Medicare cost basics
Medicare isn't free. The amount you pay depends on the coverage you choose, the health care services and benefits you use during the year, and if your insurance plan has rules about in and out-of-network costs.
Costs you may pay with Medicare
Medicare Part B and most Medicare Part C, Part D and Medigap plans charge monthly premiums. In some cases, you may also have to pay a premium for Part A. A premium is a fixed amount you pay for coverage to either Medicare or a private insurance company, or both.
You'll also pay a share of the cost for your care, while your Medicare or Medigap coverage will pay the rest. There are 3 types of cost sharing:
A set amount you pay out of pocket for covered services before Medicare or your plan begins to pay.
A fixed amount you pay at the time you receive a covered service or benefit. For example, you might pay $20 when you visit the doctor or $12 when you fill a prescription.
The amount you may be required to pay as your share for the cost of a covered service. For example, Medicare Part B pays about 80% of the cost of a covered medical service and you would pay the rest.
What are my costs for Original Medicare (Part A and Part B)?
Most people don’t pay a Part A premium. You may pay a Part A premium if you or your spouse haven’t worked and paid taxes for at least 10 years. Part B has a monthly premium you pay directly to Medicare, and the amount you pay can vary based on your income level. Other costs you may pay with Original Medicare include deductibles, coinsurance and copays.
Learn More About the Specific Costs for Medicare Part A and Part B
Each Medicare Advantage (Part C) plan sets its own specific costs, but the types of costs you may pay include premiums, deductibles, copays and coinsurance. Not all plans will have deductibles, copays or coinsurance, so check each plan's cost-sharing rules carefully.
Medicare Advantage plans also limit how much you'll pay out of pocket every year. This is called the out-of-pocket maximum, and each year the limit is set by Medicare. Medicare Advantage plans choose their own out-of-pocket maximums that are less than or equal to the one set by Medicare for the year. For 2023, the annual out-of-pocket maximum limit is $7,400. After you reach the annual out-of-pocket maximum, your plan will pay all your costs for Medicare-covered services for the rest of the plan year. Costs that don't apply to your annual out-of-pocket maximum include premiums, Part D prescription drugs, and extra benefits your plan might have that aren't covered by Original Medicare.
Medicare supplement (Medigap) plans are designed to help limit out-of-pocket costs by helping to pay for some of the costs Original Medicare (Part A and Part B) doesn't pay. There are Medigap plan options available with low to no copays. For example, the only out-of-pocket costs associated with Plan G would be your monthly premium and the annual Part B deductible ($226 in 2023). Medigap plans offer peace of mind with predictable out-of-pocket costs. Benefits and costs vary depending on the plan you choose.
There are 2 Medigap plans (Plan K and Plan L) that have a yearly out-of-pocket limit. These plans offer a lower monthly premium than other Medicare supplement plans because they pay a percentage of the coinsurance and you pay the rest. Once you meet the annual out-of-pocket limit, the plans pay 100% of covered services for the rest of the calendar year. Benefits, if covered, are covered 100% by most plans.
There are different plan options available in Massachusetts, Minnesota and Wisconsin.
Stand-alone Part D prescription drug plans and Medicare Advantage plans with drug coverage set their own costs, but the types of costs they can include are similar—premiums, deductibles, copays and coinsurance.
Stand-alone Part D plans don't have an out-of-pocket maximum. The amount you'll pay for your prescription drugs depends on the drug payment stage you're in, as well as the tier a drug is organized in (if your plan has a tiered formulary). Part D plan costs can vary widely, even for similar coverage. Please review plan details carefully.
- Part D plans with a deductible:
You pay the full cost for drugs until you reach the deductible amount. Then you move to the Initial Coverage stage.
- Part D plans without a deductible:
This stage doesn't apply. Your coverage starts in the Initial Coverage stage.
- $505 is the maximum deductible amount Part D plans can charge in 2023.
- You pay a copay or coinsurance for your prescription drug and the plan pays the rest.
- You stay in the initial coverage stage until your total drug costs reach $4,660 in 2023.
Coverage Gap (Donut Hole)
When your drug costs reach $4,660 in 2023, you enter the coverage gap or “donut hole.”
- In 2023, you pay:
- 25% of the costs for brand name drugs
- 25% of the costs for generic drugs
- You stay in the coverage gap stage until your total out-of-pocket costs reach $7,400 in 2023.
- When your out-of-pocket costs reach $7,400 in 2023, you enter the catastrophic coverage stage.
- You pay a small copay or coinsurance amount.
- You stay in the catastrophic coverage stage for the rest of the plan year.
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What if I need help paying Medicare costs?
People with limited incomes may qualify for help to pay for their Medicare costs, including costs for care they receive. There are several programs that help pay Medicare costs. Many people qualify for these saving and don't even know it. Don't hesitate to apply. Income and resource limits vary by program.
Extra Help program from Medicare:
If you qualify, Medicare could pay for some or all of your drug costs, including premiums, deductibles, copays and coinsurance.
Medicaid provides health care coverage for individuals and families with limited incomes. It may also include some services not covered by Medicare, like prescription drugs, eye care or long-term care—at no or low cost. If you have both Medicaid and Medicare, you may be eligible for a Dual Special Needs Plan (D-SNP).
Medicare Savings Programs:
Medicare Savings Programs help pay Original Medicare (Part A and Part B) premiums, deductibles, and coinsurance. You automatically qualify for Extra Help (see above) if you qualify for a Medicare Savings Program.
Programs of All-Inclusive Care for the Elderly (PACE):
Combine medical, social and long-term care services for people over the age of 55 who qualify. This program is not available in all states.
Other programs may be available in your state, such as State Pharmaceutical Assistance Programs.
Each program will have its own rules for qualifying so be sure to read about each carefully.
It's easy to focus on just premiums when looking at how much a plan can cost. Premiums are regular monthly expenses that must fit into a budget, and most of us are aware of our monthly expenses. But it's a better idea to look at all of your Medicare costs together—including both your premiums and all out-of-pocket costs. Why? Because sometimes a plan may look like a good choice with a low premium but may actually cost you more with high out-of-pocket costs. For example, a plan with a low monthly premium might end up costing you more. You may have to pay a large deductible, or you might have high co-pays for doctor visits or prescriptions. The reverse could also be true—a seemingly high premium but low out-of-pocket costs.
Think about how you will use your benefits and consider all the costs of Medicare. Also, you may be able to reduce your health care costs if you take steps to:
- Understand Medicare cost sharing
- Use health care services wisely
- Adopt healthy lifestyle behaviors
Medicare late enrollment penalties
Missing your Initial Enrollment Period can be costly. Medicare Part A, Part B and Part D may charge premium penalties if you miss your initial enrollment dates, unless you qualify for a Medicare Special Enrollment Period.
Medicare Part A
You won't pay a Part A premium if you or your spouse worked and paid taxes for at least 10 years. If you have to pay a premium, the penalty for late enrollment is 10%.
The Part A premium penalty is charged 2 times the number of years you delay enrollment. For example, if you wait 2 years, you would pay the additional 10% for 4 years (2 x 2 years). The penalty applies no matter how long you delay Part A enrollment.
Medicare Part B
The Part B late enrollment penalty is an additional 10% for each 12-month period that you delay it.
In most cases, you have to pay the penalty every month for as long as you have Part B.
If you're under 65 and disabled, any Part B penalty ends once you turn 65 because you'll have another Initial Enrollment Period based on your age.
Medicare Part D
The Part D late enrollment penalty is 1% of the average Part D premium for each month you delay enrollment. You pay the penalty for as long as have Part D.
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