Table of Contents:
- What is Original Medicare?
- Original Medicare in 2020
- Original Medicare in 2021
- Other Potential Changes
What is Original Medicare?
Original Medicare is a package plan containing Medicare Parts A and B, respectively. Both aspects of Original Medicare are managed and offered directly by the federal government, as opposed to Medicare Part C (also known as Medicare Advantage) and Medicare Part D, which consist of plans offered by private providers contracting with the federal government.
While Original Medicare is technically optional, there are many cases in which enrolling in this basic form of coverage will make financial sense. If an individual turning 65 has paid into the Medicare system through payroll taxes for more than ten years, they qualify for premium-free Medicare Part A coverage. If an individual qualifies for premium-free Part A coverage and does not enroll, they lose eligibility for Social Security benefits. Due to various other incentives and penalties built into the system, it generally makes sense to enroll in Original Medicare.
Original Medicare in 2020
Medicare Part A
Medicare Part A covers the costs of inpatient hospital services, skilled nursing facilities, and some home healthcare services. In the event that a beneficiary did not pay into the Medicare system for 10 years, that beneficiary pays a monthly premium. In 2020, the monthly premium for Part A was $252.
Medicare Part B
Medicare Part B covers doctors’ visits, outpatient services, diagnostic and preventative tests, and some medical equipment. Essentially, it covers services and supplies that are deemed necessary to treat beneficiaries’ medical conditions. In 2020, the standard monthly premium for Part B was $144.60.
Original Medicare in 2021
Unless an individual qualifies for a Medicare Savings Program (MSP), it is not possible to avoid paying the Part B premium. Part B premiums have risen dramatically since 2000, when they were $45.50/month. The $144.60/month premium for 2020 represents a 318% increase in cost, while inflation in the United States during the same span of time is 54%, according to the Bureau of Labor and Statistics.
Historically, the cost of Medicare Part B premiums have increased each year. Typically, premiums for both parts of Original Medicare increase by around 5% annually, though the exact amount is determined by an actuarial formula used by the CMS. As a response to the COVID-19 pandemic, however, Congress passed the CARES Act, which aims to reduce the financial strain placed on Americans by the pandemic. Due to the CARES Act, as well as a piece of legislation passed by Congress on September 30th, 2020, the increase in premiums for 2021 was capped at 25% of the amount determined by the actuarial formula that is normally used to dictate Medicare premium costs.
For beneficiaries who do not receive premium-free Medicare Part A, standard Part A premiums will cost either $259 or $471 in 2021. The cost is determined by the number of years that an individual or their spouse paid Medicare taxes.
Premiums for Medicare Part B are also lower than the initial projections suggested. Most beneficiaries will pay $148.50 for their monthly premiums. If an individual’s annual income exceeds $88,000 — or if their combined income shared with a joint-filing marital spouse exceeds $176,000 — they will pay between $207.90/month and $504.90/month. The precise cost of the monthly premium will depend on their individual income or combined household income.
Beyond pricing adjustments, the services and forms of care covered under Part B were expanded (at least temporarily) due to recent legislation for combating the COVID-19 pandemic. Examples of this expanded coverage include COVID-19 testing, vaccinations, and expanded telehealth services.
Multiple Medicare programs exist specifically to help beneficiaries cover their premium, copayment, deductible, and/or out-of-pocket costs. If an individual’s yearly income qualifies them for Medicaid, they can enroll in both Medicare (through the federal government) and Medicaid (through their state), which may save money on copayments and deductibles.
Other Changes to Medicare
One groundbreaking change to Medicare for 2021 — the insulin price cap — affects Medicare Advantage (MA) and Part D plans, but not the Original Medicare package. The insulin price cap is a feature of certain MA and Part D plans that places a maximum out-of-pocket expense of $35 for a month’s supply of insulin. These plans are in every state, and will save daily insulin users an average of $446 annually.
Information adapted from the Centers for Medicare & Medicaid Services
Additional data and cost information adapted from the U.S. Bureau of Labor Statistics and Congress.gov
CPI Inflation Calculator, 2020. U.S. Bureau of Labor Statistics
S.3548 – CARES Act, 2020. Congress.gov
CARES Act, 2020. Congress.gov