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:
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.
How much does Original Medicare (Part A and Part B) cost?
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
Drug payment stages
Annual deductible
You pay the full cost for drugs until you reach the deductible amount. Then you move to the Initial Coverage stage.
Initial coverage
In this stage, the plan pays its share of the cost and you pay your copay or coinsurance. You generally stay in this stage until your year-to-date total drug cost reaches $5,030 in 2024. Then you move to the Coverage Gap stage.
Coverage gap (donut hole)
You pay no more than 25% coinsurance for any generic or brand name drugs until your total out-of-pocket costs reach $8,000 in 2024. Then you move to the Catastrophic Coverage stage.
Catastrophic coverage
In this stage, you pay 5% of the cost for each of your drugs, or $4.15 for generic (including brand drugs treated as generic) and $10.35 for all other drugs (whichever is greater). You stay in this 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.
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.
Working past 65? You may be able to delay enrolling in Part B without penalty.
Read next: Medicare Advantage plans
Medicare Advantage Plans combine Part A (hospital insurance) and Part B (medical insurance) in one plan and usually include prescription drug coverage. These plans offer additional benefits beyond Original Medicare.
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AARP® Medicare Supplement Insurance Plans
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AARP endorses the AARP Medicare Supplement Plans insured by UnitedHealthcare Insurance Company, 185 Asylum Street, Hartford, CT 06103 (available in all states/territories except ND, NY) or UnitedHealthcare Insurance Company of America, 1600 McConnor Parkway, Floor 2, Schaumburg, IL 60173 (available in AR, AZ, IL, IN, KS, MS, NC, ND, NJ, OH, OK, PA, SC, TN, TX, WY) or UnitedHealthcare Insurance Company of New York 2950 Expressway Drive South, Suite 240, Islandia, NY 11749 (for NY residents). Policy Form No. GRP 79171 GPS-1 (G-36000-4).
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Medicare Advantage plans and Medicare prescription drug plans
Plans are insured through UnitedHealthcare Insurance Company or one of its affiliated companies, a Medicare Advantage organization with a Medicare contract and a Medicare-approved Part D sponsor. Enrollment in these plans depends on the plan's contract renewal with Medicare. You do not need to be an AARP member to enroll in a Medicare Advantage plan or Medicare Prescription Drug plan.
This information is not a complete description of benefits. Contact the plan for more information. Limitations, co-payments, and restrictions may apply. Benefits, premium and/or co-payments/co-insurance may change on January 1 of each year.
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