Medicare is a federal program that provides health insurance to those over the age of 65, as well as certain individuals under 65 with disabilities. But how much does Medicare cost?
While Medicare helps to cover your health care costs, it does not pay for all your costs. If you are eligible for Medicare, you are responsible for paying premiums and out-of-pocket costs such as deductibles, copays and coinsurance for healthcare services that you receive.
If you are about to become eligible to enroll in Medicare, it’s important you understand these costs. This article provides an outline of the key costs for:
- Original Medicare (also called ‘traditional’ Medicare)
- Medicare Advantage (Part C)
- Prescription Drug Coverage (Part D)
- Medigap (Medicare Supplement)
How much is Medicare Part A (Hospital Insurance)?
Medicare Part A is part of Original Medicare and covers inpatient hospital care, surgeries, lab tests, short-term skilled nursing facilities, home health care as well as hospice care.
Part A Premiums
The good news for most Americans is that about 99% of Medicare beneficiaries are eligible for premium-free Part A coverage. This means you do not have to pay any premiums at all in order to receive Part A coverage.
In order to be eligible for premium-free Part A coverage you, or your spouse, must have worked and paid Medicare taxes for a minimum of 10 years (or 40 quarters) before enrolling in Medicare.
Part A Out-of-Pocket Costs
While premiums for Part A are free for many Americans. You will still have out-of-pocket costs that you need to cover.
Inpatient Hospital Stays
Under Original Medicare, you will be responsible for deductibles and coinsurance costs during your hospital stay.
In 2021, the Medicare Part A inpatient hospital deductible that beneficiaries will pay when admitted to the hospital is $1,484 in 2021, an increase of $76 from $1,408 in 2020. The Part A deductible covers beneficiaries’ share of costs for the first 60 days of Medicare-covered inpatient hospital care in a benefit period.
For the 61st through 90th day of hospitalization, beneficiaries must pay a coinsurance amount of $371 per day ($352 in 2020). For any days beyond the 90th day beneficiaries will either be responsible for 100% of the cost, or $742 per day ($704 in 2020) if they have unused ‘lifetime reserve days’. Every Medicare beneficiary is allocated 60 days of lifetime reserve days when they first enroll in Medicare and these days do not renew once used.
Skilled Nursing Facilities (SNF)
Medicare Part A will cover care delivered by SNFs on a short-term basis after a qualifying hospital stay of at least 3 days of hospitalization if a doctor has decided that you need daily skilled care. Your obligations under Medicare Part A for SNF costs include:
- Days 1–20: $0 for each benefit period
- Days 21–100: $185.50 coinsurance per day (vs. $176.00 in 2020)
- Days 101 and beyond: 100% of the costs
How much is Medicare Part B (Medical Insurance)?
Medicare Part B is part of Original Medicare and covers medically necessary doctor and outpatient medical services and supplies. This includes ambulance services, durable medical equipment, hospice care, home health care and certain preventive services and screenings.
Part B Premiums
In 2021, the standard monthly premium for Medicare Part B enrollees is $148.50 in 2021, an increase of $3.90 from $144.60 in 2020. The $3.90 monthly increase compares to a big $9.10 monthly increase last year, after a $1.50 monthly increase the year before.
Everyone enrolled in Medicare Part B must pay the monthly premium in order to be enrolled in Part B.
Part B Premium Adjustment
If your income reported to the IRS is above a certain threshold, you may pay have to pay a higher Part B premium than the standard rate. This is known as an Income Related Monthly Adjustment Amount (IRMAA).
Medicare uses the modified adjusted gross income reported on your IRS tax return from 2 years ago, as this is the most recent tax return information provided to Social Security by the IRS, to determine whether you need to pay a higher premium. For example, Social Security would use tax returns from 2019 to determine your IRMAA in 2021.
In 2021, if your 2019 reported income was over $88,000 individually or $176,000 jointly, your Part B premium will include IRMAA and will be higher than the standard Part B premium.
Part B Deductible
The annual deductible for all Medicare Part B beneficiaries is $203 in 2021, an increase of $5 from the annual deductible of $198 in 2020. You must pay this full amount out of pocket each year before Medicare will start helping to pay for any healthcare costs.
Part B Out-of-Pocket Costs
The cost-share for Medicare Part B out-of-pocket costs is very simple. In 2021, once you have reached your $203 Part B deductible, you typically pay 20% of the Medicare-approved Part B services (such as doctor services, outpatient therapy, and durable medical equipment).
How much is Medicare Part C (Medicare Advantage)?
Medicare Part C (also known as ‘Medicare Advantage’) plans are a bundled “all-in-one” plan provided by private health insurance companies that are approved by the federal government organization to deliver Medicare to consumers. These plans provide an alternate method to Original Medicare for receiving Medicare coverage.
By law, Medicare Advantage plans must provide at least the same coverage as you would receive from under Part A and B of Original Medicare. Medicare Advantage plans often also include Part D (Prescription Drug Coverage) as well as extra benefits such as vision, hearing, dental care that Original Medicare does not cover.
Part C Premiums
If you are on Medicare Advantage (also known as Part C coverage), you are required to continue paying the Medicare Part B premium of $148.50 per month (this may be higher depending on your income as explained earlier in this article). You may also need to pay a premium on top of the standard Part B premium to the private insurance company, depending on the coverage you choose.
According to CMS, beneficiaries enrolled in Medicare Advantage will pay an average plan premium of around $21.00 per month in 2021 on top of the standard Medicare Part B premium, which is 11% lower than the average plan premium of $23.60 per month in 2020 (and 34% percent lower than 2017’s average premium of about $32 per month).
There are many plans available that will also have $0 premium, meaning no premium is payable in addition to the standard Medicare Part B premium. The suitability of these plans will depend on your individual situation.
Part C Out-of-Pocket Costs
Out-of-pocket costs (such as deductibles, copays, and coinsurance costs) will follow the costs that are indicated in your plan’s policy guidelines and will vary from plan to plan. For most Medicare Advantage plans, you will likely need to pay a copayment of $0 or $20 every time you see your primary doctor ($20 – $50 for specialists). You will also typically need to pay daily copayments for a portion of your first 5-7 days of any inpatient hospital stay.
Medicare Advantage Out-of-pocket Maximum
Medicare Advantage plans are required by law to limit your out-of-pocket spending. In 2021, out-of-pocket costs are capped at a maximum of $7,550 (vs. $6,700 in 2020) a year for in-network services and $11,300 (vs. $10,000 in 2020) for both in- and out-of-network services. This is different from Original Medicare, where there is no cap on your 20% share of medical expenses under Part B.
How much is Medicare Part D (Prescription Drug Coverage)?
Medicare Part D is prescription drug coverage provided by private insurance companies. If you are on Original Medicare, you can access Part D coverage by purchasing a standalone Prescription Drug Plan (PDP).
Alternatively, you can also access Part D coverage if you enroll in a Medicare Advantage (Part C) plan that bundles in prescription coverage (also known as an ‘MA-PD’ plans).
Part D Premiums
If you are on Original Medicare and purchasing a standalone PDP, Part D premiums will vary by insurer and plan. The Kaiser Family Foundation estimates that the national average monthly PDP premium for 2021 will increase by 9% to $41, from $38 in 2020.
If you enrolled in an MA-PD plan, Part D coverage is bundled into your monthly Medicare Advantage premium cost (if applicable) and you will not need to purchase a separate Part D plan.
Part D Premium Adjustment
Similar to Medicare Part B, if you are a high-income earner (based on your income from 2 years ago), you might have to pay more for your Part D drug coverage. This called the Part D Income Related Monthly Adjustment Amount (sometimes known as Part D-IRMAA). Social Security will contact you if you have to pay the Part D IRMAA. If you have to pay for the IRMAA, this amount is paid directly to Social Security (rather than your plan provider).
In 2021, the adjustment amounts are as follows:
Part D Deductible
Deductibles can vary across Part D plans, however, the government sets the maximum deductible chargeable each calendar year. In 2021, the maximum deductible allowable is $445.
If you have a deductible, you must pay for 100% of costs until you reach the deductible amount before your Part D insurance kicks in and helps pay for prescriptions.
Part D Out-of-Pocket Costs
For Part D, your copay and coinsurance obligations may change depending on the four different ‘phases’ of coverage. You can read more about these ‘phases’ in our guide to Medicare Part D costs.
Plans will generally categorize their formularies into cost-sharing ‘tiers’ which will determine the copayment/coinsurance you will make for the drug you are filling. Many will have 3 to 4 tiers, with lower tiers costing less than higher tiers. For example:
- Tier 1: Generic Drugs
- Tier 2: Preferred Brand Name Drugs
- Tier 3: Non-preferred Brand Name Drugs
- Tier 4: High-cost of ‘specialty’ drugs
How much is Medicare Supplement (Medigap)?
Medicare Supplement (also known as ‘Medigap’) is sold by private insurance companies and is designed to help pay for the out-of-pocket costs (or ‘gaps’) that the Original Medicare does not cover (such as your 20% coinsurance under Part B). You cannot purchase a Medicare Supplement policy if you are enrolled in Medicare Advantage.
Similar to Medicare Advantage and Part D, your Medicare Supplement premium will be determined by your private health insurer and will vary from plan-to-plan and insurer-to-insurer.
The premiums and out-of-pocket costs for Medicare Supplement plans will also vary depending on the type of plan you choose (there are 10 standard plans you can purchase). Premiums for Medicare Supplement plans can typically range from $50 – $300 per month.
For more information on how Medicare Supplement plans work read our comprehensive guide to Medicare Supplement.
If you are about to enroll in Medicare, it’s important to know what Medicare costs so you can make an informed decision on what type of Medicare coverage you want. Costs will also change year-to-year so it’s important to always make sure you know what your costs are prior to each new calendar year starting. If you are interested in learning more about each type of coverage outlined in this article, we encourage you to read our Medicare 101 guides.
At CoverRight, we’re here to help you find the right coverage that you deserve. Reach out today and start finding the best Medicare plan for you.