While many believe Medicare to be entirely free, this is actually a misconception. Although you may be eligible for premium-free Medicare Part A (hospital insurance), which means you won’t have to pay any monthly fees, there are other Medicare cost that you may need to cover with your own funds.
Understanding the Different Parts of Medicare
Before we dive into the costs, let’s review the different parts of Medicare. Medicare is divided into four parts:
Part A
Hospital Insurance
Part A covers inpatient hospital stays, skilled nursing care, hospice care, and home health care. Most people don’t pay a premium for Part A because they or their spouse paid Medicare taxes while working.
Part B
Medical Insurance
Part B covers doctor visits, outpatient care, preventive services, and medical equipment. Most people pay a monthly premium for Part B, and the amount depends on their income.
Part C
Medicare Advantage plans are offered by private insurance companies that contract with Medicare to provide Part A and Part B benefits. They may also offer additional benefits, such as vision, hearing, and dental coverage. The costs and benefits of Medicare Advantage plans vary depending on the plan.
Part D
Part D covers prescription drugs. Like Part B, most people pay a monthly premium for Part D, and the amount depends on their income.
How the different parts of Medicare affect what you pay
Depending on your choice, you may need to pay premiums, copays, coinsurance, deductibles or other costs
How much does Original Medicare cost?
Medicare Parts A and B offer essential medical care coverage, and together they are known as Original Medicare.
Part A covers inpatient hospital stays and some care outside of the hospital, such as skilled nursing care following your hospital stay. While you typically won’t need to pay a monthly premium for Part A, you will need to pay a deductible before Medicare will cover your hospital expenses. As of 2023, the Part A deductible is $1,600, and if you spend more than 60 days in the hospital, you’ll have coinsurance to pay as well.
Let’s explore these costs in more detail.
| MEDICARE COSTS | |
|---|---|
|
Part A premium |
If you or your spouse worked and paid Medicare taxes for at least 10 years, you qualify for premium-free Part A. (Most people do.)
If you don’t meet that requirement, you can pay a monthly premium for coverage. The amount depends on how long you’ve worked and paid Social Security taxes. Three months of work count as one “work credit.”
In 2023, the standard Part A premium is $506 if you have fewer than 30 credits. If you have 30 to 39 credits, it’s $278. |
|
Part A hospital inpatient deductible and coinsurance |
In 2023, you pay:
$1,600 deductible for each benefit period (A benefit period begins the day you go into the hospital. It ends when you haven’t received any care for 60 days in a row.)
Days 1-60: $0 coinsurance for each benefit period
Days 61-90: $400 coinsurance per day after day 60 of each benefit period
Days 91 and beyond: $800 coinsurance per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over the course of your lifetime)
Beyond lifetime reserve days: all costs |
|
Part B |
Part B covers:
Doctor visits
Outpatient procedures, even if they occur at a hospital
Lab services and other testing
Durable medical equipment (think wheelchairs, hospital beds and oxygen tanks)
Most people pay a monthly premium for Part B. They must meet a deductible before it begins paying for services. The standard monthly payment is $164.90 in 2023. The annual deductible for Medicare Part B is $226 in 2023.
If your income is more than a certain amount, you pay the standard premium plus an extra charge. This is called an Income-Related Monthly Adjustment Amount (IRMAA). |
|
Part D |
Medicare Part D provides coverage for prescription drugs and can offer some protection against the cost of medications.
The premium amount for Part D coverage varies depending on the specific plan and your location. As of 2023, the average monthly premium for Part D is $31.50, and the maximum annual deductible is $505. Additionally, as with Part B, you may be required to pay an additional monthly charge known as the Part D IRMAA if your income exceeds a certain threshold. When you pick up your prescription medications, you may also need to pay a copayment or coinsurance. The amount you’ll pay depends on the cost of the medication, with more expensive prescriptions resulting in higher out-of-pocket costs. |
|
Part C |
Medicare Part C plans, also known as Medicare Advantage, offer coverage that is at least equal to Original Medicare, and often provide additional benefits. These can include coverage for prescription drugs, dental, vision, and hearing services, gym memberships, and even an allowance for over-the-counter (OTC) items.
To enroll in Medicare Advantage, you must first enroll in Original Medicare and pay your Part B premium in addition to your Medicare Advantage plan premium. Additionally, these plans typically require a copay for each service, with the amount varying depending on the specific plan you choose. |
How much does Medigap cost?
Private Medicare Supplement (Medigap) Insurance is intended to complement Medicare Part A and Part B. These plans cover some of the expenses that Original Medicare doesn’t, such as deductibles, copayments, and other costs.
The cost of Medigap premiums varies depending on the plan and the state you live in. Additionally, the premium may change on an annual basis.
Who Pays the cost of Medicare?
The cost of Medicare is divided among the government, taxpayers, and beneficiaries. To finance the program, payroll taxes are collected from workers and their employers, and beneficiaries pay premiums. General revenue from the federal government is also used. The Medicare trust fund, which is funded by payroll taxes, is used to cover the cost of Part A hospital insurance benefits. While Part B and Part D benefits are partially financed by premiums paid by beneficiaries, the remaining cost is covered by general revenue.
In addition, beneficiaries with higher incomes may be required to pay higher premiums for their Medicare coverage. The amount of premiums for Part B and Part D is determined by income, with those in higher income brackets paying more.
Overall, Medicare is a social insurance program designed to provide health coverage for seniors and certain individuals with disabilities.
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