Medicare has a monthly cost for most people, even though it is called "free"

Medicare is not free. Most seniors pay a monthly premium for Part B (doctor visits and outpatient care), and many pay premiums for Part D (prescription drugs) and supplemental coverage. You also pay deductibles, copayments, and coinsurance when you use care. Part A (hospital care) is free if you or your spouse paid Medicare taxes for at least 10 years while working, but Part A still has a deductible you pay when you are admitted to the hospital.

The word "free" stuck around from when Medicare was created in 1965, because the program was designed so that workers and employers paid in during working years, and seniors received benefits without a separate bill. That is still how Part A works. But Part B, Part D, and supplemental plans all charge monthly premiums that come out of your Social Security check or a bank account you choose.

What you pay depends on your income, which coverage you choose, and when you sign up. Someone who waits to join Medicare after age 65 without a valid reason will pay a permanent penalty on top of the regular premium. The amounts change every year.

Key Takeaways

  • Part A (hospital insurance) is free if you worked and paid Medicare taxes for at least 10 years, but you still pay a deductible when admitted to a hospital.
  • Part B (doctor and outpatient care) costs a monthly premium that increases if your income is higher, and you pay a deductible and copayments when you see a doctor.
  • Part D (prescription drug coverage) requires a separate monthly premium and has a deductible, and costs rise if you delay signing up after age 65.
  • Many seniors buy supplemental (Medigap) or Medicare Advantage plans to cover costs that Original Medicare does not, which adds another monthly premium.
  • Your total out-of-pocket costs depend on how much care you use, which doctors you see, and whether they accept Medicare.

What Part A costs and what it covers

Part A covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services. If you or your spouse paid Medicare taxes for at least 10 years, you do not pay a monthly premium for Part A. You become may be able to access at age 65, or earlier if you have been on disability for 24 months or have end-stage renal disease.

Even though Part A is premium-free, you pay a deductible when you are admitted to a hospital. In 2024, that deductible is $1,632 for each benefit period (a benefit period starts when you enter the hospital and ends 60 days after you leave). If you stay longer than 60 days, you pay a daily coinsurance amount. For skilled nursing facility care, you pay coinsurance after the first 20 days. Home health services covered by Part A have no copayment if a doctor orders them and you are homebound.

If you did not work long enough to may have access to for premium-free Part A, you can still buy it. The monthly premium in 2024 is $278 if you have 30 to 39 quarters of work history, or $505 if you have fewer than 30 quarters. A quarter is roughly three months of work where you paid Medicare taxes.

What Part B costs and when you must sign up

Part B covers doctor visits, outpatient care, lab tests, imaging, and some preventive services. The standard monthly premium in 2024 is $174.70, but you pay more if your income is above certain thresholds. If you are single and your income was over $97,000 in 2022 (the most recent year used to calculate 2024 premiums), your Part B premium is higher. If you are married filing jointly and your income was over $194,000, you also pay more. The income brackets are adjusted each year.

You must sign up for Part B when you turn 65, even if you are still working and have employer coverage. If you delay without a valid reason (such as active employer coverage), you pay a permanent 10 percent penalty on your Part B premium for each year you did not sign up. That penalty stays with you for life. You have a seven-month window around your 65th birthday to sign up without penalty: three months before the month you turn 65, the month you turn 65, and three months after.

Part B has an annual deductible (in 2024, it is $240) and then you pay 20 percent coinsurance for most services after that. Some preventive services, like annual wellness visits and certain screenings, have no copayment or coinsurance.

What Part D costs and how late enrollment penalties work

Part D is prescription drug coverage offered by private insurance companies approved by Medicare. You choose a plan during the annual enrollment period (October 15 to December 7 each year), and coverage starts January 1. The monthly premium varies by plan and by pharmacy, and it changes every year. In 2024, premiums range from roughly $7 to $100 per month depending on the plan, but your actual cost depends on which plan you choose.

Part D has a deductible (up to $545 in 2024), and then you pay a copayment or coinsurance for each prescription. The amount you pay depends on which tier the drug is on in your plan's formulary (the list of covered drugs). Generic drugs are usually cheaper than brand-name drugs.

If you do not sign up for Part D when you turn 65 and you do not have other creditable drug coverage (such as from an employer or union), you pay a permanent penalty. The penalty is roughly 1 percent of the national average Part D premium for each month you were not covered. If you go without coverage for two years, your penalty is about 2 percent of the average premium, and that penalty is added to your premium for life.

Supplemental insurance and Medicare Advantage plans add to your costs

Original Medicare (Parts A and B) does not cover everything. You pay 20 percent coinsurance for most doctor visits and services, and there is no limit on how much you pay out of pocket in a year. Many seniors buy a supplemental plan, called Medigap, to cover some or all of these costs. Medigap plans are sold by private insurance companies and have their own monthly premiums, which vary by plan type and by where you live. A Medigap plan might cost $100 to $300 per month or more, depending on your age and health.

Alternatively, you can choose a Medicare Advantage plan (Part C), which is an all-in-one plan run by a private insurance company. Medicare Advantage plans usually have a lower or zero monthly premium, but they have their own deductibles, copayments, and coinsurance, and they limit which doctors and hospitals you can use. Some Medicare Advantage plans include Part D drug coverage; others do not.

If you choose Medicare Advantage, you cannot also buy Medigap. If you choose Original Medicare, you can buy Medigap or Part D separately. The choice between Original Medicare with Medigap and Medicare Advantage depends on your health, which doctors you see, and how much you are willing to pay upfront versus when you use care.

Income-related premiums for higher earners

If your income is above a certain level, you pay higher premiums for Part B and Part D. These are called Income-Related Monthly Adjustment Amounts, or IRMAA. Medicare uses your tax return from two years before the current year to calculate your income. In 2024, if you are single and your income was over $97,000 in 2022, your Part B premium is higher. If you are married filing jointly, the threshold is $194,000.

The income thresholds are adjusted each year, and the premium increases are tiered — the higher your income, the more you pay. For example, in 2024, a single person with income between $97,001 and $123,000 pays an extra $69.90 per month on top of the standard Part B premium. Someone with income over $499,999 pays an extra $349.50 per month.

If your income drops significantly (such as after retirement or the death of a spouse), you can ask Medicare to recalculate your IRMAA using your current year's income instead of the prior year's return. You must report the change within 60 days of the event.

Out-of-pocket costs add up depending on how much care you use

Your total Medicare costs depend on how much health care you use in a year. If you are healthy and rarely see a doctor, you might pay only your monthly premiums and an annual wellness visit copayment. If you have chronic conditions, take multiple medications, or need hospital care, your out-of-pocket costs can be much higher.

In 2024, Original Medicare has no annual out-of-pocket limit, which means you could theoretically pay unlimited coinsurance if you have a serious illness or injury. Medicare Advantage plans do have an out-of-pocket maximum, usually between $6,700 and $7,550 per year for in-network care, but costs can be higher if you use out-of-network providers.

Some seniors may have access to for programs that help pay Medicare costs. Medicaid (a separate program from Medicare) can pay your Part B premium, deductible, and coinsurance if your income and assets are low enough. The income and asset limits vary by state. The Medicare Savings Program, also run by states, helps pay Part A and Part B premiums and cost-sharing for people with limited income. Your state Medicaid office or local Area Agency on Aging can tell you whether you may have access to.

Frequently Asked Questions

Do I have to pay for Medicare if I never worked?

If you did not work long enough to may have access to for premium-free Part A, you can still buy it for a monthly premium. If you are age 65 or older and have limited income and resources, you may may have access to for Medicaid, which can help pay your Medicare costs. Contact your state Medicaid office to learn about income and asset limits in your state.

What happens if I miss the sign-up important date for Part B or Part D?

If you miss the important date without a valid reason, you pay a permanent penalty added to your monthly premium for life. The Part B penalty is 10 percent per year you did not sign up. The Part D penalty is roughly 1 percent of the national average premium per month you were not covered. You can sign up during the annual General Enrollment Period (January 1 to March 31), but the penalty applies when ready.

Can I change my Medicare plan if I do not like it?

Yes. You can change your Part D plan or switch between Original Medicare and Medicare Advantage during the annual enrollment period (October 15 to December 7). If you have a may have access to life event, such as moving to a new state or losing employer coverage, you may be able to change plans outside the annual period. Contact Medicare at 1-800-MEDICARE to ask about your situation.

Is there a limit to how much I pay out of pocket with Original Medicare?

Original Medicare has no annual out-of-pocket limit, so you could pay unlimited coinsurance for doctor visits and services. Medicare Advantage plans do have an out-of-pocket maximum, usually between $6,700 and $7,550 per year for in-network care. If you want a spending limit with Original Medicare, you need to buy a Medigap supplemental plan.

How do I know if I owe a late enrollment penalty?

Call Medicare at 1-800-MEDICARE or log into your Medicare account at Medicare.gov to see your current premiums and coverage. If you think you owe a penalty you should not, you can ask Medicare to reconsider. You have a limited time to appeal, so contact them as soon as possible if you believe there was an error.