Does Medicare Cover 100 Percent of Medical Costs?

For many Americans age 65 and over, Medicare plays a crucial role in providing health coverage and reducing the cost of care. However, Medicare does not cover 100% of medical expenses. There are still often significant out-of-pocket costs that Medicare beneficiaries must pay.

Let’s take a closer look at what costs Medicare covers, what gaps remain, and why Medicare does not provide 100% coverage.

What Does Medicare Cover?

Medicare is the federal health insurance program for seniors 65 and older and certain younger individuals with disabilities. It has different parts that help cover specific services:

• Part A helps pay for inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services.

• Part B helps pay for doctor’s services, outpatient care, preventive services, durable medical equipment, and medical supplies.

• Part D helps pay for prescription drug costs.

Between these different parts, Medicare provides fairly comprehensive coverage for things like:

• Hospitalization
• Doctor visits
• Preventive services
• Lab tests
• X-rays
• Cancer treatments
• Kidney dialysis
• Medical equipment
• Prescription drugs

However, Medicare does not cover 100% of the costs for these services. There are deductibles, copayments, and coinsurance amounts that Medicare beneficiaries still have to pay out of pocket.

For example, in 2023:

• The Part A deductible for a hospital stay is $1,600 per benefit period.

• The Part B deductible is $226 per year.

• For doctor visits and most outpatient services under Part B, you typically pay 20% of the Medicare-approved amount after meeting the deductible.

• Part D prescription drug plans have varying deductibles, copays, and coinsurance. But coverage generally has a “donut hole” gap where you pay more until you reach the catastrophic phase.

So while Medicare provides very helpful insurance coverage, it does not equate to free health care with no out-of-pocket costs. Significant expenses can still fall on the beneficiary.

Why Doesn’t Medicare Cover 100%?

There are a few key reasons why Medicare does not cover 100% of medical costs:

1. Cost

Providing full 100% coverage through Medicare would be tremendously expensive and require significantly higher taxes or beneficiary premiums. Medicare is already one of the largest federal expenditures at over $850 billion per year.

The deductibles, copayments, and coinsurance serve to distribute costs and provide some check on utilization. Beneficiaries may be more judicious about seeking care if they bear some of the cost.

2. Supplemental coverage

Medicare’s cost-sharing is also designed to facilitate supplemental insurance options. Beneficiaries can get Medigap plans, retiree plans, or Medicaid to help cover Medicare’s out-of-pocket costs. These secondary insurances fill gaps in Medicare coverage.

Without room for supplemental plans, beneficiaries would likely face even higher direct costs. The current structure allows flexible combinations of coverage.

3. Legislative history

When Medicare was created in 1965, its aim was specifically to provide “basic protection against the costs of hospital and medical care”, not unlimited 100% coverage.

The program was not designed to eliminate out-of-pocket costs entirely. Some cost sharing has always been part of Medicare’s legislative framework and funding model.

4. Cost control

Having some cost sharing is an incentive for patients to use care judiciously and not over-utilize services. If 100% of costs were covered, utilization would likely increase significantly, driving up program costs.

Deductibles require individuals to pay some costs out of pocket before insurance kicks in. Coinsurance and copays introduce some price sensitivity at point of care.

5. Fair pricing

If Medicare paid 100% of any billed charge, providers could essentially charge whatever they wanted knowing it would get fully reimbursed. Medicare pricing aims to fairly compensate providers at a regulated standard rate.

Out-of-Pocket Costs on Original Medicare

To illustrate the scope of out-of-pocket costs, here is a look at how much in expenses could potentially fall to the beneficiary with Original Medicare (Part A and Part B):

• Part A costs

  • $1,600 deductible per benefit period
  • $400 per day for days 61-90 of a hospital stay
  • $800 per “lifetime reserve day” after day 90
  • All costs beyond lifetime reserve days

• Part B costs

  • $226 deductible for the year
  • 20% coinsurance for doctors visits and outpatient services
  • Any costs above Medicare-approved amounts

• Part D costs

  • Varying deductibles up to $505
  • Copays and coinsurance for prescription medications
  • 100% of costs in the coverage gap

When you add this all up, the out-of-pocket responsibility is significant. And this doesn’t account for any care not covered by Medicare at all, like dental, hearing, vision and long-term care.

Ways to Supplement Medicare

To help reduce their out-of-pocket expenses, most Medicare beneficiaries get supplemental coverage through:

• Medigap (Medicare Supplement Insurance) – Private insurance plans to cover Medicare cost-sharing

• Medicare Advantage (Part C) – Medicare-approved private plans that bundle Parts A, B, and often D

• Retiree health plans – Health insurance from a former employer

• Medicaid – Joint federal/state program providing coverage based on income

• Veterans (VA) benefits – Health coverage for qualifying veterans

Medigap plans specifically are designed to integrate seamlessly with Medicare. They fill in Medicare’s gaps, covering deductibles, coinsurance, and copayments. This provides meaningful financial protection that Medicare alone lacks.

Is 100% Coverage Ever Possible?

For a limited segment of beneficiaries, something approaching 100% medical coverage is possible by combining policies:

• Someone who has Medicaid and Medigap has very comprehensive coverage with virtually no out-of-pocket costs. Medicaid covers Medicare premiums and any benefits not included in Medigap.

• A veteran with VA benefits, Medicaid, and Medigap would have the full slate of services covered. The VA covers care at VA facilities, Medicaid covers premiums and cost sharing, and Medigap fills Medicare gaps.

• A retired federal employee on a top FEHB plan who is also eligible for Medicare would have quite extensive coverage from these two sources together.

However, for the vast majority of Medicare beneficiaries, they will face at least some cost-sharing responsibilities. Medicare was never designed or intended to be a blanket 100% health coverage program for seniors. It does provide meaningful insurance protection but does not equate to completely free medical care.

Key Takeaways

• Medicare provides important insurance but does not cover 100% of medical costs
• Deductibles, copays, and coinsurance are standard cost-sharing elements
• Supplemental insurance is often needed to help cover out-of-pocket expenses
• Legislative intent, cost control, and other factors limit Medicare from providing unlimited free coverage
• Very few beneficiaries have 100% coverage through multiple program combinations
• Understanding Medicare’s cost-sharing component is essential to navigate coverage

While quite helpful for millions of Americans, Medicare alone should not be expected to eliminate all medical expenses. Some cost sharing is the trade-off for the program’s affordability and financial sustainability. Even with gaps, Medicare goes a long way in protecting seniors from the previously devastating costs of serious illness or injury after age 65.