Medicare Costs: Premiums, Deductibles, and Out-of-Pocket Expenses

Medicare is the federal health insurance program for people aged 65 and older, as well as younger people with disabilities. Nearly 60 million Americans are enrolled in Medicare. With Medicare, beneficiaries have different plan options that cover hospital visits, doctor appointments, prescription drugs, and more.

However, Medicare does not cover 100% of medical costs. Understanding the various premiumsdeductiblescopays, and other out-of-pocket expenses can help beneficiaries budget for their healthcare costs.

Typical Medicare costs are listed below.

Medicare PartPremium CostsDeductibleCopays/Coinsurance
Part A (Hospital Insurance)$0 premium for most people. Up to $506 per month if not eligible for premium-free Part A.$1,600 per benefit periodInpatient hospital: 
$0 for days 1-60 
$400/day for days 61-90 
$800/day for 60 lifetime reserve days 
All costs after day 150 

Skilled nursing facility: 
$0 for days 1-20 
$200/day for days 21-100 
All costs after day 100
Part B (Medical Insurance)$164.90 standard premium. 
Higher earners pay from $222.80 to $504.90 based on income.
$226 per year20% coinsurance for most covered services after paying deductible
Part C (Medicare Advantage)Premium varies by plan from $0 – over $100 per month.Varies by planCopays and coinsurance vary by plan until reaching plan’s out-of-pocket max.
Part D (Prescription Drug Coverage)Premium varies by plan. 
Higher earners pay an extra $12.20 to $77.90 per month based on income.
Up to $505 in 2023Copays or coinsurance vary by drug until reaching initial coverage limit. Then 25% coinsurance in coverage gap until reaching catastrophic threshold.

How Much Does Medicare Part A Cost?

Medicare Part A helps cover inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Most people do not pay a monthly premium for Part A because they or their spouse paid Medicare taxeswhile employed. This is called premium-free Part A. 

If you do not qualify for premium-free Part A, you may buy Part A by paying up to $506 per month in 2023. You must also enroll in Medicare Part B if you buy Part A.

With Part A, you will pay a deductible of $1,600 per benefit period in 2023. A benefit period starts the day you are admitted to a hospital or skilled nursing facility, and it ends when you have not received care as an inpatient for 60 consecutive days. 

Medicare Part A also has coinsurance requirements. For example, you pay $0 for days 1-60 of an inpatient hospital stay, $400 per day for days 61-90, $800 per day for 60 lifetime reserve days, and all costs beyond 150 days.

How Much Does Medicare Part B Cost?

Medicare Part B covers outpatient medical care like doctor visits, preventive screenings, lab tests, x-rays, durable medical equipment, and more. 

The standard monthly premium for Part B is $164.90 in 2023 for most beneficiaries, but higher earners pay more based on their income. There is also an annual $226 deductible before Part B coverage begins. After meeting your deductible, you typically pay 20% of the Medicare-approved amount for Part B services.

How Much Does Medicare Part C (Medicare Advantage) Cost?

Medicare Advantage plans are offered by private insurers and act as an alternative to Original Medicare. Costs vary widely among the many Medicare Advantage plans available. 

Plans may charge monthly premiums ranging from $0 to over $100 in addition to your Part B premium. Most plans have an annual out-of-pocket maximum. The plan pays 100% of covered services once you hit that maximum amount. Copays, coinsurance, and deductibles for services will apply until reaching your out-of-pocket max.

How Much Does Medicare Part D Cost?

Medicare Part D helps cover prescription drug costs. Costs vary among the many stand-alone Part D plans and Medicare Advantage prescription drug plans. 

Monthly premiums range from about $7 to $100 per month, depending on your income and the plan. Most plans charge a deductible up to $505 in 2023 before coverage begins. Copays or coinsurance then apply for your drugs until you reach your plan’s initial coverage limit. After that you enter the coverage gap where you pay 25% of costs until reaching the catastrophic coverage threshold.

What Factors Influence the Cost of Medicare?

Several factors impact what you will pay for Medicare coverage and services:

1. Income Level

Higher earners pay more for Medicare Part B and Part D premiums. Surcharges are applied based on modified adjusted gross income. The 2023 Part B premium ranges from $164.90 to $504.90 per month. The 2023 Part D premium surcharge ranges from $0 to $77.90 per month.

2. Geographic Location

Where you live in the U.S. affects Medicare Advantage and Part D plan availability and costs. Plans in some areas have higher premiums and out-of-pocket costs.

3. Health Status

If you have a serious health condition requiring frequent medical care and many prescriptions, your out-of-pocket costs will likely be higher, even with coverage.

4. Prescription Drug Needs

If you take brand name or specialty drugs, your Medicare drug plan costs will be higher than someone who takes only generic medications.

5. Choice of Plan

The specific Medicare Advantage or Part D plan you select affects your premiums, deductibles, copays, coinsurance, and total out-of-pocket spending. Compare all options.

What Are the Out-of-Pocket Costs for Medicare?

Beneficiaries are responsible for various healthcare expenses on top of Medicare premium costs:

1. Deductibles

This is the amount you must pay for care before coverage kicks in (e.g. $226 per year for Part B).

2. Co-payments

This is a fixed dollar amount you pay when receiving a medical service or prescription (e.g. $10 for a doctor visit).

3. Coinsurance

This is a percentage you pay of the total cost of a service after meeting your deductible (e.g. 20% for a durable medical equipment item). 

4. Out-of-pocket maximums

This yearly limit caps what you’ll spend for covered medical services and prescriptions. However, Medicare does not have a limit unless you have a Medicare Advantage Plan.

Are There Ways to Lower Your Medicare Costs?

If you cannot afford Medicare premiums and other out-of-pocket expenses, there are programs that provide financial assistance:

1. Medicaid

Medicaid helps pay for Medicare costs if you have limited income and resources based on your state’s eligibility rules.

2. State Pharmaceutical Assistance Programs (SPAPs)

Some states have SPAPs that help certain enrollees pay Part D premiums and/or drug costs.

3. Extra Help Program

This program helps pay Part D plan premiums, deductibles, copays if you have limited income and assets.

4. Medigap Insurance

Medigap plans help pay your share of costs in Original Medicare.

5. Employer or Union Coverage

If you have retiree health benefits, check if they help pay Medicare costs.

6. Veterans’ Benefits

If enrolled in VA healthcare, you may be able to get help with Medicare expenses.

7. TRICARE for Life

This covers some costs for military retirees with Medicare Parts A and B.

What Are the Penalties for Late Enrollment in Medicare?

If you do not sign up for Medicare Parts A and/or B during your initial enrollment period upon turning 65, you may have to pay late enrollment penalties:

  • Part A: 10% premium surcharge for twice the number of years you could have had Part A but didn’t sign up.
  • Part B: 10% premium surcharge for each full 12-month period you delayed enrollment. You pay this penalty for life.
  • Part D: Minimum premium penalty of 1% of the national average premium for every month you went without creditable coverage after initial eligibility. This penalty also continues annually.

How to Budget for Unexpected Medicare Costs

Since Medicare does not cap overall out-of-pocket spending, it’s wise to budget for unexpected medical bills and prescription drug needs. Ways to prepare include:

  • Maintain an emergency savings account to pay health expenses.
  • Consider supplemental insurance like Medigap or retiree coverage to limit costs.
  • If health declines, review Medicare Advantage plans that offer maximum out-of-pocket limits.
  • Compare Part D plans annually to find lowest drug costs based on medications taken.
  • Ask your doctor for generic medicine options when possible.
  • Use mail order to get prescriptions at a lower cost.
  • Take advantage of wellness programs and preventive services to stay healthy.

What Are Some Common Misconceptions About the Cost of Medicare?

Many people have misconceptions about what Medicare covers and how much it costs. Some common myths include:

  • Medicare is free for beneficiaries (Part A has premiums if not eligible for premium-free coverage; Parts B & D have monthly premiums)
  • Medicare covers nursing home care (only short-term skilled nursing facility care is covered)
  • Medigap covers all out-of-pocket costs (plans do not cover vision, dental, hearing aids, long-term care)
  • Medicare coverage is the same nationwide (costs/coverage can vary in different regions of the country)
  • Medicare beneficiaries don’t pay deductibles or copays (most pay deductibles, copays or coinsurance until reaching catastrophic coverage)

Conclusion

Medicare has a complex structure of premiums, deductibles, copays, and coinsurance that affect out-of-pocket spending. Understanding all the costs can help beneficiaries budget and choose plans that best fit their healthcare needs and financial situation.