Medicare cost basics

Medicare isn’t free. The amount you’ll pay depends on the coverage you choose, the health care services and benefits you use during the year, and if your plan has rules about network vs 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 three methods of cost sharing:

  • Deductible
    A set amount you pay out of pocket for covered services before Medicare or your plan begins to pay.
  • Copay
    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.
  • Coinsurance
    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.

Medicare costs you could pay

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What are my costs for Original Medicare (Parts A and B)?

With Medicare Part A, most people don't pay a premium, though you may if you or your spouse worked and paid Medicare taxes for less than 10 years. Medicare 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 Medicare Part A and Part B include deductibles, coinsurance and copays.

What are my costs with Medicare Advantage, Medicare Supplement (Medigap) or Part D plans?

Drug Payment Stages

Drug Payment Stages
Stage 1: Annual Deductible
  • Part D plans with a deductible:
  • You pay full price for your prescription drugs until you reach the deductible amount.
  • Part D plans without a deductible:
  • This doesn't apply. You start with Stage 2: Initial Coverage with the first prescription you fill.
  • $445 is the maximum deductible amount Part D plans can charge in 2021.
Stage 2: Initial Coverage
  • You pay a copay or coinsurance. Your plan pays the rest.
  • In 2021, you stay in the Initial Coverage stage until your total drug costs reach $4,130.
Stage 3: Coverage Gap (also called "Donut Hole")
  • In 2021, you pay:
  • 25% of the costs for brand name drugs
  • 25% of the costs for generic drugs
  • In 2021, you stay in the Coverage Gap stage until your total out-of-pocket costs reach $6,550.
Stage 4: Catastrophic Coverage
  • 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?

If you have limited income and assets, you may qualify for help with your Medicare costs, including those that you pay for care you receive. There are several programs that help pay Medicare costs. Many people who could qualify never sign up, so be sure to apply if you think you might qualify. Don’t hesitate to apply. Income and resource limits vary by program.

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.

Cost-sharing considerations

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 keenly aware of our monthly expenses. But it’s a better idea to look at the big picture – to look at all of your Medicare costs together – aka 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-payments for doctor visits or prescriptions. The reverse could be true too – 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 late enrollment penalties
Plan type Penalties
Medicare Part A Part A is premium free 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 for twice the number of years you delay enrollment. If you wait 2 years, for example, 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 penalty for late enrollment in Part B 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 penalty for late enrollment in a Part D plan 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.

Working past 65? You may be able to delay enrolling in Part B without penalty.

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