cms if they are found to have billed medicare in these cases. under the 2003 law that created medicare part d, the social security administration offers an extra help program to lower-income seniors such that they have almost no drug costs; in addition, approximately 25 states offer additional assistance on top of part d. for beneficiaries who are dual-eligible (medicare and medicaid eligible) medicaid may pay for drugs not covered by part d of medicare. most of this aid to lower-income seniors was available to them through other programs before part d was implemented. coverage by beneficiary spending is broken up into four phases: deductible, initial spend, gap (infamously called the "donut hole"), and catastrophic. under a cms template, there is usually a $100 or so deductible before benefits commence (maximum of $415 in 2019) followed by the initial spend phase where the templated co-pay is 25%, followed by gap phase (where originally the templated co-pay was 100% but that will fall to 25% in 2020 for all drugs), followed by the catastrophic phase with a templated co-pay of about 5%. the beneficiaries' oop spend amounts vary yearly but are approximately as of 2018 $1000 in the initial spend phase and $3000 to reach the catastrophic phase. this is just a template and about half of all part d plans differ (for example, no initial deductible, better coverage in the gap) with permission of cms, which it typically grants as long as the sponsor provides at least the actuarial equivalent value. out-of-pocket costs no part of medicare pays for all of a beneficiary's covered medical costs and many costs and services are not covered at all. the program contains premiums, deductibles and coinsurance, which the covered individual must pay out-of-pocket. a study published by the kaiser family foundation in 2008 found the fee-for-service medicare benefit package was less generous than either the typical large employer preferred provider organization plan or the federal employees health benefits program standard option. some people may qualify to have other governmental programs (such as medicaid) pay premiums and some or all of the costs associated with medicare. premiums most medicare enrollees do not pay a monthly part a premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid federal insurance contributions act taxes. the benefit is the same no matter how much or how little the beneficiary paid as long as the minimum number of quarters is reached. medicare-eligible persons who do not have 40 or more quarters of medicare-covered employment may buy into part a for an annual adjusted monthly premium of: $248.00 per month (as of 2012) for those with 30–39 quarters of medicare-covered employment, or $451.00 per month (as of 2012) for those with fewer than 30 quarters of medicare-covered employment and who are not otherwise eligible for premium-free part a coverage. most medicare part b enrollees pay an insurance premium for this coverage; the standard part b premium for 2019 is $135.50 a month. a new income-based premium surtax schema has been in effect since 2007, wherein part b premiums are higher for beneficiaries with incomes exceeding $85,000 for individuals or $170,000 for married couples. depending on the extent to which beneficiary earnings exceed the base income, these higher part b premiums are from 30% to 70% higher with the highest premium paid by individuals earning more than $214,000, or married couples earning more than $428,000. medicare part b premiums are commonly deducted automatically from beneficiaries' monthly social security deposits. they can also be paid quarterly via bill sent directly to beneficiaries or via deduction from a bank account. these alternatives are becoming more common because whereas the eligibility age for medicare has remained at 65 per the 1965 legislation, the so-called full retirement age for social security has been increased to over 66 and will go even higher over time. therefore, many people delay collecting social security but join medicare at 65 and have to pay their part b premium directly. if you have higher income, you will pay an additional premium amount for medicare part b and medicare prescription drug coverage. the additional amount is called the income-related monthly adjustment amount (irmaa). part b: for most beneficiaries, the government pays a substantial portion—about 75 percent—of the part b premium, and the beneficiary pays the remaining 25 percent. if you are a higher-income beneficiary, you will pay a larger percentage of the total cost of part b based on the income you report to the internal revenue service (irs). you will pay monthly part b premiums equal to 35, 50, 65, 80, or 85 percent of the total cost, depending on what you report to the irs (for 2020, that would be on your 2018 tax return). part d: if you are a higher-income beneficiary with medicare prescription drug coverage, you will pay monthly premiums plus an additional amount, which is based on what you report to the irs (for 2020, that would be on your 2018 tax return). filing as single, head of household, or qualifying widow(er) adjusted gross income part b irmaa part d irmaa $87,000.01–109,000.00 $57.80 $12.20 $109,000.01–136,000.00 $144.60 $31.50 $136,000.01–163,000.00 $231.40 $50.70 $163,000.01–499,999.99 $318.10 $70.00 more than $499,999.99 $347.00 $76.40 married and filing jointly adjusted gross income part b irmaa part d irmaa $174,000.01–218,000.00 $57.80 $12.20 $218,000.01–272,000.00 $144.60 $31.50 $272,000.01–326,000.00 $231.40 $50.70 $326,000.01–749,999.99 $318.10 $70.00 more than $749,999.99 $347.00 $76.40 married and filing separately adjusted gross income part b irmaa part d irmaa $87,000.01–412,999.99 $318.10 $70.00 more than $412,999.99 $347.00 $76.40 part c plans may or may not charge premiums (almost all do), depending on the plans' designs as approved by the centers for medicare and medicaid services. part d premiums vary widely based on the benefit level. deductible and coinsurance part a—for each benefit period, a beneficiary pays an annually adjusted: a part a deductible of $1,288 in 2016 and $1,316 in 2017 for a hospital stay of 1–60 days. a $322 per day co-pay in 2016 and $329 co-pay in 2017 for days 61–90 of a hospital stay. a $644 per day co-pay in 2016 and $658 co-pay in 2017 for days 91–150 of a hospital stay., as part of their limited lifetime reserve days. all costs for each day beyond 150 days coinsurance for a skilled nursing facility is $161 per day in 2016 and $164.50 in 2017 for days 21 through 100 for each benefit period (no co-pay for the first 20 days). a blood deductible of the first 3 pints of blood needed in a calendar year, unless replaced. there is a 3-pint blood deductible for both part a and part b, and these separate deductibles do not overlap. part b—after beneficiaries meet the yearly deductible of $183.00 for 2017, they will be required to pay a co-insurance of 20% of the medicare-approved amount for all services covered by part b with the exception of most lab services, which are covered at 100%. previously, outpatient mental health services was covered at 50%, but under the medicare improvements for patients and providers act of 2008, it gradually decreased over several years and now matches the 20% required for other services. they are also required to pay an excess charge of 15% for services rendered by physicians who do not accept assignment. the deductibles, co-pays, and coinsurance charges for part c and d plans vary from plan to plan. all part c plans include an annual out-of-pocket (oop) upper spend limit. original medicare does not include an oop limit. medicare supplement (medigap) policies of the medicare beneficiaries who are not dual eligible for both medicare (around 10% are fully dual eligible) and medicaid or that do not receive group retirement insurance via a former employer (about 30%) or do not choose a public part c medicare health plan (about 35%) or who are not otherwise insured (about 5%—e.g., still working and receiving employer insurance, on va, etc.), almost all the remaining elect to purchase a type of private supplemental indemnity insurance policy called a medigap plan (about 20%), to help fill in the financial holes in original medicare (part a and b) in addition to public part d. note that the percentages add up to over 100% because many beneficiaries have more than one type of additional protection on top of original medicare. these medigap insurance policies are standardized by cms, but are sold and administered by private companies. some medigap policies sold before 2006 may include coverage for prescription drugs. medigap policies sold after the introduction of medicare part d on january 1, 2006, are prohibited from covering drugs. medicare regulations prohibit a medicare beneficiary from being sold both a public part c medicare health plan and a private medigap policy. as with public part c health plans, private medigap policies are only available to beneficiaries who are already signed up for original medicare part a and part b. these policies are regulated by state insurance departments rather than the federal government although cms outlines what the various medigap plans must cover at a minimum. therefore, the types and prices of medigap policies vary widely from state to state and the degree of underwriting, discounts for new members, and open enrollment and guaranteed issue rules also vary widely from state to state. as of 2016, 11 policies are currently sold—though few are available in all states, and some are not available at all in massachusetts, minnesota and wisconsin (although these states have analogs to the lettered medigap plans). these plans are standardized with a base and a series of riders. these are plan a, plan b, plan c, plan d, plan f, high deductible plan f, plan g, plan k, plan l, plan m, and plan n. cost is usually the only difference between medigap policies with the same letter sold by different insurance companies in the same state. unlike public part c medicare health plans, medigap plans have no networks, and any provider who accepts original medicare must also accept medigap. all insurance companies that sell medigap policies are required to make plan a available, and if they offer any other policies, they must also make either plan c or plan f available as well, though plan f is scheduled to sunset in the year 2020. anyone who currently has a plan f may keep it. many of the insurance companies that offer medigap insurance policies also sponsor part c health plans but most part c health plans are sponsored by integrated health delivery systems and their spin-offs, charities, and unions as opposed to insurance companies. payment for services medicare contracts with regional insurance companies to process over one billion fee-for-service claims per year. in 2008, medicare accounted for 13% ($386 billion) of the federal budget. in 2016 it is projected to account for close to 15% ($683 billion) of the total expenditures. for the decade 2010–2019 medicare is projected to cost 6.4 trillion dollars. reimbursement for part a services for institutional care, such as hospital and nursing home care, medicare uses prospective payment systems. in a prospective payment system, the health care institution receives a set amount of money for each episode of care provided to a patient, regardless of the actual amount of care. the actual allotment of funds is based on a list of diagnosis-related groups (drg). the actual amount depends on the primary diagnosis that is actually made at the hospital. there are some issues surrounding medicare's use of drgs because if the patient uses less care, the hospital gets to keep the remainder. this, in theory, should balance the costs for the hospital. however, if the patient uses more care, then the hospital has to cover its own losses. this results in the issue of "upcoding", when a physician makes a more severe diagnosis to hedge against accidental costs. reimbursement for part b services payment for physician services under medicare has evolved since the program was created in 1965. initially, medicare compensated physicians based on the physician's charges, and allowed physicians to bill medicare beneficiaries the amount in excess of medicare's reimbursement. in 1975, annual increases in physician fees were limited by the medicare economic index (mei). the mei was designed to measure changes in costs of physician's time and operating expenses, adjusted for changes in physician