My good friends over at the Medicare program adjust patient out-of-pocket costs every year. This information is usually released each November for the upcoming calendar year. In fact, just last week, they went ahead and updated the numbers for the calendar year 2021. One of the more important numbers I like to keep an eye on is the inpatient Medicare Part A deductible.
So let’s get to it.
The inpatient Medicare Part A deductible is increasing by a whopping 5.4% for the calendar year 2021. This $76.00 increase will put the Part A deductible at $1,484. This is the largest percentage increase I have seen in my career.
But what is the Medicare Part A deductible and why do we care?
What is the Medicare Part A Deductible?
Here at Max Out of Pocket, we keep track of all out-of-pocket costs. We even look at those that might hit us in the future. Medicare patients get billed for the Medicare Part A deductible when they land in the hospital as an inpatient. Unfortunately, it’s a cost we need to plan for.
Keep in mind, this post is only referring to the traditional Medicare Part A program. Some people call it “original” Medicare. If someone has elected a Medicare Advantage plan, it completely replaces traditional Medicare and these numbers no longer apply. That said, this is still good information to know if we are comparing a Medicare Advantage plan to the traditional Medicare program.
Max likes to use the bucket analogy for all things finance. The same goes for the Medicare Part A deductible bucket. We need to fill this one up before Medicare starts paying for our inpatient Part A services. But what are Part A services?
Medicare Part A Services
Medicare is a painfully complicated program. So, before we can worry too much more about the inpatient deductible, we need to understand the services Medicare Part A covers. We already know we can get Medicare Part A for free after working for 10 years, but let’s quickly recap.
Medicare Part A is hospital insurance for Medicare beneficiaries. It is probably most well-known for covering services provided on an “inpatient” basis in the hospital. It also covers a few other skilled services I never want to use like hospice, home health, and skilled nursing care. We pay for Medicare Part A through Medicare FICA taxes. I prefer to call them “premiums”, not taxes.
And don’t confuse inpatient services with observation services; Medicare Part B covers these.
Unfortunately, Medicare Part A does not cover the entire cost of the inpatient hospital stay. They pass the first $1,484 of the cost onto the Medicare beneficiary. So, an inpatient hospital stay will usually come hand-in-hand with the Medicare Part A deductible.
Hey, at least it covers the delicious food you get while you’re in the hospital.
How Long Does the Medicare Part A Deductible Cover Us For?
Generally, for the calendar year 2021, the patient will be on the hook for this first $1,484 of the inpatient hospital bill during the “benefit period”. The benefit period only lasts for 60 inpatient days. So once the Medicare beneficiary ‘fills up’ their $1,484 bucket, Medicare covers them the rest of the way until they hit day 61.
If the hospital stay goes on beyond 60 days, things get a little more complicated. Since most of the time they are less than 60 days, we are going to stay away from those longer periods of inpatient care for today.
The patient won’t pay anything more than the $1,484 assuming all the inpatient days are medically necessary. They even cover “self-administered drugs”, a pain point for Medicare beneficiaries who receive outpatient/observation services in the hospital setting.
There is one thing to note here though. When the hospitalist or physician does “rounding” on the hospital inpatient units, those charges are filed to Medicare Part B. Since those are considered Medicare Part B services, the patient will get hit with a 20% coinsurance on those services. In other words, Medicare Part A does not cover these services.
By How Much Does the 2020 Medicare Part A Deductible Usually Increase?
From 2011 to 2021 the Medicare Part A deductible bucket has increased by a total of $352. This represents an average increase of about 2.75% per year during a period of time where inflation has been relatively moderate. From 2004 – 2007 we were seeing +4% increases annually. Therefore, Max was somewhat shocked by the 5.4% increase for 2021.
Unlike the health savings account deductible requirements, the increase is technically not tied directly to inflation.
The statutory formula for the increase is quite complicated. You might need a degree or two to understand it. It includes things like “real case-mix” and “payment weighted average of the applicable percentage increase”. Smoke and mirrors if you ask me and meaningless to even the above-average healthcare consumer. They round it to the nearest multiple of $4.00; I suppose most of us learned our rounding skills at some point.
Here is the equation if you want to see it:
2020 (prior year) Medicare deductible X payment-weighted average increase X increase in real case-mix
$1,408 X 1.0239 X 1.03 = $1,484 (rounded to the nearest $4.00)
That real case-mix is driving the inflated increase for 2021, most likely related to higher acuity cases resulting from COVID-19. For the 2020 calculation, we were only looking at a 1.005 real case-mix adjustment.
Here is some history of the Medicare Part A deductible Bucket.
Max’s 2022 Forecast
This convoluted calculation makes it a hard number to predict. Last year, I predicted we would land at $1,451 for the 2021 calendar year. I undershot it by $33. I blame COVID-19. For 2022, Max is expecting we will finally break $1,500, coming in at $1,524.
My long-term forecast is once I hit Medicare age in 2048 the Medicare Part A deductible will come in at about $3,000 per hospital stay. We all know the program will look much different by then.
At some point, healthcare costs became the largest budget line for a lot of households in America. This puts understanding these costs at the forefront of personal finance.
Even though I am more than 30 years out from becoming eligible for the Medicare program, I still watch numbers like this one every single year. Not only does it help me with long term planning, but I also have family members already eligible for the Medicare program. They sometimes need help figuring this stuff out.
Nobody likes to be in the hospital. But when we do have an unexpected hospital stay, we can now plan for some of the costs that come along with it. For example, we are allowed to use the tax-sheltered funds in our health savings account to pay for this deductible.
Assuming someone is ordered inpatient by a qualified practitioner and is a Medicare beneficiary, we can expect to get hit with a $1,484 deductible in 2021. This assumes the hospital stay is 60-days or less.
*There are several nuances to the Medicare program that can’t always be anticipated. Please work with your hospital and Patient Navigators to make sure you completely understand your stay in a hospital. A small blog like this is never responsible for unexpected medical expenses you might incur in the hospital setting.