How much will Medicare cost me in 2022? More than you think!

People frequently worry about the cost of healthcare, specifically Medicare. If you are sitting there asking, “How much will Medicare cost me in 2022?”, read this blog. We’ll talk about the rising cost of healthcare and how it impacts Medicare premium increases in 2022.

But before we get into the details, let’s start with a review of the baseline terminology associated with Medicare.

What is Medicare Part B?

Medicare Part B covers physicians services, diagnostic X-rays, lab tests, and certain preventive services. Providers who accept Medicare will accept Medicare’s 80%, and the beneficiary’s 20% as payment in full. If a provider charges up to 115% of the Medicare approved amount, Medicare will pay the 80% of the Medicare approved amount only. The beneficiary is responsible for the 20% co -insurance and the additional amount over the Medicare approve amount

There is no maximum out of pocket expenses that can be incurred under Part B, and there was a deductible of $203 in 2021.

Medicare Part D and Supplemental Policies (“Medigap” plans)

Part D was originally the prescription plan for Medicare. Everyone used to have to choose Part D to get their prescriptions covered. Then Medicare decided to add prescriptions into the coverage.

But there are still gaps in coverage, which is why many people are prompted to purchase supplemental coverage, also called “Medigap” policies. Premiums vary by region and also from company to company. The ranges in the US are a low of around $1,000 per year in Oregon, and $14,500+ at the high end in Indiana.

How much will Medicare cost me in 2022?

Now, for the feature presentation. Here’s our answer to “How much will Medicare cost me in 2022?”

In short, more than you probably thought.

We’ve mapped this out, and here are our findings, assuming an annual inflation of 5.9% (which was the old targeted rate from SSA in 2018).

• The current inflation rate for the most recent Social Security increase was 5.9%.
• The most recent increase in the Base Medicare cost is now $170.10 a month for 2022, a 14.5% increase.
• I chose 20 years as the life expectancy, because it is closest to the American average life expectancy. If we take it to 30 years, the increase will be significantly larger.
• This is a comparison of the 2021 and 2022 cost elements extrapolated out over a 20 period of time. Let’s assume an individual has Medicare Part B, and also a Medigap policy. The variables are Part B and Part D (denoted here as Supplemental Policy F). For Part D, I used the supplemental numbers from the Medicare site.

The spreadsheet clips below show extrapolated Medicare costs for 2021 vs. 2022s for a hypothetical individual. Take a look at and see if it answers the question of whether healthcare costs are rising or not in 2022.

As shown in the table below, the total amount that Medicare would cost this hypothetical individual over a 20 year period would be $415k.

Now let’s look at the inflation rate that the Trustees report in 2018 expects going forward and its impact.

Why?

Because the expected rate of 8.2% (instead of 5.9%, as above) really changes the numbers.

In the top table we used the old inflation rate for both Part B, and the supplemental plan. In the bottom table we only increased the Part B premiums, and left the supplemental plans at the old inflation rate. With this small change, the total premiums for 20 years went up over $70k to $486k.

Keep in mind this is the old base premium cost for a married couple. How many couples are prepared to pay these costs?

But wait, there’s more…

This third table changes the inflation rate for both the Part B and the supplemental to 8.2%. We also showed what the impact would be over 30 years because life expectancies are going up. But assuming a 20 year period, the total cost would be $578k, an increase of 39%.

As a note…

Don’t forget, these are just the baseline estimates; if you have a higher income, premiums will continue to have a constant and probably disproportional increase compared to baseline.

This sketch is just an illustration and can not be interpreted as specific to any one person’s personal situation. If you want to know how much Medicare will cost you in 2022, or how much in Medicare premiums you’ll be expected to pay. It would be a good idea to map it out similarly, including your personal variables as inputs to these equations.

Higher medical costs make retirement planning critical

Unlike the federal government which spends a big chunk of its revenue on Medicare, the average individual will spend much more of their income on health care. The probability of a long-term care stay after age 65 is now 70%; and keep in mind that Medicare does not cover Long Term Care.

It is critical that people plan for retirement well in advance; this is not “a wait until you are a year away” type thing. Planning must occur much earlier (at a minimum, 5 years before, but preferably 15) to account for asset and income structures that keep these costs as low as possible.

To discuss how to plan for your retirement, contact us.

Disclosure:

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.