Medicare is not free, but the cost depends on which parts you use

Medicare has a monthly premium for Part B (doctor visits) and Part D (prescription drugs), and most people also pay a yearly deductible before coverage kicks in. Part A (hospital care) is free for most people who paid Medicare taxes while working. Part C (Medicare Advantage) varies — some plans have no premium, but you still pay copays and coinsurance when you use care. The amount you pay changes based on your income, which parts you choose, and which insurance company you pick.

The word "free" can be misleading. You paid into Medicare through payroll taxes during your working years, so Part A is funded by that past contribution. But Part B and Part D require ongoing monthly payments, and all parts require you to pay something out of your pocket when you actually use them — either through a deductible, copay, or coinsurance.

Key Takeaways

  • Part A (hospital) is free for most people, but Part B (doctors) costs a monthly premium that increases if you sign up late.
  • You pay a yearly deductible before Medicare covers anything, and you pay a share of costs even after the deductible is met.
  • Part D (prescription drugs) requires a separate monthly premium and has its own deductible and cost-sharing structure.
  • Your actual out-of-pocket costs depend on which parts you choose, your income, and which insurance company you select.
  • Low-income seniors may reduce or eliminate premiums and cost-sharing through Medicaid or Extra Help programs.

Part A costs: hospital care

Part A is free if you or your spouse paid Medicare taxes for at least 10 years (40 quarters). You do not pay a monthly premium. However, you pay an inpatient hospital deductible each time you are admitted — this amount changes yearly and is separate from any deductible you pay under Part B.

After you meet the deductible, Medicare covers most hospital costs, but you still pay coinsurance (a percentage of the bill) for hospital stays longer than 60 days. Skilled nursing facility care, hospice, and home health services are also covered under Part A, though each has its own cost structure.

If you did not work long enough to may have access to for free Part A, you can still buy it. The monthly premium is higher if you wait past age 65 to sign up, and the penalty is permanent.

Part B costs: doctor visits and outpatient care

Part B has a monthly premium that most people pay directly from their Social Security check. The standard premium amount changes yearly. You also pay an annual deductible before Part B coverage begins, and then you pay 20 percent coinsurance for most doctor visits and outpatient services after the deductible is met.

If you delay signing up for Part B after you turn 65 (and do not have other may have access to coverage), your premium increases by 10 percent for each year you wait. This penalty stays with you for life, so signing up on time matters financially.

Some services — like preventive care, certain screenings, and vaccines — have no copay or coinsurance under Part B. Your doctor's office can tell you whether a specific service is preventive or subject to cost-sharing.

Part D costs: prescription drugs

Part D requires a separate monthly premium from a private insurance company you choose. The premium varies widely depending on which plan you pick — some cost $5 per month, others $50 or more. You also pay an annual deductible before the plan starts covering drugs, and then you pay a copay or coinsurance for each prescription.

Part D has a coverage gap (sometimes called the "donut hole") where you pay more out of pocket after you and your plan have spent a certain amount on drugs. Once you reach a catastrophic spending threshold, the plan covers most of the cost again. The exact amounts change yearly.

If you do not sign up for Part D when you first become may be able to access and you do not have other creditable drug coverage, you pay a penalty on top of your premium for as long as you have Medicare. Like Part B, this penalty is permanent.

Part C costs: Medicare Advantage plans

Part C (Medicare Advantage) is an alternative to Original Medicare. Some plans have zero monthly premium, but you still pay Part B premiums to Medicare, and you pay copays and coinsurance when you use care. Other plans charge a premium on top of Part B.

Medicare Advantage plans often have lower deductibles and copays than Original Medicare, but they usually limit you to a network of doctors and hospitals. You may need referrals to see specialists. Prescription drug coverage is usually built into the plan, so you do not buy Part D separately.

The cost and coverage of Medicare Advantage plans change yearly, and you can switch plans during the annual enrollment period (October 15 to December 7). Comparing plans side by side is important because the cheapest plan is not always the best fit for your doctors and medications.

How income affects what you pay

If your income is below a certain threshold, you may reduce or eliminate your Part B and Part D premiums through Medicaid or the Extra Help program. Medicaid also covers cost-sharing (deductibles, copays, coinsurance) that Medicare does not. Each state runs Medicaid differently, so what you pay depends on where you live.

The Extra Help program is federal and covers Part D premiums and cost-sharing for people with limited income and resources. You do not have to be on Medicaid to use Extra Help. Your local Social Security office or a 211 referral can tell you whether you may be may be able to access and how to check.

If your income is higher, you pay an additional surcharge on top of your Part B and Part D premiums — called Income-Related Monthly Adjustment Amount (IRMAA). This surcharge is based on your tax return from two years prior, so changes in your income can affect what you pay.

Out-of-pocket costs add up quickly

Even with Medicare, you can face large bills. If you are hospitalized, you pay the Part A deductible plus coinsurance for long stays. If you see many doctors, you pay 20 percent coinsurance on each visit after meeting the Part B deductible. If you take multiple medications, copays and coinsurance add up.

Many people buy a Medigap policy (supplemental insurance) to cover the costs Medicare does not. Medigap premiums vary by plan and insurance company, but they reduce or eliminate your out-of-pocket costs. You can also choose a Medicare Advantage plan, which often has lower out-of-pocket maximums than Original Medicare plus Medigap.

Keeping track of what you have spent toward your deductibles and out-of-pocket maximum helps you plan for costs. Medicare sends you an annual statement showing what you paid and what Medicare paid.

Frequently Asked Questions

Do I have to pay for Part A if I worked long enough?

No. If you or your spouse paid Medicare taxes for at least 10 years, Part A is free. You do not pay a monthly premium, but you still pay a deductible and coinsurance when you use hospital services.

What happens if I do not sign up for Part B or Part D on time?

You pay a permanent penalty on your monthly premium for as long as you have Medicare. The penalty is 10 percent per year for Part B and 1 percent per month for Part D. Signing up during your initial enrollment window (the three months before and after you turn 65) avoids this penalty.

Can I reduce my Medicare costs if I have low income?

Yes. Medicaid can cover your Part B premium and cost-sharing if your income is low enough. The Extra Help program covers Part D premiums and cost-sharing. Contact your local Social Security office or call 211 to learn what you may be may be able to access for.

Is Medicare Advantage cheaper than Original Medicare?

It depends on your situation. Medicare Advantage plans often have lower premiums and copays, but they limit you to a network of doctors. Original Medicare plus Medigap gives you more choice but costs more in premiums. Compare plans side by side during open enrollment to see which costs less for your doctors and medications.

What is the out-of-pocket maximum under Medicare?

Original Medicare does not have an out-of-pocket maximum — you can spend unlimited amounts on cost-sharing. Medicare Advantage plans do have an out-of-pocket maximum, after which the plan covers most remaining costs. The maximum varies by plan and changes yearly.