Yes, you pay for Medicare even after you retire

Most people pay for Medicare through payroll taxes while working, then pay again once they retire. The amount and type of payment change, but Medicare is not free at retirement. You will have a monthly premium for Part B (doctor visits and outpatient care), and you may have premiums for Part D (prescription drugs) and supplemental coverage. Some people with very low income pay reduced premiums or nothing, but this is the exception.

The money you paid into Medicare while working does not cover your full cost as a retiree. Those payroll taxes funded the program for people who were retired when you were working. Now that you are retired, your premiums and the payroll taxes of current workers fund your care.

Key Takeaways

  • Part B premiums are deducted from your Social Security check each month, and the standard amount in 2024 is $164.90, though yours may be higher if your income was above a certain level.
  • You pay Part B premiums for as long as you have Medicare, even if you work part-time after retirement.
  • Part D (prescription drug coverage) has a separate monthly premium that varies by plan, and you pay a penalty if you delay signing up without other drug coverage.
  • Medigap or Medicare Advantage plans have their own premiums on top of Part B, and costs depend on your age, location, and the plan you choose.
  • Income-related monthly adjustment amounts (IRMAA) can raise your Part B and Part D premiums if your income exceeds certain thresholds, based on tax returns from two years prior.

Part B premiums and how they are deducted

Part B covers doctor visits, lab work, imaging, and outpatient hospital services. The standard Part B premium for 2024 is $164.90 per month, though the amount changes each year. This premium is usually taken directly from your Social Security payment, so you see a smaller check. If you do not receive Social Security yet, Medicare sends you a bill each month.

You pay Part B premiums for as long as you have Medicare. If you work part-time after retirement and earn income, you still pay the same premium — there is no reduction for working. The only way to stop paying Part B is to drop your Medicare coverage entirely, which most retirees cannot afford to do.

If your income is above a certain level, you will pay more than the standard premium. This extra amount is called an Income-Related Monthly Adjustment Amount (IRMAA). Medicare calculates IRMAA using your tax return from two years before, so if you had a high-income year (from selling a house, for example), your premiums may jump the following year even if your income has since dropped.

Part D premiums for prescription drug coverage

Part D is optional, but there is a financial penalty if you delay signing up without other drug coverage. The penalty is 1 percent of the national average Part D premium for each month you go without coverage, and it stays on your premium permanently. If you go without coverage for three years, you will pay roughly 36 percent more for the rest of your life.

Part D premiums vary widely depending on which plan you choose and where you live. Some plans cost $5 to $10 per month; others cost $50 or more. You can change your Part D plan once a year during the annual enrollment period (October 15 to December 7), so it is worth shopping for a lower-cost option each year. Your medications may move to a different tier (cost level) in a new plan, so check whether your drugs are covered before you switch.

Like Part B, Part D premiums are subject to IRMAA if your income is high. You will receive a notice in the mail if your income triggers an adjustment, and you can appeal if your income has dropped since the tax year Medicare used to calculate it.

Medigap and Medicare Advantage premiums

Medigap (supplemental insurance) and Medicare Advantage are two different ways to cover costs that Original Medicare does not pay. Medigap is a supplement you buy from a private insurer to cover copays, coinsurance, and deductibles. Medicare Advantage is an alternative to Original Medicare run by a private plan, and it usually includes prescription drug coverage.

Medigap premiums depend on your age, your location, and which plan (A through N) you choose. Plan A is the least expensive but covers the least; Plan G and Plan N are more expensive but cover more. Premiums can range from $100 to $300 or more per month. You can buy Medigap at any time, but premiums are lowest if you buy within six months of turning 65 and enrolling in Part B.

Medicare Advantage premiums are often lower than Medigap, and some plans have zero premium. However, Medicare Advantage plans have networks (you must use in-network doctors), copays for each visit, and annual out-of-pocket limits. If you use out-of-network care or travel, costs can be much higher. You can switch Medicare Advantage plans or drop it for Original Medicare during the annual enrollment period.

Income-related premiums (IRMAA) and how they work

If your modified adjusted gross income (MAGI) exceeds a threshold set by Medicare, you will pay a surcharge on top of your Part B and Part D premiums. For 2024, the thresholds are $97,000 for single filers and $194,000 for married couples filing jointly. If you are above the threshold, you pay an extra amount that increases with your income level.

Medicare uses your tax return from two years before to calculate IRMAA. If you retired mid-year and had a high income that year, your premiums will be higher starting two years later. If your income has dropped since then (because you retired, for example), you can request a recalculation by submitting a form to Social Security and explaining the change. You will need recent tax documents or a letter from your employer showing your current income.

IRMAA affects not only Part B and Part D but also Roth conversions and other tax planning. If you are considering large financial moves in retirement, talk to a tax professional about how they might affect your Medicare premiums two years down the road.

What happens if you do not pay your premiums

If your Part B premium is deducted from Social Security, it is paid automatically. If you receive a bill and do not pay, Medicare will send you notices and eventually may disenroll you from Part B. If you lose Part B coverage, you will have a gap in insurance, and re-enrolling later may trigger a permanent penalty.

If you do not pay a Part D premium, your plan may drop you. You can re-enroll during the annual enrollment period, but if you go more than 63 days without coverage, you will owe a penalty when you sign up again.

If you cannot afford your premiums, contact Medicare or your local Area Agency on Aging to ask about programs that may help. Some states have programs that pay Part B and Part D premiums for people with limited income.

How to estimate your total Medicare costs in retirement

To get a rough picture of what you will pay, add up: your Part B premium (standard or with IRMAA), your Part D plan premium, and either a Medigap premium or Medicare Advantage premium. Then add out-of-pocket costs like copays and deductibles when you use care.

Medicare publishes a plan finder tool on Medicare.gov where you can enter your medications and doctors to see what plans cost in your area. You can also call 1-800-MEDICARE to speak with someone who can walk you through the options. Many Area Agencies on Aging offer free counseling on Medicare choices.

Keep in mind that premiums and deductibles change each year. Set a reminder for October to review your coverage during the annual enrollment period and see whether a different plan would save you money.

Frequently Asked Questions

Do I have to pay Medicare premiums if I am still working after 65?

Yes. If you are enrolled in Medicare, you pay Part B premiums regardless of whether you work. However, if you are still covered by an employer health plan, you may be able to delay Part B enrollment without penalty. Talk to your employer's benefits office about how Medicare coordinates with your work insurance.

What if I cannot afford my Medicare premiums?

Contact your local Area Agency on Aging or call 1-800-MEDICARE to ask about programs that may help pay premiums. Some states have Medicaid programs that cover Part B and Part D for people with low income. You can also request a recalculation of IRMAA if your income has dropped since the tax year Medicare used.

Can I change my Medicare plan if my premiums are too high?

Yes, during the annual enrollment period (October 15 to December 7) you can switch Part D plans, drop or switch a Medigap plan, or switch between Original Medicare and Medicare Advantage. If you have a life-changing event like retirement or loss of income, you may be able to make changes outside the enrollment period.

Will my Medicare premiums go up every year?

Part B and Part D premiums usually increase each year, though the amount varies. Medigap and Medicare Advantage premiums also typically increase with age and inflation. Review your coverage each October to see whether a different plan would cost less.

What is the difference between what I paid into Medicare and what I pay now?

The payroll taxes you paid while working (1.45 percent of your wages) funded Medicare for retirees at that time. Now that you are retired, your premiums and current workers' taxes fund your care. Your premiums cover only part of your actual cost; the rest comes from general tax revenue and the trust fund.