Understanding Medicare costs is a big part of choosing the right Medicare plan for you. You’ll see four words over and over again that have special meaning in Medicare. Mastering them will pay off.
- Premium
- Deductible
- Copayment (copay)
- Coinsurance
These are names for different ways that Medicare shares the cost of your care with you. Medicare’s reasoning is simple: If you pay some of the cost of the health care you use, you will use it more carefully. And you’ll be encouraged to do things that help keep you healthy and that may reduce your need for medical care.
Medicare direct costs: You pay a fixed amount for your coverage.
1. Medicare Premium
Your Medicare premium is the fixed amount you pay to participate in Original Medicare (Medicare Parts A and B) or a Medicare plan offered by a private insurance company. Most Medicare premiums are charged monthly.
Medicare cost sharing: You pay part of the cost and Medicare pays part.
2. Medicare Deductible
Your deductible is the set amount you have to pay before your plan will begin to pay some of your health care costs.
3. Medicare Copayment
Your Medicare copayment is the fixed amount you pay, like $10, each time you use a service or purchase a product. Some people call this a “copay.”
4. Medicare Coinsurance
Coinsurance is splitting your health care costs with the plan on a percentage basis. For example, you pay 20%, and the plan pays the remaining 80%.
Important: It’s easy to focus only on your monthly premium when you compare plans. But you should also look at your other plan expenses like annual deductibles, copays and coinsurance.
For example, a plan with a lower monthly premium might cost you more over the course of the year because you have to pay a large deductible or you have a higher copay for your prescriptions.
Remember that the Medicare premiums, deductibles and copays shown in this guide are accurate for 2012, but may change from year to year.