Yes, most people pay for Medicare, even though it is funded partly by taxes

Medicare is not free. Most people who enroll pay a monthly premium for Part B (medical insurance), and many also pay premiums for Part D (prescription drug coverage) or a Medigap or Medicare Advantage plan. You also pay deductibles, copayments, and coinsurance when you use care. The amount you pay depends on which parts of Medicare you have, your income, and how much medical care you use.

If you worked and paid Medicare taxes for at least 10 years, you do not pay a premium for Part A (hospital insurance). Part A covers hospital stays, skilled nursing facility care, hospice, and some home health services. If you did not work long enough to may have access to for premium-free Part A, you can still enroll and pay a monthly premium — the amount varies based on how many years you or your spouse paid Medicare taxes.

Part B requires a monthly premium for almost everyone. The standard premium in 2024 is $164.90 per month, but it changes each year. If your income is higher, you pay an additional amount called an Income-Related Monthly Adjustment Amount (IRMAA). This surcharge applies to Part B, Part D, and Medicare Advantage plans for people whose modified adjusted gross income exceeds certain thresholds — those thresholds vary by year and filing status.

Key Takeaways

  • Part A (hospital insurance) is free if you or your spouse paid Medicare taxes for at least 10 years; otherwise you pay a monthly premium.
  • Part B (medical insurance) requires a monthly premium for nearly everyone, and the amount increases each year and may be higher if your income is above certain levels.
  • You also pay deductibles when you start using services each year, plus copayments or coinsurance for each visit or service.
  • Part D (prescription drugs) and supplemental coverage like Medigap or Medicare Advantage plans each have their own premiums and out-of-pocket costs.
  • Your total yearly costs depend on how much medical care you use and which coverage you choose.

Deductibles and copayments you pay when you use care

Even if you pay your monthly premium, you pay additional costs when you actually use Medicare services. Part A has a deductible — the amount you must pay out of your own pocket before Medicare starts to pay. In 2024, the Part A deductible for a hospital stay is $1,632 per benefit period. A benefit period begins when you enter the hospital and ends 60 days after you leave without receiving any inpatient hospital or skilled nursing facility care.

Part B also has a yearly deductible. In 2024, it is $240 per year. After you meet the deductible, you typically pay 20 percent of the cost of doctor visits, outpatient services, and medical equipment. Medicare pays the other 80 percent. Some preventive services, like annual wellness visits and certain screenings, have no copayment or coinsurance after you meet the Part B deductible.

Skilled nursing facility care, home health services, and hospice have different cost structures. If you may have access to for skilled nursing facility care after a hospital stay, you pay nothing for the first 20 days, then up to $408 per day (in 2024) for days 21 through 100 of each benefit period. Home health services are covered at no cost if Medicare determines they are medically necessary. Hospice care requires a small copayment for drugs and respite care, but not for the hospice services themselves.

Part D prescription drug coverage and its costs

Part D is optional coverage for prescription medications. If you enroll, you pay a monthly premium that varies by plan and insurance company — there is no standard amount. Plans are offered by private insurance companies approved by Medicare, and each plan has its own list of covered drugs, called a formulary.

When you fill a prescription, you pay a copayment or coinsurance amount that depends on which tier the drug is on. Tier 1 drugs (usually generic) cost less; Tier 4 or 5 drugs (usually brand-name) cost more. You also pay an annual deductible before Part D coverage begins — in 2024, the maximum deductible is $545, though many plans have lower deductibles or none at all.

Part D has a coverage gap, sometimes called the "donut hole." Once you and your plan have spent a combined $5,030 on covered drugs in 2024, you enter the gap and pay a larger share of drug costs until your out-of-pocket spending reaches $7,781. After that, catastrophic coverage kicks in and you pay only a small copayment or coinsurance for the rest of the year. The dollar amounts change each year.

Medigap and Medicare Advantage: two ways to reduce out-of-pocket costs

Medigap (also called Supplemental Insurance) is coverage sold by private insurance companies that pays some or all of the costs Medicare does not cover — deductibles, copayments, and coinsurance. You pay a monthly premium to the Medigap company in addition to your Part B premium. Medigap plans are standardized, meaning Plan G from one company covers the same benefits as Plan G from another company, though premiums vary. There is no Medigap plan that covers Part D drugs; you must enroll in Part D separately if you want prescription coverage.

Medicare Advantage (Part C) is an alternative to Original Medicare. It is offered by private insurance companies and includes Part A, Part B, and usually Part D all in one plan. You still pay your Part B premium to Medicare, then pay a separate premium to the Medicare Advantage plan. Most Medicare Advantage plans have lower or no monthly premiums than Medigap, but they typically have higher copayments and coinsurance when you use care. They also often limit you to a network of doctors and hospitals, and many require prior authorization before certain services.

Choosing between Medigap and Medicare Advantage depends on how much medical care you expect to use, which doctors you want to see, and whether you prefer predictable costs (Medigap) or lower premiums (Medicare Advantage). There is no single right answer — the best choice varies by person and by year.

Income-based premiums: how IRMAA affects what you pay

If your income is above a certain level, you pay more for Part B, Part D, and Medicare Advantage plans. This extra charge is the Income-Related Monthly Adjustment Amount. Medicare uses your modified adjusted gross income from your tax return from two years before — for example, in 2024, Medicare looks at your 2022 income.

The income thresholds and surcharge amounts change each year. In 2024, for a single person, the surcharge begins if your modified adjusted gross income exceeds $97,000. For a married couple filing jointly, it begins at $194,000. If your income is above the threshold, you pay an additional amount per month — the higher your income, the higher the surcharge. The maximum surcharge in 2024 is $560.50 per month for Part B alone.

If your income drops because you retire, lose a job, or have a major life change, you can request that Medicare recalculate your IRMAA using your current year income instead of the two-year-old figure. You must file a form called the Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event with Social Security within 60 days of the event.

How to estimate your total Medicare costs for the year

Your total out-of-pocket cost depends on which parts of Medicare you choose and how much care you use. Start by adding up your monthly premiums: Part B (standard $164.90 in 2024, or higher with IRMAA), Part D if you enroll, and any Medigap or Medicare Advantage premium. Multiply by 12 to get your yearly premium cost.

Then add the deductibles you will likely meet: Part A deductible ($1,632 in 2024 if you have a hospital stay), Part B deductible ($240 in 2024), and Part D deductible (varies by plan, up to $545 in 2024). After that, estimate copayments and coinsurance based on the care you typically use — doctor visits, lab work, imaging, prescriptions, and specialist visits.

If you have Medigap, your out-of-pocket costs are usually lower and more predictable because Medigap covers most deductibles and copayments. If you have Medicare Advantage, your costs depend on the specific plan, but you typically have a yearly out-of-pocket maximum — once you reach it, the plan pays 100 percent of covered services for the rest of the year. Original Medicare with no supplemental coverage has no out-of-pocket maximum, so costs can be very high if you have a serious illness or injury.

Frequently Asked Questions

Do I have to pay for Part A if I worked and paid Medicare taxes?

If you or your spouse paid Medicare taxes for at least 10 years, you do not pay a premium for Part A. You are automatically enrolled when you turn 65. If you did not work long enough, you can still enroll in Part A and pay a monthly premium — the amount depends on how many years of Medicare tax payments you have.

What happens if I do not enroll in Part D when I first become may be able to access?

If you go without Part D coverage for more than 63 days after you first become may be able to access, you may pay a permanent penalty when you do enroll. The penalty is a percentage of the national average Part D premium, added to your premium each month for as long as you have Part D. There are exceptions if you have other creditable prescription drug coverage.

Can I change my Medicare coverage if I realize I chose the wrong plan?

Yes, but only during certain times. The Annual Enrollment Period runs from October 15 to December 7 each year, and changes take effect January 1. If you have a may have access to life event — such as losing employer coverage, moving, or a major change in income — you may be able to change plans outside the enrollment period. Contact Medicare at 1-800-MEDICARE to ask about your specific situation.

Will my Part B premium go down if my income decreases?

Your Part B premium is based on your income from two years ago, so it does not automatically adjust when your income changes. However, if you have a major life event that lowers your income — such as retirement, job loss, or death of a spouse — you can request that Medicare recalculate your premium using your current income. You must file the request within 60 days of the event.

Is there a limit to how much I have to pay out of pocket for Medicare?

Original Medicare (Part A and Part B without supplemental coverage) has no out-of-pocket maximum. Medicare Advantage plans do have a yearly out-of-pocket maximum, usually between $6,700 and $7,000 for in-network care, though the exact amount varies by plan. Medigap plans have no out-of-pocket maximum because they cover most costs, but you pay a monthly premium.