What Does Medicare Cost?

Medicare is a health insurance program for people 65 and older. People younger than 65 who are disabled or who have end-stage kidney disease can also get health care through Medicare.

What you pay for Medicare depends on how much you earn each year and how much care you need. You pay a separate amount for each part of Medicare.

Medicare Part A

Part A is your hospital coverage.

Premium costs. If you or your spouse worked for at least 10 years and paid Medicare taxes, you won't pay any monthly fee, called a premium, for Part A. Most people don’t pay a premium.

If you or your spouse paid Medicare taxes for less than 10 years total, you will have to pay a monthly fee for Part A coverage. The penalty could be as much as $407 a month.

Deductible costs. If you stay overnight in the hospital or use other Part A services, you'll pay a deductible. The deductible is the amount you must pay before Medicare pays anything for your care.

For 2015, the deductible for each hospital stay is $1260.

Copay costs. You also pay copays for Part A. It's a set amount you pay for specific types of care. If you're in the hospital for more than 60 days, your copay is $315 a day for days 61 to 90. After that, your copay is $630 a day.

Medicare Part B

Part B is for your doctor visits, tests, and other services.

Premium costs: Each month you pay a premium of $104.90. If your income is higher than $85,000, you have to pay a higher premium. How much you make determines how much you pay, ranging from $146.90 to $335.70.

Deductible costs: You also pay a $147 deductible each year. After you pay it, you pay coinsurance, which is 20% of your medical costs.

Penalties: If you don't sign up for Part B when you first become eligible, you may have to pay a penalty if you did not have health insurance through an employer or union.

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Medicare Part D

Part D is your prescription drug coverage.

Premium costs. The monthly fee you pay varies by the plan you choose. The average premium for the last several years has been about $30, and in 2015, the average is $33. If you have a higher income, you may pay more each month. In 2015, households with income of more than $170,000 or individuals with income greater than $85,000 pay on average $45 per month.

Deductible costs: Each year you pay a deductible before Medicare starts sharing the cost for your medicines. Although the deductible may vary from plan to plan, no plan may charge more than $320 in 2015. In 2016, the maximum will be $360.

After you've paid the deductible, your Medicare prescription drug plan kicks in and you pay a copay or coinsurance.

Out-of-pocket costs: The part you pay for your medicines is either called a copay or coinsurance. The amount depends on the plan you've chosen. You may pay more for some drugs than others, such as brand-name drugs.

Costs in the doughnut hole: If you spend a certain amount on medicines, you'll have a gap in your drug coverage, which is often called the doughnut hole.

While in the doughnut hole, in 2015 and 2016 you pay 45% of the cost for a brand-name medicine. This will steadily decrease until it reaches 25% in 2020.

For generic medicine, you pay 65% of the cost in 2015. This will steadily decrease to 25% in 2020.

You’ll Pay This Percentage for Brand-Name Drugs

in the Doughnut Hole
You’ll Pay this Percentage for Generic Drugs

in the Doughnut Hole
2013 47.5% 79%
2014 47.5% 72%
2015 45% 65%
2016 45% 58%
2017 40% 51%
2018 35% 44%
2019 30% 37%
2020 25% 25%

After the total cost of your drugs (what you and your health plan paid combined) reaches a certain level, Medicare stops paying for them. In 2013, that level is $2,970. For 2014, it will be $2,850.

Although you have to start paying your drug costs on your own, you receive a 55% discount for covered brand-name drugs. That means you pay 45% of the drug's cost. Prescription drug plans will pay 35% of the cost of covered generic drugs . That means you pay 65% of the cost of generic drugs that are covered by Medicare.

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You have to pay for your medicines yourself until you reach an out-of-pocket threshold, which is also called a maximum spending limit. In 2015, that limit, which is also called your out-of-pocket threshold, is $4,700.

On the plus side, the entire cost of a brand-name drug is added to the maximum spending limit. That's a bonus because you only pay a discounted price for a brand-name drug, but you get "credit" for the whole amount. That means you'll reach the maximum more quickly, when Medicare will start sharing the costs with you again.

The costs that help you reach the $4,700 threshold include what you spent on drugs while in the doughnut hole. But your monthly premiums do not..

Costs after the doughnut hole: When Medicare starts paying again, it's called catastrophic coverage. Then, you only have to pay a small copay or coinsurance toward your prescription drug costs for the rest of the year. In 2015, for generic medicines, you'll pay 5% of the drug's cost or $2.65, whichever is higher. For brand-name drugs, you'll pay 5% of the drug's cost or $6.60, whichever is higher.

Medicare Advantage (Part C)

These are health plans sold by insurance companies but overseen by Medicare. They are alternatives to original Medicare, and usually offer more services than original Medicare. Medicare Advantage plans typically cover hospitalization (Part A), outpatient care (Part B), and prescription drugs (Part C) under one plan.

To qualify for Medicare Advantage, you need to have Medicare Parts A and B. So that means you'll at least need to pay the Part B monthly premium.

On top of that fee, you may need to pay a monthly premium for the Medicare Advantage plan itself. The prices vary a great deal depending on the plan you've chosen.

Medigap

This is supplemental health insurance provided by private insurance companies that covers some of the costs Medicare doesn't, including copays and deductibles. You don't need, nor can you buy, a Medicare Advantage Plan if you carry a Medigap policy.

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To join a private Medigap plan, you pay a monthly fee to an insurance company in addition to the premium you pay to the government for Medicare Part B.

The costs of Medigap plans vary a lot, depending on the coverage, the company, your location, and your age. So make sure to shop around before buying one. If you wish to buy a Medigap policy, you should do so when you first become eligible for Medicare. Outside of the six month open enrollment period, which starts the month you turn 65, you’re not guaranteed to qualify for a policy.

Programs vary from state to state. Be sure to find out what your state offers. You can get help from your State Health Insurance Assistance Program. Call 800-MEDICARE to find yours.

WebMD Medical Reference Reviewed by Lisa Zamosky on July 25, 2015

Sources

SOURCES:

USA Today: "Medicare Premiums to Remain Stable in 2014."

Centers for Medicare & Medicaid Services: "More Savings in the Drug Coverage Gap Coming Through 2020," "Get help with your Medicare Costs," "Medicare Savings Programs," "4 Programs That Can Help You Pay Your Medical Expenses," "Medicare and You," "Save on Drug Costs," "Part B Costs," "Medicare 2013: Costs at a Glance," "Costs for Medicare Drug Coverage," "How Medicare Advantage Plans Work," "What's Medicare Supplement (MediGap) Insurance?" "CMS Ensures Greater Value for People in Medicare Drug and Health Plans."

Department of Health and Human Services: "Eligibility."

Kaiser Family Foundation: "Filling the Financial Gaps in Medicare Coverage."

Medicare Rights Center: "Find Out If You Qualify," "Program Financial Eligibility Guidelines."

Michigan Department of Community Health: "Medicare Savings Program."

Minnesota Department of Human Services: "People who need help with Medicare costs."

Social Security Administration: "Understanding the Extra Help With Your Medicare Prescription Drug Plan," "Apply online for Extra Help with Medicare prescription drug costs," "Apply for Medicaid."

California Health Advocates: "An Overview: Prescription Drug Coverage."

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