How much does Medicare cost?
Medicare is a federally managed health insurance program administered by the Centers for Medicare and Medicaid Services (CMS). It is designed to help keep health care affordable for people aged 65 and older, younger individuals with disabilities, and people with end-stage renal disease (ESRD).
While Medicare can cover a lot of health expenses, it’s not free. How much you pay depends on what kind of coverage you choose. In order to understand the factors that affect its cost, it’s important for you to understand some basics.
What are the parts of Medicare?
Medicare is comprised of four parts. Parts A and B (“Original Medicare”) are controlled by CMS. Parts C and D are managed by private insurance companies.
- Part A (hospital insurance) covers hospital stays, skilled nursing care, hospice, and home health visits.
- Part B (medical insurance) covers doctor visits, outpatient services, and other medical expenses not covered by Part A.
- Part C (Medicare Advantage plans) takes care of many expenses not covered under Medicare Parts A and B and are provided through private insurance companies. These health plans, such as HMOs or PPOs, cover all of your Part A and Part B benefits as well as preventive care. They may also cover extras such as prescription drug coverage, vision, hearing, dental, and gym memberships.
- Part D (prescription drug coverage) covers the generic and brand-name prescriptions included on a health plan's drug formulary list. (Every plan has a different formulary list. You should review each plan's formulary before enrolling.)
Medigap (Medicare supplement) plans provide additional insurance that helps with some or all of the out-of-pocket costs you’re left with after “Original Medicare” (Parts A and B) pays its share.
Learn more about the differences between Medicare Advantage and Medigap plans
What costs do you have to pay with a Medicare plan?
Medicare plan costs can be broken into four categories:
- Premium — a monthly amount you pay to maintain your insurance coverage.
- Copay — a fixed dollar amount you are charged for prescriptions, doctor visits, and other types of care.
- Deductible — a set amount your plan requires you to pay for medical services and/or prescriptions before the plan begins to pay.
- Coinsurance — a percentage of a health service’s cost that you pay after you’ve met your deductible.
Medicare Parts A and B (“Original Medicare”) have premiums, deductibles, and copays set by CMS and are updated each year. If you don’t enroll in Parts A and Parts B at the right time, you may also have to pay a late enrollment penalty. You can find more details about these costs at Medicare.gov.
Medicare Part C (Medicare Advantage) plans, Medigap plans, and Part D (prescription drug) plans also have premiums, deductibles, copays, and coinsurance. These costs vary by plan.
Why pay for Part C or Part D coverage?
With just Part A and Part B coverage, you may still have to spend a large amount of money on your health services and prescriptions, especially if your medical needs are significant (or could become significant in the future).
Part C and D plans cover a lot of costs not included under Parts A and B. They can actually save you money, even though your monthly premiums are usually a little bit higher when you choose Part C and Part D plans.
If you’re looking for a solution to keep your expenses as low as possible, it’s a good idea to consider a Medicare Advantage or Medigap health plan.
For more information, download our Welcome to Medicare Guide, which will help you understand your choices even better, and can answer a lot of questions you might still have.
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Website last updated: 8/1/2022