Enrollees Paying Over $5,000 in Out-of-Pocket Medicare Costs Annually 

Hand pulling money out of wallet; seniors paying thousands in out-of-pocket Medicare costs

One of the biggest misconceptions about Medicare is that it’s free. As many seniors learn the hard way, that is woefully incorrect. In fact, out-of-pocket Medicare costs are growing year after year. 

Three reports

A 2016 report from the Kaiser Family Foundation found that the average Medicare beneficiary spent $5,460 in premiums and other out-of-pocket expenses (like copays and deductibles) in 2016. About $1,000 was spent on long-term care, and other charges included hospital care, prescription drugs, and dental care, which is not covered by Medicare. 

A separate report from Harvard’s TH Chan School of Public Policy also found that beneficiaries with serious illnesses reported having “significant problems” paying for their medical bills. Additionally, the report also found that:

  • 36% have used up most or all of their life savings,
  • 27% have been contacted by collections agencies,
  • 25% said their healthcare costs were a major burden on their family,
  • 60% depended on friends and family for significant financial help, and
  • 46% felt inadequately educated on their Medicare coverage.

The Harvard report also found that the most burdensome bills of these Medicare beneficiaries included prescription drugs, hospitalizations, and ambulance services. 

Lastly, the Urban Institute reported that Americans will spend roughly $72,000 on long-term healthcare over their lifetime, which Medicare does not cover. 

Enrollees without a supplemental plan like Medigap, employer-sponsored insurance, or Medicaid, spent an average $2,000 on out-of-pocket costs annually. 

Why are Medicare costs continuing to climb?

According to the same Kaiser Family Foundation study, out-of-pocket Medicare costs consume about 41% of the average Social Security check. Even worse, healthcare costs continue to climb rapidly while Social Security benefits are seeming to stall

For example, the Medicare Part B premium was $104.90 in 2013 and $144.60 in 2020, an increase of almost $40. Similarly, the Medicare Part B deductible was $147 in 2013 and $198 in 2020, a $51 increase. 

There are several reasons healthcare costs continue to rise, but three of the biggest are: 

  1. High rates of underinsured or uninsured Americans. When younger Americans with private plans or no healthcare plans at all are unable to pay for their healthcare, hospitals and doctors are left picking up the bills. This forces doctors, hospitals, and clinics to negotiate for higher payments across the board, and private insurance plans increase prices of treatment in order to compensate. 
  2. Administrative costs. Around a quarter of all healthcare costs in the United States are administrative. There are a countless number of private plans in the American healthcare industry, meaning billing clerks spend more time billing health plans than doctors spend with patients. For example, Duke University Hospital has 900 beds and 1,300 billing clerks. 
  3. Drug costs. The United States is the only developed country whose government does not negotiate drug prices with drugmakers. The Congressional Budget Office (CBO) found that giving low-income Medicare beneficiaries the same negotiated drug prices that Medicaid patients receive, it would save the government $116 billion over 10 years. If every Medicare beneficiary were to receive these negotiated prices, it would save the government $345 billion over 10 years. 

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