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coverage phase when you fill prescriptions at different times of the year? (I explain the four phases of Part D coverage in Chapter 2.)

Part D plans can change the co-pays they charge for each drug every calendar year. And co-pays vary widely among different plans, even for the same drug. Both of these issues are good reasons to carefully compare plans each year to ensure you get the best deal. I explain how to do so in Chapter 15.

      Out-of-pocket limits

      Part D doesn’t place a flat cap on your drug expenses in any one year, but you do get some relief if your costs rise over a certain level during the year. When that happens, catastrophic coverage kicks in, meaning that your drugs cost far less — no more than 5 percent of the full cost — until the end of the calendar year. However, to qualify for catastrophic coverage, you must spend quite a bit out-of-pocket, as I explain in Chapter 2.

      Medicare Advantage costs

      Under the Medicare Advantage program, you can choose to receive your Medicare benefits through a private health plan, such as an HMO or a PPO, as an alternative to traditional Medicare. If you enroll in a Medicare Advantage plan, you must accept its terms, conditions, and specific costs.

      Premiums

      Most plans require a monthly premium, always in addition to the one you pay to the government for Part B services. The average number of Medicare Advantage plan choices increased from some 33 plans in 2019 to 39 plans in 2020. Plan premiums range from zero to more than $300 a month. Yes, that’s right, from zero — $0 a month. Low premiums don’t mean that these plans are inferior; usually it’s because they’re offered in dense urban areas where competition is fierce and they want your business. In 2020, average monthly premiums decreased 14 percent to $23 from $26.87 in 2019.

      Deductible

      Most Medicare Advantage plans don’t charge annual deductibles of their own for medical services, apart from the standard Part B deductible. However, some do; the average Medicare Advantage deductible was $1,408 in 2020. Plans that include prescription drug coverage in their package of benefits may charge an annual Part D drug deductible up to a certain limit ($435 in 2020), but some charge less and some charge none. Most Medicare Advantage plans don’t charge a deductible for hospital stays.

      Co-payments

      In Medicare Advantage plans, co-pays are very different from those in traditional Medicare:

       You may pay a flat dollar co-pay for each medical service rather than a percentage of the cost. For example, a plan may charge $25 to see a primary-care doctor and $35 to see a specialist instead of charging traditional Medicare’s 20 percent. However, co-pays based on percentages are becoming more common in Medicare Advantage plans.

       Co-pays vary enormously from plan to plan and, within a plan, can change from year to year, but the amount you’re charged in January for any specific service can’t be increased for the rest of the year.

       Some types of plans, especially PPOs, charge higher co-pays if you go to doctors and other providers outside of their contracted networks.

       Most plans don’t charge a fixed deductible for a hospital stay as traditional Medicare does but instead charge daily co-pays that vary greatly from plan to plan. This arrangement may or may not work out less expensively than a fixed deductible, as I discuss in Chapter 11.

       Plans that offer routine vision, hearing, and/or dental care as extra benefits either charge co-pays for these services or offer them as optional packages that you can get only by paying a separate premium.

       Medicare Advantage plans can’t charge you more than traditional Medicare for some services, such as chemotherapy treatment for cancer, dialysis for kidney failure, and medical equipment.

      Out-of-pocket limits

      

Medicare Advantage plans, unlike traditional Medicare, are required to set annual limits on the expenses (deductibles and co-pays) for covered services that people enrolled pay each year. Limits can depend on the type of plan and whether the cost is in network or out of network. Contact your plan for details.

Paying Higher-Income Premiums

For most of its history, Medicare had no means-testing; everybody paid the same premium for its services. Even today, nobody is denied Medicare coverage on the basis of being wealthy. But since 2007, as a result of the 2003 Medicare Modernization Act, people with incomes over a certain level have been required to pay higher premiums for Part B. And under the 2010 Affordable Care Act, those same people must pay more for Part D, too.

      Looked at another way, it means that people who pay these higher premiums are receiving a smaller subsidy from the federal government for their health care. The feds provide a hefty chunk of money toward Part B and Part D services out of general revenues (that is, taxpayer dollars) — about 75 percent of the actual costs — while beneficiaries as a whole contribute about 25 percent through premiums. So the rationale for the higher-income surcharge was based on fairness; surely wealthier people can and should pay more than 25 percent of the cost of their Medicare.

      Most people, of course, don’t pay the higher premiums. Nonetheless, the income cutoffs aren’t so high that they affect only millionaires. So you need to know whether you’re likely to be asked to pay the surcharge — and what you can do about it if you are and think it’s unwarranted. The following sections examine those issues in detail.

      Understanding who’s liable for the surcharges

      

You’re required to pay higher premiums for Part B and Part D services if your modified adjusted gross income (MAGI), as shown on your latest federal tax return, say 2019, is greater than $87,000 (if you’re a single person) or $174,000 (if you’re married, living together, and filing joint returns).

      That statement, in a nutshell, is an accurate answer to the question of liability. But to understand whether the surcharge may affect you, you have to examine the wording more closely:

       First, consider the phrase as shown on your latest federal tax return. The last tax return you filed showed the income you received in the previous year. So that year’s income is what counts in determining whether you pay the surcharge next year. That’s right: The surcharge for any one year is calculated on the income you received two years earlier. For example, whether you pay surcharges on your 2020 premiums is calculated on income you had in 2018, as declared on the tax returns you filed in 2019.

       Now, look at that phrase modified adjusted gross income (MAGI) — IRS jargon that only an accountant could love. What on earth does it mean? What it doesn’t mean is your total income. Your total (gross) income is all the money you receive from any source. Your adjusted gross income (AGI) is the amount on which you can be taxed after allowed deductions are taken out. MAGI is the amount left after certain deductions that were excluded from the AGI, such as tax-exempt interest and student loan deductions,

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