Medicare: Costs of Medicare Plans
Upon turning 65, many Americans are eligible for Medicare, the federal health insurance program covering a wide array of healthcare needs and services. In the past, there was just one option for receiving Medicare benefits—Part A for hospitalization and Part B for doctors’ services. However, the program has been expanded over time, and enrollees now have more options regarding how benefits may be received.
Before committing to any type of Medicare plan, though, it is recommended that you have a good understanding of how your potential coverage options work, as well as what the costs will be—both in terms of premiums and other charges like coinsurance, copayments, or deductibles.
Original Medicare versus Medicare Advantage Plans
- Medicare Part A – Hospitalization
- Medicare Part B – Doctors’ Services / Medical Insurance
Because Medicare Part A and Part B were the initial components of the program, they are often referred to as “Original Medicare.” The Original Medicare program is a fee-for-service type of plan, meaning that you can access healthcare anywhere in the U.S. as long as the provider accepts Medicare as payment.
Medicare Part A covers a range of services related to inpatient hospital care, some skilled nursing facility care, hospice, and home health care. It is important to note that out-of-pocket costs are associated with Medicare Part A, including deductibles, copayments, and coinsurance charges.
Medicare Part B provides coverage for services or supplies needed for diagnosing or treating medical conditions and certain preventive services, such as flu shots, so that treatment can be received early—when it is most likely to work best.
Original Medicare enrollees may purchase Medicare Part D. This part of Medicare represents a stand-alone policy that provides coverage for prescription medications. Unlike Medicare Part A and B, though—which offer standardized coverage—there are many different Medicare Part D plan options.
These plans are offered and sold by private insurance companies that Medicare has approved to do so. Because there are many different Medicare Part D options, you must ensure your specific medication(s) is covered before committing to purchase. In addition, because the premium can differ from one Medicare Part D plan to another, you should also compare quotes.
In 1997, President Clinton signed Medicare + Choice into law. This was the predecessor to Medicare Advantage, which took effect in the early 2000s. Medicare Advantage Plans, also called Medicare Part C, offer an alternate way to receive Medicare benefits.
These plans are sold through private insurance carriers (versus being offered directly via the Medicare program). Medicare Advantage plans automatically include the “essential” benefits provided through Medicare Part A and Part B—other than hospice care services.
These Medicare plans may also include additional coverage not provided through Original Medicare (Part A or B), such as dental and vision benefits. Medicare Advantage plans often automatically include Medicare Part D prescription drug coverage.
Many Medicare Advantage plans sold today work similarly to HMOs (Health Maintenance Organizations) or PPOs (Preferred Provider Organizations), where enrollees must use providers listed in a network. (Or, if coverage is received from an out-of-network provider, it will likely cost more).
Other Medicare Advantage plan options can include:
- HMO Point of Service plans
- Private Fee-for-Service plans
- Medical Savings Accounts
- Special Needs plans
To join a Medicare Advantage plan, you must have Medicare Part A and Part B. Medicare Advantage plans are often based around a network of healthcare providers in a specific location, so these plans also require that enrollees live in the geographic service area where services are provided.
In this case, your care may not be covered or cost more if you are traveling and need healthcare. (Neither Original Medicare nor Medicare Advantage covers your healthcare if you are out of the United States).
What is the Cost of Medicare?
Those who work in certain occupations can earn credits towards Social Security retirement income and Medicare health insurance coverage benefits. The number of credits you need to be eligible for Social Security benefits depends on your age and the type of benefits you are applying for. In 2024, you earn one credit for every $1,730 in earnings. You can earn a maximum of four credits each year. Most people need 40 credits to qualify for Social Security retirement income benefits.
Social Security and Medicare taxes can be taken directly from your earnings. Employees and employers typically pay a percentage of their earnings towards these programs. If you are self-employed, you will usually have to pay both the employee and the employer portion of these taxes.
Social Security Taxes (in 2024)
| Employee / employer (each) | 6.2% on earnings up to $168,600 |
| Self-employed | 12.4% on earnings up to $168,600 |
Source: Social Security Administration
Medicare Taxes (in 2024)
| Employee / employer (each) | 1.45% on all earnings |
| Self-employed | 2.9% on all earnings |
Note: High-income earners also pay an additional 0.9% in Medicare taxes on earnings above certain amounts.
Source: Social Security Administration
If you qualify for Medicare healthcare coverage, you will likely need to pay at least some out-of-pocket premium costs. For many people, Medicare Part A is free as long as you have earned 40 work credits.
But if you do not have 40 credits built up, you may still be able to purchase Medicare Part A hospitalization coverage. In this case, the premium amount will be based on the number of work credits you’ve accumulated over the years.
The Medicare Part A Monthly Premium (in 2024)
| Number of Credits Earned | Medicare Part A Monthly Premium Amount |
|---|---|
| 40 or more | $0 |
| 30-39 | $278 |
| Less than 30 | $505 |
Regardless of whether or not you have to pay a premium for Medicare Part A, other out-of-pocket charges can still be required. Under Original Medicare, the federal government sets the premiums, deductibles, and coinsurance amounts. For instance, if you have a hospital stay (in 2024), you could pay:
- $1,632 deductible per benefit period
- $0 for the first 60 days of each benefit period
- $408 per day for days 61 through 90 of each benefit period
- $816 per “lifetime reserve day” after day 90 of each benefit period—up to a maximum of 60 days over your lifetime
In 2024, a monthly premium of $174.70 for Medicare Part B coverage is in place. However, if you are considered a “high wage earner,” the premium amount may be higher based on your adjusted gross income from two years prior. The Part B premium also depends on how you file your income tax return (such as Individual, Married Filing Jointly, or Married Filing Separately).
For instance, if your modified adjusted gross income, as reported on your IRS tax return from two years ago, is above a certain amount, you’ll pay the standard monthly premium amount for Medicare Part B, along with an Income Related Monthly Adjustment Amount, or IRMAA. This is an additional charge that will be added to the amount of your Medicare Part B premium.
If you do not sign up for Medicare Part B when you are initially eligible, you may have to pay a late enrollment penalty, unless you have “creditable coverage” through either an individual or employer-sponsored health plan.
The Medicare Part B Monthly Premium (in 2024)
| Beneficiaries who file individual tax returns with modified adjusted gross income: | Beneficiaries who file joint tax returns with modified adjusted gross income: | Income-Related Monthly Adjustment Amount | Total Monthly Premium Amount |
|---|---|---|---|
| Less than or equal to $103,000 | Less than or equal to $206,000 | $0.00 | $174.70 |
| Greater than $103,000 and less than or equal to $129,000 | Greater than $206,000 and less than or equal to $258,000 | $69.90 | $244.60 |
| Greater than $129,000 and less than or equal to $161,000 | Greater than $258,000 and less than or equal to $322,000 | $174.70 | $349.40 |
| Greater than $161,000 and less than or equal to $193,000 | Greater than $322,000 and less than or equal to $386,000 | $279.50 | $454.20 |
| Greater than $193,000 and less than $500,000 | Greater than $386,000 and less than $750,000 | $384.30 | $559.00 |
| Greater than or equal to $500,000 | Greater than or equal to $750,000 | $419.30 | $594.00 |
A yearly Medicare Part B deductible must be satisfied before benefits start to pay out. In 2024, the amount of this deductible is $240. Enrollees will then typically have to pay 20% of the Medicare-approved amount for:
- Most doctor services (including doctor services while an inpatient in a hospital)
- Outpatient therapy
- Durable medical equipment (DME)
How to Compare the Costs of Medicare Plans
Because Medicare C (Medicare Advantage plans) and Part D (prescription medication coverage) are sold via private insurance carriers, the premium amount can differ from one plan to another and one insurance carrier to another. So, it is recommended that you compare all of the potential costs.
Sometimes, Medicare Advantage plans advertise “no premium” for the coverage. However, it is essential to note that you must still pay your Medicare Part B premium—even if you opt to receive benefits via a Medicare Part C plan.
Likewise, the copayments for doctor visits can differ from one Medicare Advantage to another, as well as the actual healthcare services and the frequency with which plan enrollees may receive them.
There are other factors to consider when it comes to the cost of Medicare Advantage plans. For instance, some of these plans have deductibles, while others do not. However, all Medicare Advantage plans are required to limit the in-network maximum out-of-pocket cost to enrollees.
In 2024, this amount is limited to no more than $8,850. It is important to note, though, that the cap on out-of-pocket expenses will only apply to services that would have otherwise been covered by Medicare Part A and Part B.
In addition, while many of the Medicare Part C Advantage plans include prescription drug coverage (through Medicare Part D), the costs that pertain to medication will not be limited. These expenses are also not included in the maximum out-of-pocket limits. While many Medicare Advantage plans cap their out-of-pocket limits below the threshold, it is still important to consider all of the expense responsibilities that you may have—because they can add up.
Is a Medicare Advantage Plan Right for You?
Even though Medicare Advantage plans can provide a more extensive list of benefits and coverage, these could come at a cost. So, before you purchase any type of Medicare Part C option, ensure you understand how much you may be required to pay out-of-pocket.
That’s why it is recommended that you go over your coverage options with a retirement plan expert who is also highly knowledgeable regarding Medicare. That way, you can better ensure that all of the bases are covered and you know what to anticipate in a healthcare situation.
If you would like to set up a time to talk with an advisor who can answer your questions about Medicare benefits — and how they may fit into your overall retirement plan — please feel free to contact us at <phone number> or send us an email by going to [email protected]. We look forward to hearing from you.
