Will Medicare Cover all My Healthcare Costs?
No. Medicare doesn’t pay all of your medical costs. Many participants pay thousands of dollars each year in premiums, deductibles, drug costs, and other out-of-pocket medical expenses. For example, in 2009, people who paid no premium for Medicare’s hospital coverage still had to pay $1,068 for up to 60 days in the hospital. Median out-of-pocket costs for individuals on Medicare was $3,103 in 2006, according to an AARP study. For people on fixed retirement or disability incomes, these costs can be a burden.

What is the Donut Hole?
Most Medicare drug plans include a coverage gap known as the donut hole, a temporary limit on what Medicare will pay for covered drug costs until you reach a very high, or catastrophic level. During the time your drug costs are in the donut hole, you pay all out-of-pocket costs for your drugs.

In 2012, once you and your plan have paid $2,930 for the total retail cost of covered drugs, you’re in the donut hole until your drug costs reach $4,700. Yearly deductible, coinsurance and copayments for drugs count toward the yearly accrued cost. Drug plan premiums and the cost of drugs not covered by the plan do not count toward your coverage total. Once you hit the catastrophic cost level, you pay either $2.60 per month for generic and $6.50 per month for brand-name drugs, or five percent of the medication's retail cost, whichever cost is higher.

However, in 2010 the government passed the Patient Protection and Affordable Care Act (ACA), offering Medicare participants certain discounts to offset costs in the donut hole. In 2011, Medicare began offering participants in the donut hole a 50 percent manufacturer-paid discount on covered brand-name drugs and a seven percent discount on generic drugs, although the entire drug price counts toward your total accrued costs.

ACA will offer additional savings to participants until the donut hole phases out in 2020. For more information on the drug coverage gap, go to Medicare.gov

People with very limited financial resources may apply for a Social Security program called Medicare Extra Help, which may be worth up to $4,000 in assistance for costs related to Medicare prescription drug coverage. If you qualify for Extra Help, you pay no more than $2.50 for each generic drug and $6.30 for each brand name drug. For more information on eligibility, click here.

If you have traditional Medicare coverage but need treatments or services that aren’t covered, you may purchase supplemental insurance policies called Medigap plans. A Medigap policy is sold by an approved private insurer and must clearly identify itself as "Medicare Supplemental Insurance.” Medigap policies sold after 2006, when Part D was created, do not include drug coverage. People who purchased Medigap policies with drug coverage prior to 2006 cannot add Part D coverage; they must drop their Medigap drug coverage or get a new Medigap plan that doesn’t cover drugs.