Medicare Cost Basics
Medicare isn’t free. The amount you’ll pay though 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 network vs out-of-network costs.
Costs you may pay with Medicare
Medicare shares the cost of your healthcare with you. What you pay depends on what Medicare coverage you have (the kind of Medicare plan or plans) and how you use it. 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:
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.
It may also be helpful to look at how these different types of cost sharing work together. For example, plan premiums generally go down as deductibles go up. The plan charges you less each month, and you pay more out of pocket for the services you use. The reverse is also true. As premiums go up, deductibles may go down. Also, plans usually charge a copayment or coinsurance for any given service — not both. Copayments may be less than coinsurance amounts for the same service.
Learn more about 2024 Medicare costs
How to evaluate potential Medicare costs
When evaluating a Medicare plan, you need to not only look at all the costs charged by the Medicare plan you have or are thinking of getting, but also how you use healthcare and your Medicare benefits. What this means is that you need to think about what specific health services or items you need and how often you need them, and then match potential costs to that.
Looking at plan costs and your healthcare usage together will give you an idea of your out-of-pocket costs. This can help you decide which plan provides the coverage you need at a price you are comfortable with. Here are a few questions to get you started:
- How often do you visit the doctor? Do you have a copay each time you go? How much is it?
- What does your doctor charge for an office visit? It’s worth knowing. If your plan charges coinsurance, then you will pay a portion of your doctor’s fee.
- What prescription medications do you regularly take? How much do you pay to fill a prescription?
- Do you have a chronic condition that requires regular monitoring and supplies, such as diabetes? What do you pay for supplies?
- Do you travel frequently or live part of the year in a different state? Is your care covered when you are away?
- Do you have a particular doctor you like to see? Does your doctor accept the amount Medicare pays for services as payment in full?
Evaluating a Medicare plan’s costs can be simple if you keep these two steps in mind. Again, you want to first look at the cost types a plan has, then make an estimate of your total annual costs based on what healthcare items you need or use.
How much does Original Medicare (Part A and Part B) cost?
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.
Learn more about the specific costs for Medicare Part A and Part B
Drug payment stages
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.
• $545 is the maximum deductible amount Part D plans can charge in 2024.
Initial coverage
• You pay a copay or coinsurance. Your plan pays the rest.
• In 2024, you stay in the Initial Coverage stage until your total drug costs reach $5,030.
Coverage gap (“donut hole”)
• In 2024, you pay:
⁃ 25% of the costs for brand name drugs
⁃ 25% of the costs for generic drugs
• In 2024, you stay in the Coverage Gap stage until your total out-of-pocket costs reach $8,000.
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?
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:
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.
Medicare 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 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.
Plan type
Penalties
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 you have Part D coverage.
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