The (personal) economics of Medicare premiums

After paying Medicare taxes for years, weren’t the benefits supposed to be free?

Yesterday, we argued that Medicare’s payroll taxes can thought of as a mega-joining fee … or, as prepaid premiums that amortize to the equivalent of $10,000 per year over a retiree’s post-65 life span.

See Ouch: The (personal) economics of Medicare payroll taxes

And, we pointed out that the prepaid premiums are just the tip of the iceberg.

Once retired, the Feds collects additional annual Medicare premiums.

This may surprise pre-retirement folks who think that they pay in during their working years, but then get “free” healthcare insurance when they retire.


Today, let’s take a look at Medicare premiums…



Medicare Parts A, B and D

Let’s start with a quick tutorial on Medicare benefits….

Medicare has a couple of major parts: Part A covers hospital bills; Part B covers doctors and labs; Part D covers prescription drugs.

Part A is “free” … meaning that retirees don’t have to pay any additional on-going premiums for it.

That’s good, I guess.

But, retirees do have to pay premiums for means-tested Part B.

At a minimum, low income earners pay $1,600 in annual Part B premiums; high earners pay over $5,000 annually for Part B.

That’s still not too bad, right?

But, what if a retiree wants Part D prescription drug coverage?

Plan D prescription coverage costs another $1.500 (or more depending on the specific prescription needs and specific plan selected). And, of course, there’s an upcharge for high-earners.

OK, so that’s a combined $3,000 at the low-end and $6,500 at the higher-end.

Oh, did I mention that those premiums are per person?

For a married couple, double those premiums … the range is between $6,000 and $13,000.

Maybe a good deal for health insurance, but hardly “free”.

And again, that’s only part of the story….

Tack on the roughly $10,000 is premiums prepaid as payroll taxes, and a married retiree’s annual “economic cost” of Medicare insurance is more like $15,000 or $20,000.

And, there’s still more.

Practically all retirees opt to buy insurance that’s supplemental to Medicare … to cover procedures and treatments that that Medicare doesn’t cover … and to secure access to the increasing number of doctors who don’t take Medicare patients.

But, that’s another story for another day.


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One Response to “The (personal) economics of Medicare premiums”

  1. Capital Blue Cross Says:

    People covered by Medicare are called beneficiaries. Medicare pays for much of their health care, but not all of it. That is, Medicare covers most acute medical conditions from which a patient usually recovers. Informative post!!

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