What Medicare actually costs
We hear the same thing all the time: "I thought Medicare was free." It isn't. Here's every line item in the budget, what's adjustable, and where most people end up paying more than they need to.
The short version
Most people pay a Part B premium, a Part D premium, and either a Medicare Advantage premium or a Medigap premium. Part A is usually free. On top of that come deductibles and cost-sharing when you use care. Higher-income retirees pay an extra surcharge called IRMAA on Parts B and D.
Part A: hospital insurance
Part A covers inpatient hospital stays, skilled nursing facility care after a qualifying hospital stay, hospice, and some home health. If you or your spouse worked and paid Medicare taxes for at least 40 quarters (10 years), Part A has no monthly premium.
What you do pay: a Part A deductible per benefit period (it resets after 60 days out of the hospital), then daily coinsurance for long stays. If you didn't earn enough quarters, you can buy into Part A with a monthly premium that scales with how many quarters you have.
Part B: outpatient and doctor care
Part B is the part almost everyone pays a premium for. It covers doctor visits, outpatient care, preventive services, durable medical equipment, and most non-hospital services. The premium is set by CMS each year and adjusted upward for higher incomes under IRMAA.
After you meet the annual Part B deductible, Original Medicare typically pays 80% of the approved amount and you pay the other 20%, with no annual cap. That uncapped 20% is why most people add either Medigap or a Medicare Advantage plan.
If you delay Part B without other creditable coverage (usually employer coverage from an employer with 20+ employees), you can owe a 10% Part B late penalty for every 12 full months you went without it, added to your premium for life.
IRMAA: the income surcharge
The Income-Related Monthly Adjustment Amount (IRMAA) adds to your Part B and Part D premiums when your modified adjusted gross income (MAGI) crosses certain thresholds. Social Security looks at your tax return from two years ago to decide.
For a couple just over a threshold, IRMAA can quietly add hundreds of dollars per month. The good news: a life-changing event (retirement, divorce, loss of a pension, death of a spouse) can let you appeal, sometimes successfully, with Form SSA-44.
Part D: prescription drugs
Part D is sold by private insurers. Premiums vary by plan and state. There's also a deductible (capped each year by CMS), copays in different tiers, and a new annual out-of-pocket cap under the Inflation Reduction Act.
If you skip Part D when first eligible and don't have creditable drug coverage elsewhere, you accumulate a permanent late enrollment penalty.
Advantage or Medigap: the big cost decision
This is where total costs diverge most. Medicare Advantage often has a low or $0 monthly premium, but you pay copays as you use care, up to the plan's annual out-of-pocket maximum. Medigap has a higher monthly premium, but most plans leave you with very little to pay at the point of care.
Said differently: Advantage trades a low fixed cost for higher variable costs. Medigap trades a higher fixed cost for very low variable costs. Which is cheaper depends on how much care you'll use, and that's harder to predict than it sounds.
Help paying Medicare costs
- Medicare Savings Programs (MSPs): state-run, income-based help with Part B premiums and sometimes Part A premiums, deductibles, and coinsurance.
- Extra Help (Low-Income Subsidy): reduces Part D premiums, deductibles, and copays. Expanded eligibility in recent years.
- Medicaid: if you qualify for both Medicare and Medicaid ("dual eligible"), Medicaid often picks up most cost-sharing.
- State Pharmaceutical Assistance Programs (SPAPs): available in some states for additional drug-cost help.
- PACE: Programs of All-Inclusive Care for the Elderly, for people 55+ who need a nursing-home level of care but want to stay at home.
Frequently asked questions
- Is Medicare free at 65?
- Part A is usually premium-free if you or your spouse paid Medicare taxes for at least 10 years (40 quarters). Part B, Part D, and Medicare Advantage or Medigap all carry monthly premiums on top of that, plus deductibles, copays, and coinsurance.
- What is the average monthly cost of Medicare?
- For most people, the baseline is the standard Part B premium plus a Part D or Advantage plan premium. Add Medigap if you choose Original Medicare. A typical household budgets a few hundred dollars per month per person, and more if their income triggers IRMAA.
- Does Medicare have an out-of-pocket maximum?
- Original Medicare (Parts A and B) has no annual out-of-pocket cap. Medicare Advantage plans must cap in-network out-of-pocket spending each year. Medigap policies effectively cap your costs by paying most of what Original Medicare doesn't.
- Can I get help paying for Medicare?
- Yes. Medicare Savings Programs help with Part B and sometimes Part A costs based on income. Extra Help (the Low-Income Subsidy) lowers Part D drug costs. State Medicaid programs can also cover Medicare cost-sharing for people who qualify.
- Do Medicare costs change every year?
- Yes. CMS sets new Part A and Part B premiums and deductibles, new IRMAA brackets, and a new national base beneficiary premium for Part D each fall. Plan premiums, formularies, and networks also change annually, which is why the Annual Enrollment Period exists.
Build your real Medicare budget
We'll show you which costs are fixed, which depend on your income, and which depend on the plan you pick.
Educational resource. Not legal, tax, or insurance advice.