Medicare Has Premiums, Deductibles, Copayments, Coinsurance, and Other Costs.
Many people think that Medicare, the federal government’s health insurance program for people 65 and older, will pay for everything related to their health care. Unfortunately, it doesn’t.
The reality of how much you will owe out of pocket when you use health care services can be a serious budget buster. We’ll help you decipher Medicare’s many costs and how to keep them under control.
- Medicare’s shared costs (deductibles, copayments, and coinsurance) can be a serious financial risk.
- There are three ways to mitigate the high cost of healthcare with Original Medicare: Medigap, Medicare Advantage plans, and a Medical Savings Account (MSA).
- Everyone’s health and financial situation are different. The correct Medicare plan is chosen by taking one’s health, finances, and plan availability into consideration.
How Much Does Medicare Cost Per Month?
When you add monthly premiums, deductibles, copays, and coinsurance costs, the average Medicare beneficiary will pay thousands yearly for their major medical care. Depending on the type of coverage you choose, costs can vary significantly each year.
How to Decipher Medicare’s Costs
For most people, Medicare covers about 80 percent of all major medical costs. However, not all healthcare services are Medicare-approved. As a result, Medicare only covers about 52 percent of the total healthcare costs most healthy people incur.
For example, Original Medicare does not cover routine health care for dental, vision, hearing, and other health maintenance that are not on Medicare’s medically necessary list of services. All of these costs must be paid out-of-pocket unless you enroll in a Medicare Advantage plan that covers them.
Plus, you may have to pay thousands of dollars in out-of-pocket costs. These are the shared costs built into Medicare.
The Costs are as Simple as ABC and D.
In the beginning, Medicare had two components, hospital insurance (inpatient) and medical insurance. They broke these two health insurance coverages up into Medicare Part A and Medicare Part B, respectively. These two parts are Original Medicare.
There are three cost components in Original Medicare:
- Premiums: The monthly cost to be in the health plan.
- Deductibles: Costs the beneficiary pays before Medicare begins paying its share.
- Coinsurance: A percentage of the Medicare-approved costs for the healthcare service.
Medicare Part C, private health plans, and Medicare Part D, prescription drug plans, add one most costs component, a copayment. Copayments are similar to coinsurance, but they are a fixed amount (e.g., $20 copay for a doctor visit), not a percentage.
Let’s start with premiums because they are the easiest to understand.
Medicare Monthly Premiums
Health insurance premiums are what we pay monthly to be in a health plan. It does not matter if you use health services or not, you pay the monthly premium. Similar to auto insurance, you pay a premium for each type of coverage. With auto insurance, it’s collision and comprehensive coverage. With Original Medicare, it’s Part A (hospital) and Part B (medical).
Beneficiaries can add a Part D plan to their A and B benefits to get prescription drug coverage. Beneficiaries also have the option to enroll in a private insurance Part C plan (aka, Medicare Advantage), which will provide their Medicare Parts A and B coverage, and can include extra benefits, like Part D, dental, vision, hearing, and more.
Each of these different parts has a monthly premium that you must pay, and they look like this:
- 2024 Monthly Premiums
- Part A: The monthly premium amount for Part A is $0 for most beneficiaries (i.e., premium-free Part A) based on years of Medicare taxes paid.
- Part B: The standard Part B premium is $174.70 per month (automatically deducted from Social Security benefit payments). Individuals with an annual income of more than $103,000 pay a higher premium (see: income-related monthly adjustment amount, IRMAA) based on gross income reported on the previous year’s tax return.
- Part C private health plan (Medicare Advantage): $174.70 monthly for the Part B premium, plus any additional premium set by the insurer for the insurance plan.
- Part D prescription drug plan: Premiums vary by the health plan. However, the average Part D premium is about $30.50 per month (more if you have a late enrollment penalty).
Medigap: Amount varies by plan, insurance company, gender, location, and use of tobacco. The average plan premium is around $155 per month.
Continuing with our auto insurance comparison, Medicare coverage has deductibles. These are what the insurance beneficiary pays out-of-pocket before the insurance policy begins paying its share.
The Medicare Part A deductible is based on an inpatient benefit period. Unless you have a Medigap policy (Medicare supplement), the benefit period deductible is an out-of-pocket cost. A benefit period starts the day you are admitted into a hospital or skilled nursing facility (or home health care for convalescence) and ends when you have been out for 60 days in a row. If you are admitted again after 60 days, then a new benefit period starts, and the deductible is incurred again.
A hospital stay may come with Part B costs, too. Here’s why.
Part B costs cover doctor visits, specialists, lab tests, diagnostics, and other medical services. These services can be received in an outpatient or inpatient setting. Unlike Part A, the Part B deductible is an annual deductible that you must pay before Medicare begins paying its share.
Most Medicare Part C plans do not have inpatient and outpatient care deductibles. Instead, most plans use flat-rate copays. For example, a plan may charge you a $395 per day copay for the first 5 days of a hospital stay.
Most Part D Plans have an annual deductible that you pay at the pharmacy when you pick up your medications. Once the deductible amount is met, then the plan kicks in and begins paying its share.
Medicare Coinsurance and Copayments
The final cost component in Medicare is coinsurance or copayments. All Medicare Parts have it.
With both Medicare Part A and Part B you pay a flat 20 percent coinsurance. The coinsurance is paid on the Medicare-assigned rate for the service. For all services that are not covered by Medicare, the beneficiary pays the full cost. Also, if a healthcare provider does not accept the Medicare-assigned amount, the beneficiary pays the additional cost (up to 15%) out of pocket. These are known as Part B Excess Charges. With Medicare Part A, inpatient coinsurance costs do not begin until your 61st day in the hospital or skilled nursing facility.
In Medicare Part C, most health services come with a plan copayment, but coinsurance is also used. The problem here is that Medicare Advantage plans are not standardized. Even though CMS requires all plans to provide the same services as Medicare Part A and Part B, they do not require them to provide the service the same way. So, for example, one plan may charge a $395 copayment for ambulance transportation while another charges a 25% coinsurance.
With a Medicare Part D plan you pay copayments or coinsurance based on the tier your medication is in. Each plan has a formulary (covered drug list) that categorizes covered medications into several tiers (1-5). You continue to pay the copays or coinsurance until you reach the plan’s initial coverage limit.
Help Paying for Medicare?
If you qualify for Medicaid, the health insurance program for people with low incomes, it will pay some or all of your out-of-pocket costs. Individuals on both Medicare and Medicaid are known as dual eligibles and have special plan options, such as Medicare Advantage Special Needs Plans (SNP-D).
Medicare has other assistance programs for beneficiaries with incomes that are too high to qualify for Medicaid but who still have trouble paying their healthcare bills. Each of the four programs has specific income and asset limits and eligibility requirements:
- The Qualified Medicare Beneficiary (QMB) program provides for Part A and Part B premium assistance, as well as help with deductibles, coinsurance, and copays. If you qualify QMB, you automatically qualify for the Social Security Administration’s Extra Help program, which assists with prescription drug costs. The QMB program has the lowest income threshold of the four.
- The Specified Low-Income Medicare Beneficiary (SLMB) program helps with Medicare Part B premiums only. Many people who cannot qualify for the QMB program, because their income is too high, qualify for this one. People who qualify automatically qualify for Extra Help so they can afford their prescription medications.
- The Qualifying Individual (QI) program helps pay Part B premiums, but no other cost-sharing. If you qualify, you must reapply for benefits every year. QI benefits are first come, first served because funding is limited. Priority is given to individuals who qualified the previous year.
- The Qualified Disabled and Working Individuals (QDWI) program only helps pay for Part A premiums. This program is designed for individuals with disabilities, under 65, who are currently working.
Your state Medicaid program or State Health Insurance Program — commonly called SHIP (877-839-2675) — can help with enrollment and provide more details on the income caps and eligibility criteria.
Citations & References
- Medicare costs at a glance | Medicare
- Medicare.gov: the official U.S. government site for Medicare | Medicare
- Find a Medicare plan
- Trump Administration Announces Historically Low Medicare Advantage Premiums and New Payment Model to Make Insulin Affordable Again for Seniors | CMS
- Original Medicare (Part A and B) Eligibility and Enrollment | CMS
- 2021 Medicare Parts A & B Premiums and Deductibles | CMS