higher delayed care due to cost.

The pattern held true for people enrolled in both Original Medicare and Medicare Advantage.

While some costs are unavoidable, certain proactive steps can help Medicare beneficiaries reduce their out-of-pocket expenses.

Experts recommend reviewing your plans and coverage each year to find ways to save money.

“It’s important to consider ways to protect yourself from unexpected medical costs,” Shannon Hohl, program supervisor at the Idaho Senior Health Insurance Benefit Advisors, told RetireGuide. “Reviewing your options is one way to make sure you have coverage that works for your health and your budget.”

Each state has a free network of trained volunteers who can help beneficiaries and caregivers navigate Medicare, Medicare Advantage, Medigap and Medicaid benefits.

They’re called State Health Insurance Assistance Programs, or SHIPs, although some states use different abbreviations, such as SHIIP, SHINE, HICAP and SHIBA.

Hohl recommends that people who are concerned about Medicare costs call their local toll-free SHIP number.

“Medicare benefits and premiums change annually so it’s important for beneficiaries to review their coverage each year,” she said. “It’s the best way to ensure you have the coverage that works for you.”

Medical billing errors can cause high out-of-pocket sticker shock for people on Medicare.

Caitlin Donovan is a health care policy expert at the nonprofit Patient Advocate Foundation. She told RetireGuide that billing mistakes are extremely common. Her organization estimates that at least half of all patient medical bills contain errors.

“And we’ve never seen an error work in a patient’s favor,” Donovan added.

Donovan personally experienced the cost of incorrect billing when she was pregnant with her third child.

After examining each medical bill and disputing errors, she discovered mistakes in half her bills — and those discrepancies totaled about $650.

Here are some expert tips and advice to handle medical billing issues and save money on Medicare.

Millions of Americans face out-of-pocket Medicare costs, but these expenses are a fraction of what the federal government pays to provide health care for each beneficiary.

Medicare spending has more than doubled since 2005, increasing from $337 billion to $782 billion in 2019.

The aging baby boomer generation has also accelerated Medicare enrollment growth over the last decade.

Total Medicare program spending over the next 10 years is projected to rise an average of 7 percent per year, according to the Medicare Payment Advisory Commission, a nonpartisan legislative agency that provides the U.S. Congress with analysis and policy advice.

As enrollment and health care costs rise, experts say Medicare spending will continue to climb.

High costs that exceed revenue have put the Medicare Hospital Insurance (HI) Trust Fund in financial jeopardy.

The trust fund, which pays for hospital and other inpatient care, is financed primarily by payroll taxes. But that money — as well as other smaller sources of revenue — isn’t sufficient to pay the bills.

Medicare Part B, which pays for doctor visits and other outpatient costs, is funded by beneficiary premiums and appropriations by Congress, so it cannot technically become insolvent.

In April 2020, Medicare’s annual trustees report noted that the Part A Trust Fund will begin to run out of money by 2026 — just five years from now.

A more recent projection from the Congressional Budget Office, or CBO, also estimated depletion of the fund in 2026.

An anticipated $517 billion in spending reductions and/or additional revenue will be necessary to cover the total trust fund deficit between 2026 and 2031, according to CBO projections.

In the last three decades, the Medicare HI trust fund has only come within five years of depletion twice — in 1996 and 1997.

Lawmakers have never allowed the fund to become fully depleted.

To prevent a shortfall in 2026, the government will need to act. Experts say a few things could happen.

Premiums and Medicare payroll taxes may rise. Specifically, the standard 2.9 percent Medicare payroll tax — which hasn’t changed in 35 years — would need to immediately increase to 3.66 percent.

Alternatively, payments to doctors, hospitals and other health care providers could be cut while Medicare benefits are trimmed. These measures would need to slash program spending by 16 percent.

“More realistically, the tax and/or benefit changes could occur gradually,” Christine Mahoney, a CMS public affairs specialist, told RetireGuide.

But Mahoney noted that a gradual approach will require more dramatic adjustments down the road.

“Lawmakers have many options to address the long-range financial imbalance,” Mahoney said.

Beneficiaries may feel another squeeze to their pocketbooks following a rule change that reclassifies Medicare payment rates for surgeries.

In December 2020, CMS finalized a significant policy change aimed at eliminating what’s known as the Medicare “inpatient only” list.

This list, which is updated yearly, identifies over 1,700 procedures that are only eligible for Medicare reimbursement if they take place in a hospital on an inpatient basis, rather than on an outpatient basis or at an outpatient clinic.

The inpatient only list is scheduled to be phased out gradually between now and the end of 2023.

Some changes have already gone into effect. As of Jan. 1, 2021, all 266 musculoskeletal-related procedures — including amputations and other high-risk surgeries — had been dropped from the list.

In theory, eliminating the list allows patients and their doctors to decide whether a surgery should take place at an outpatient clinic or an inpatient, full-service hospital.

The reclassification could also save Medicare money because CMS pays less for outpatient services.

But several policy groups and medical experts are pushing back on the decision. They warn that the most significant change may be a bigger price tag for beneficiaries.

“The shift could expose patients to substantially higher out-of-pocket costs for the same procedure,” Tricia Neuman, a Medicare policy expert and senior vice president of the Kaiser Family Foundation, told RetireGuide. “This could be a significant expense for the 5 million people covered by Medicare with no supplemental insurance.”

That’s because Medicare covers inpatient hospital stays differently from outpatient hospital stays.

Medicare patients admitted to the hospital typically receive an all-inclusive package of services through Medicare Part A. Patients must meet the Part A deductible ($1,484 in 2021) for a stay of up to 60 days, along with a 20 percent coinsurance payment for doctors’ charges. Medicare covers the rest.

In contrast, outpatient services are covered under Medicare Part B, which requires beneficiaries to pay 20 percent of the Medicare-approved amount for each service.

Charges can quickly add up for complex surgeries that may require X-rays, blood transfusions and other separately billed items.

There’s also a 20 percent charge for the outpatient surgery itself as well as the 20 percent share for doctors’ services.

Additional costs, including excess charges and facility fees, can also apply.

“There’s a real risk of beneficiaries paying a lot more for the same surgery, simply because of this shift from Part A to Part B,” Neuman said.

Neuman added that the new policy could also limit a patient’s care after they leave the hospital.

“If the surgery is not considered to be inpatient, the patient would not be eligible for follow-up post-acute care in a skilled nursing facility,” Neuman said.

Since the Trump administration enacted the new policy, it’s unclear if the current administration will reverse the rule before it fully rolls out in 2023.