Medicare

Medicare Costs Basics

The following guide details the cost components of Medicare coverage and the current cost for each coverage type. Explore the variables that can impact your expenses while covered by Medicare so you can make educated decisions when choosing your plans.

Medicare Costs Basics

As you plan for your financial future, it’s important to have an understanding of how much your healthcare is going to cost. For Medicare recipients, this starts by knowing the monthly premium for each type of Medicare coverage you hold and how much you may have to pay for healthcare expenses that aren’t covered. Having a clear understanding of your coverage could help you make some educated estimates and budget accordingly. The following guide explains the basics you need to know. 

Understanding Medicare Cost Components

There are several different components of Medicare costs. Many individuals pay a fixed monthly premium, as well as a share of the cost of their care. The 3 primary methods of cost-sharing are deductibles, copays, and coinsurance. Here’s a closer look at each.

Medicare Premiums

Medicare premiums are the fixed monthly fee beneficiaries pay to enroll in the program. This amount is typically paid directly to Medicare, to a private insurance company offering a Medicare-approved policy like Medicare Advantage or Medigap, or both. Premiums are due each month, regardless of whether you actually need medical care.

For many Americans, Medicare Part A does not require a premium. However, if you don’t meet the requirements for premium-free Part A or if you decide to enroll in Medicare Parts B, C, or D, you may have a monthly premium.

Medicare Deductibles

A Medicare deductible is a set amount that you pay out of pocket for your healthcare costs before your Medicare plan begins to pay. Each part of Medicare also has its own deductible amount.

For example, if your illness required a hospital stay, which is covered under Medicare Part A, and outpatient treatment, which is covered under Medicare Part B, it would typically be necessary to pay any applicable Part A deductible before the plan pays anything towards your hospital stay, and you would also need to pay your Part B deductible before the plan begins to cover outpatient costs.

Part A deductibles are $1,556 for each benefit period in 2022, and Part B deductibles are $233. If your hospital stay cost $3,000, you would pay $1,556 out of pocket before your Medicare Part A kicks in to pay the remaining balance of $1,444. Then if your outpatient treatment cost $500, you would pay $233 out of pocket before your Medicare Part B kicks in to pay the remaining balance of $267.

Medicare Copays

A Medicare copay is a fixed amount paid at the time you receive your covered service or benefit. Copays typically apply to doctor visits, specialist visits, and prescription drugs. For example, your copay may require you to pay $25 each time you visit the doctor or $10 when you fill a covered prescription.

Medicare Part A and Part B typically do not have copayments, but it’s common to find them in Part C and Part D. Medicare copay amounts vary depending on your plan.

Medicare Coinsurance

While copays are a fixed dollar amount, Medicare coinsurance is based on percentages. For example, Medicare Part B typically pays about 80% of the cost of your covered medical expenses. After paying the annual Medicare Part B deductible, patients usually have to pay about 20% of their remaining medical bills while Medicare pays for the rest.

In this example, if you’ve already met your deductible and you receive $3,000 in covered medical services, Medicare would typically pay around $2,400, leaving you responsible for paying the remaining $600.

Out-of-Network Coverage

Medicare Part C, also known as Medicare Advantage Plans, often charges additional costs for receiving treatment or services outside of your plan’s network. These plans provide a list of approved doctors, specialists, and hospitals. If you choose to go to an out-of-network provider, you may have to pay significantly higher costs, and/or your coverage may be limited until your deductible is met. 

Medicare Part A Costs for 2022

  • Medicare Part A Premium: $0 for many Americans. $274 or $499 if you don’t receive premium-free Part A.
  • Medicare Part A Deductible: $1,556 for inpatient hospital stays.
  • Medicare Part A Coinsurance: $389 per day for days 61-90 of hospital stay; $778 per day for lifetime reserve days; $194.50 per day for days 21-100 of extended care services in a skilled nursing facility.

According to the Centers for Medicare & Medicaid Services (CMS), approximately 99% of Medicare beneficiaries do not have to pay premiums for their Medicare Part A coverage since they meet the requirement of working at least 40 quarters of Medicare-covered employment.

If you do not meet the requirement and have to purchase Medicare Part A, the current premium is either $274 or $499, depending on how long you or your spouse worked and paid Medicare taxes. In many cases, if you choose to buy Part A, you must also have Part B and pay monthly premiums for both Part A and Part B. It is also possible to choose not to buy Part A coverage and still purchase Part B coverage.

Medicare Part B Costs for 2022

  • Medicare Part B Premium: $170.10 (standard amount, but may be higher based on income)
  • Medicare Part B Deductible: $233
  • Medicare Part B Coinsurance: 20%

The bulk of Medicare Part B enrollees pay the standard premium. However, roughly 7% of people with Medicare Part B are subject to an income-related monthly adjustment amount (IRMAA). This is a sliding scale used to adjust both Medicare Part B and Part D coverage premiums, based on the beneficiary’s modified adjusted gross income (MAGI).

In 2022, married couples filing jointly with a MAGI of less than or equal to $182,000 pay the standard premium amount. Couples with higher MAGIs are subject to higher monthly premiums as follows:

  • $182,001 – $228,000 = $238.10
  • $228,001 – $284,000 = $340.20
  • $284,001 – $340,000 = $442.30
  • $340,001 – $750,000 = $544.30
  • Greater than $750,001 = $578.30

For married couples who file separate tax returns, the threshold for the standard premium is $91,000. For those with MAGI between 91,001 and $409,000, the monthly premium is $544.30, and those with MAGI greater than $409,000 pay $578.30 per month.

Medicare Part C (Medicare Advantage) Costs for 2022

Unlike Medicare Part A and Part B, which are provided by the U.S. government, Medicare Part C is offered by private insurance companies. Since each company can create its own plan, the premiums, deductibles, and other costs vary. However, many companies offer a $0 premium plan.

One of the advantages of having a Medicare Advantage plan is that they limit the amount you have to pay out of pocket for your healthcare expenses each year. This is known as your out-of-pocket maximum, and it’s a limit set by Medicare annually. For 2022, the out-of-pocket maximum is $7,550.

However, if your plan allows you to see out-of-network providers, your maximum may be higher. Whether the plan you choose is structured as a preferred provider organization (PPO) or health maintenance organization (HMO) also matters, as this can impact your average Medicare cost and where you can seek treatment.

An HMO plan requires you to use in-network doctors, hospitals, and other clinicians for your medical care. While there are certain exceptions for urgent treatment and emergency care, generally if you use a provider outside your HMO network, your plan may not cover it. Many HMO plans also require patients to have a primary care physician and receive referrals for specialist care.

Medicare Advantage PPO plans offer a list of preferred doctors, hospitals, and other healthcare providers, giving a discount for using in-network clinicians. However, it’s also possible to seek out-of-network care, although there’s typically a higher copay. There may also be a higher deductible and/or limited coverage at out-of-network healthcare providers.

Medicare Part D Costs for 2022

  • Medicare Part D Premium: Varies by plan
  • Medicare Part D Deductible: Varies by plan
  • Medicare Part D Copay: Varies by plan
  • Medicare Part D Coinsurance: Varies by plan

The monthly premium and other costs for Medicare prescription drug plans, also called Medicare Part D, vary by plan. While the majority of people enrolled in Medicare Part D only pay the plan’s standard premium, if your annual Modified Adjusted Gross Income (MAGI) is above a certain limit, you may be subject to an income-related monthly adjustment amount (IRMAA).  

The Medicare Part D premium adjustments for 2022 are based on your 2020 tax return. For individuals earning a MAGI of $91,000 or less and married couples filing jointly earning a MAGI of $182,000 or less, there is no adjustment. Above this amount, you may need to pay an adjustment of $12.40 to $77.90 in addition to your plan premium, depending on your income level.

Any extra amount you have to pay isn’t part of your plan premium and isn’t paid into your plan. Instead, many people elect to have the extra amount taken from their Social Security check. You can also pay the extra amount directly to Medicare or the Railroad Retirement Board.

Medicare Supplement Costs for 2022

Much like Medicare Part C, Medicare Supplement plans are offered by private insurance companies rather than by the government. However, they’re highly regulated by the federal and state governments. These plans, also called Medigap plans, are only available to individuals who are enrolled in Medicare Part A and Part B. They also come with a separate cost in addition to your Part A and Part B premiums (if applicable).

Medigap plans are standardized and designated by letters A, B, C, D, F, G, K, L, M, and N. While the premiums, deductibles, and other costs vary between insurers and plans, each plan letter provides the same basic coverage. Some of these plans have higher or lower deductibles, require more or less cost-sharing, or cover more or fewer costs. These factors impact the price of the monthly premium.

Another factor that impacts your Medicare supplement cost is the way the policy is priced or rated. There are 3 options:

  • Community-rated (no age-rated): The same monthly premium is charged to everyone who has the policy, regardless of their age.
  • Issue-age-related (entry age-rated): Premium price is based on your age when you buy the Medigap policy (when it is issued).
  • Attained-age-related: Based on your current age (the age you’ve attained), meaning your premium goes up as you get older.

Not only can the variables above impact the price of your Medigap policy, but there may also be significant differences in the premiums charged by different providers for the exact same coverage. In addition, each state can adjust its Medigap guidelines, so check with your state’s Department of Insurance for the best information about your options.

The Cost of Late Enrollment

If you don’t sign up for Medicare coverage Part A, Part B, and Part D when you are first eligible, you may be subject to a late enrollment penalty. The amount of the penalty and the length of time you need to pay it typically depends on how long you wait to enroll after you’re initially eligible.

Part A Late Enrollment

If you don’t meet the requirements for premium-free Part A and you don’t purchase Part A when you’re first eligible, your premium may go up 10% and you may have to pay it for twice the number of years you waited to sign up. For example, if you were eligible for 2 years and didn’t sign up, you may have to pay the higher premium for 4 years once you do sign up.

Part B Late Enrollment

If you don’t sign up for Medicare Part B when you’re first eligible, your premium may go up by 10% for each 12-month period when you could have had the coverage but did not sign up. This higher premium typically remains for as long as you have Part B coverage. For example, if you waited 2 years after your initial enrollment period ended before you signed up, the penalty would typically be 20% and would continue for as long as you have Part B

Part D Late Enrollment

The late enrollment penalty for Part D coverage typically kicks in if there is a period of 63 days or more when you don’t have Medicare drug coverage or other coverage that pays at least as much as Medicare’s standard prescription drug coverage. This penalty is calculated by multiplying the number of full months you were uncovered by 1% and applying it to the national base beneficiary premium, which is $33.37 in 2022. This amount is often permanently added to your Part D premium.

For example, if you were not covered for 29 months, the penalty would be 29% (1% for each of the 29 months) of $33.37, or $9.68. Since penalties are rounded up to the nearest $0.10, the late penalty would be $9.70 per month, for as long as you have Part D coverage.