As we age, the right health insurance coverage plays a starring role in our overall health, well-being, and wallet. According to Fidelity’s State of Retirement Planning study, the average cost of out-of-pocket health care expenses for a couple retiring at age 65 is $295,000. In this article, we'll take a comprehensive look at Original Medicare costs and pricing for Medicare Part C, Part D, and Medigap. We'll also cover Medicare income limits and discuss how to avoid budget-busting late enrollment penalties. Ready to make sense of Medicare costs? Let's get started!
Table of Contents
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. It's important to get 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 on a monthly basis.
- 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.
How Medicare Part A works is complex as it's based on benefit periods. This is 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. This means you must pay the inpatient hospital deductible for each benefit period.
|Medicare Part A premium||Medicare Part A deductible||Medicare Part A inpatient hospital coinsurance||Medicare Part A skilled nursing facility (SNF) coinsurance1|
||$1,556 deductible for each benefit period||
Inside Tip: For an in-depth look at Medicare Part A coverage, costs, and enrollment, check out everything you need to know about Medicare Part A.
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.
|Medicare Part B premium||Medicare Part B deductible||Medicare Part B coinsurance|
|The standard Part B premium is $170.10 (or higher depending on your income)||$233||
20 percent of the Medicare-approved amount for doctor services and items, including:
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. This 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 $5,091 for in-network services and $9,208 for both in-network and out-of-network services.2
FYI: If you're considering enrolling in a Medicare Advantage plan, explore our Medicare Part C guide.
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.
From The Experts: Find out which prescription drug providers earned high marks from SeniorLiving.org in our Medicare Part D providers report!
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, be sure 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). To keep things simple, your Medicare Part D premium can 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 (also known as 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 their 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 policy rating||How it affects cost|
|Community-rated (also called “no age-rated”)||The same monthly premium is charged to everyone with the Medigap policy, regardless of age.|
|Issue-age-rated (also called “entry age-rated”)||The premium is based on your age when you buy the Medigap policy. Premiums are lower for people who buy at a younger age and won't change as you get older.|
|Attained-age-rated||The premium is based on your current age, so your premium goes up as you get older. Premiums are low for younger buyers, but go up as you age. They may be the least expensive at first, but they can eventually become the most expensive.|
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
FYI: Medicare Advantage and Medigap may sound similar, but they're not! Visit our Medicare Advantage vs. Medigap page to find out how each plan works.
Medicare Late Enrollment Penalties
Mark your calendar and keep a close eye on your Medicare initial enrollment period. If you miss this important timeframe, you may be charged a late enrollment penalty. Medicare late enrollment penalties can be steep. The longer you wait to enroll, the greater the hit to your nest egg may be!
|Medicare late enrollment penalty||Penalty overview4||Duration||Example|
|Medicare Part A penalty||If you don’t qualify for premium-free Part A and you don't buy it when you’re first eligible, you may be charged an extra 10 percent on top of the monthly premium.||You may pay the higher premium for twice the number of years you could have had Part A, but didn’t sign up.||If you wait two years to enroll in Part A, you may pay the premium penalty for four years.|
|Medicare Part B penalty||You may be charged an additional 10 percent for each year you were eligible for Medicare Part B, but didn't enroll.||This is a lifetime late enrollment penalty. You may pay the late enrollment penalty on top of your monthly premium for as long as you have Medicare Part B.||If you wait two years to enroll in Part B, your premium penalty may be 20 percent.|
|Medicare Part D penalty||If you don't join a Medicare drug plan when you first get Original Medicare, you may pay an extra 1 percent, per month, of the national base beneficiary premium for each month you could have signed up for Part D, but didn't.||You may pay the penalty on top of your monthly premium for as long as you have Part D coverage. The penalty may apply even if you change your Medicare plan.||If you wait two years to enroll in a Part D plan, your monthly Part D penalty may be 24 percent.|
Money-Saving Tip: Avoid high-cost Medicare late enrollment penalties! Check out our complete Medicare enrollment guide for how and when to enroll.
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 2022, individuals with a MAGI of $91,000 or less and married couples with a MAGI of $182,000 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 $68 on top of the Medicare Part B standard premium and an additional $12.40 on top of their Plan D premium.
Did You Know: Older adults with limited income and assets may qualify for Medicare and Medicaid. Find out the difference between Medicare and Medicaid and see if you are eligible for both.
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.
Frequently Asked Questions
- Does Medicare have family coverage?
No. Medicare doesn’t offer plans for couples or families. You and your spouse don’t have to make the same choice.
- Should I sign up for Medicare if I have VA benefits?
Yes. The U.S. Department of Veterans Affairs recommends that individuals with veterans benefits also sign up for Medicare.
- Is there someone who can help me understand my Medicare coverage choices?
The State Health Insurance Assistance Programs (SHIPs) provide unbiased help to Medicare beneficiaries, their families, and caregivers.
- Can I appeal the Medicare income premium decision?
Yes. If you feel there is an error in your modified adjusted gross income, you have the right to appeal. You can complete a Request for Reconsideration online, send it via mail, or contact your local Social Security office.
- How many people are enrolled in Medicare?
Over 63 million Americans are enrolled in Medicare. This includes Original Medicare, Medicare Advantage plans, and other health plans like Medigap.6