A Guide to Medicare Costs

How Much Does Medicare Cost?

Trying to understand how Medicare works (and how it affects your budget) can make your head spin! Before we dive into Medicare costs, let’s talk about common cost-related Medicare terms and their meanings. Do your best to be familiar with the definitions below, as you’ll see them throughout our Medicare cost breakdown.

• Premium: This is a payment made to Medicare or a private insurance company. Most premiums are paid every month.
• Deductible: This is the amount you must pay out-of-pocket before your insurance begins to pay for health care or prescription coverage.
• Coinsurance: After you meet your deductible, coinsurance is the amount you may have to pay as part of Medicare cost-sharing. Coinsurance is typically a percentage of the Medicare-approved cost (for example, 20 percent).
• Copayment: Similar to coinsurance, a copayment is an amount you may be required to pay for a medical service (like a visit to your doctor) or a prescription drug. Copayments are a set dollar amount (for example, $10 per doctor visit).
• Medicare Part D Donut Hole: Most Medicare drug plans have a coverage gap known as a donut hole. This donut hole is a temporary limit on what the drug plan will cover for drugs.

How Much Does Medicare Part A Cost?

Medicare Part A is the hospital insurance portion of Original Medicare. Most people are eligible for premium-free Part A if they paid Medicare taxes for a certain amount of time while working. Even if you qualify for a zero premium, Medicare Part A still costs money through deductibles and coinsurance.

Medicare Part A is complicated to explain, as it’s based on benefit periods. It’s how Medicare oversees your hospital and skilled nursing facility care. A benefit period begins the day you’re admitted as an inpatient in a hospital or skilled nursing facility (SNF). The benefit period ends when you haven’t received any inpatient hospital or SNF care for 60 days in a row. So, if you go into a hospital or a skilled nursing facility again after one benefit period has ended, a new benefit period begins. It means you must pay the inpatient hospital deductible for each benefit period.

How Much Does Medicare Part B Cost?

Medicare Part B is the medical insurance portion of Original Medicare. Part B covers medically necessary services and supplies along with preventative care. Anyone eligible for Medicare Part A can enroll in Part B. Medicare Part B’s annual deductible and coinsurance will reset at the end of each calendar year. Medicare Part B is optional. For the inside scoop, head over to our Medicare Part B guide that explains how (and when) to enroll, prices, and services covered.

If you’re confused about the multitude of Medicare options, Jeff Hoyt, editor-in-chief of SeniorLiving.org, has you covered! Watch the introduction to the Medicare video below to learn more.

How Much Does Medicare Part C Cost?

Medicare Part C, also called Medicare Advantage, is an alternative to Original Medicare. Medicare Part C plans include Original Medicare Parts A and B. Medicare Advantage plans also often include Part D prescription drug coverage and added benefits like dental, vision, and hearing plans.

Medicare Part C is only available through private insurance companies that contract with Medicare. It means each insurance company’s plan features, pricing, and availability will vary based on where you live. For example, Humana Medicare Advantage plan options may be different from other Part C insurance carriers like UnitedHealthcare and Aetna. Be sure to shop around, as you may save big on benefits!

Medicare Advantage plans have a yearly out-of-pocket limit on what you pay for services Medicare Part A and Part B cover. After you reach your Plan C limit, you’ll pay nothing for services Part A and Part B covers for the rest of the year. The average out-of-pocket limit for Medicare Advantage enrollees is $4,972 for in-network services and $9,245 for both in-network and out-of-network services.

How Much Does Medicare Part D Cost?

According to the recent West Health Healthcare in America report, 94 percent of Americans aged 65 and older agree that the cost of prescription drugs in America is too high, and more than one in 10 Americans age 65-plus have skipped a pill to save money in the past year. As the prices for prescription drugs continue to soar, so does the need for a supplemental drug plan. This is where Medicare Part D comes into play.

Many older adults are surprised that Original Medicare doesn’t cover prescription medication. Medicare Part D, an optional prescription drug plan, helps reduce out-of-pocket costs. Part D is a separate prescription drug plan available through private insurance companies. Medicare Part D comes with a monthly premium and often a plan deductible. Part D pricing will vary based on the insurance company you choose.

As you research prescription drug plans, remember to verify that the medications you take are covered and what your premiums, deductibles, and copays will be. Understanding your drug plan can help avoid a costly coverage gap (known as the Part D donut hole). Your Medicare Part D premium can simply be deducted from your Social Security payment.

Medicare Supplement Insurance Costs

With Original Medicare, there’s no annual limit on what you pay out of pocket. Medicare Supplement Insurance (AKA Medigap) is an optional insurance policy to help lower your share of Original Medicare’s coverage gaps (like copayments, coinsurance, and deductibles). All 10 Medigap plans are federally standardized. This means the benefits for the Medicare plan you choose (for example, Plan G) will be identical no matter which insurance company you enroll with.

However, Medigap plan pricing is not standardized, so costs (and how costs are determined) will vary from carrier to carrier. The Medigap insurance plans we recommend often include plan perks, household discounts, online enrollment discounts, and the option to bundle with other insurance plans like long-term care insurance.

A significant factor in Medicare supplement insurance costs is how the plan is priced and rated. It’s critical to find out how each insurance company prices its plans, as it will affect how much you pay now and in the future. Medigap policies can be priced (or rated) in three different ways:3

Medigap premium costs can also be affected by several conditions, including:

• Where you live
• Your gender
• Your age
• Your tobacco usage
• Your marital status
• The Medigap plan selected
• When you enroll

Medicare Late Enrollment Penalties

Mark your calendar and watch your Medicare initial enrollment period. You may be charged a late enrollment penalty if you miss this timeframe. Medicare late enrollment penalties can be steep. The longer you wait to enroll, the greater the hit to your nest egg could be!

Are Medicare Premiums Based on Income?

Yes. Medicare’s standard premium has a modified adjusted gross income (MAGI) income limit. Less than five percent of people with Medicare are affected, so most people will not pay a higher premium.5 For 2023, individuals with a MAGI of $97,000 or less and married couples with a MAGI of $194,000 or less pay the standard premium. Individuals with a MAGI over these limits will pay an additional premium amount for Medicare Part B and Medicare Part D prescription drug coverage.

This additional amount is known as an income-related monthly adjustment amount. For example, an individual with a MAGI of $100,000 may pay an extra $65.90 on top of the Medicare Part B standard premium and an additional $12.20 on top of their Plan D premium.

Remember that MAGI limits, premiums, and income-related adjustments can change each year. If you must pay higher premiums, the Social Security Administration will send you a letter with the premium amount(s) and indicate how they determined the income-related adjustment.