A common misconception for those approaching Medicare age is that Medicare is free. You may have noticed a Medicare tax is applied to each paycheck. You indeed pay into Medicare while you work during your lifetime. However, it does not mean Medicare coverage is free. Medicare has premiums, deductibles, and cost-sharing, but not everyone will pay the same amount. The Medicare costs you will be responsible for will depend on your work history, income, medical needs, and supplemental coverage.

Medicare Part A and Part B make up Original Medicare. Still, since you are left responsible for medical costs with no limit, you can purchase a Medigap plan or a Medicare Advantage plan to help.

Medicare Part A costs

Medicare Part A provides hospital coverage when you are an inpatient. Part A can also cover skilled nursing facilities, lab work and medications in the hospital, and home health care following an inpatient visit. You must be a U.S. citizen to qualify for Medicare Part A or be a U.S. legal resident for at least five years or hold a Green Card for at least five years. Suppose you do not qualify for premium-free Part A. In that case, you must enroll in Part A during your Initial Enrollment Period to avoid the late enrollment penalty unless you have creditable coverage from a large employer.

Premium

If you worked at least 40 quarters or ten years in the U.S., you would not pay anything monthly for Medicare Part A. However, if you have worked less than 40 quarters but more than 30, you will pay $259 per month for Part A. If you work less than 30 quarters, you will pay $471 per month.

Deductible and cost-sharing

The Part A deductible is $1,484 per benefit period. A benefit period starts when you are admitted to the hospital and ends when you have been out of the hospital for 60 consecutive days. You can be hospitalized more than once in the same year and, therefore, owe the deductible each time you are outside of the 60 consecutive days.

If you are still an inpatient in the hospital after 60 consecutive days, you will pay $371 each day until day 90. After 90 consecutive days, you will pay $742 each day until you exceed your 60 lifetime reserve days. Once you have run out of lifetime reserve days, you will pay all hospital costs.

Medicare Part B costs

Medicare Part B covers approved medical services such as doctor visits, surgeries, lab work, tests, and other outpatient procedures. Failure to enroll in Part B during your Initial Enrollment Period will result in a penalty if you do not have creditable coverage from a large employer. The penalty is 10% for every 12 months you go without Part B coverage, and it is a lifetime penalty.

Premium

The standard premium for Part B in 2021 is $148.50. The premium can increase each year, and you can pay more if you have a higher income. Those in the higher income brackets are subject to the Income Related Monthly Adjustment Amount (IRMAA). Social Security will look at your modified adjusted gross income on your tax return from two years before to determine your Part B IRMAA. The income threshold will depend on how you file your taxes. The highest income would set your Part B premium to $504.90 in 2021.

Deductible and cost-sharing

Medicare Part B has an annual deductible of $203 in 2021. The deductible resets at the beginning of each year. After the deductible is met, you are responsible for 20% of all Part B services. There is no limit to the amount you could be accountable.

Part D costs

Part D plans will vary by zip code and county, which means the premiums and other costs will vary for each beneficiary. The Part D premium can also be affected by IRMAA. If you are in a higher income bracket, you will pay an additional amount on top of your plan’s premium. The additional amount you pay will depend on your income. Suppose you do not enroll in a Part D plan when you are first eligible and do not have creditable drug coverage. In that case, you will receive a penalty each month you go without coverage, and it will be added to your premium when you do enroll in a plan.

Deductible and cost-sharing

In 2021, the Part D deductible cannot be higher than $445, but carriers can set a lower deductible. Each plan has a different copay or coinsurance for each tier. Your annual drug costs will depend on the drugs you currently take and the plan.

Medigap and Medicare Advantage plans

Since Medicare does not cover services entirely, you can purchase a Medigap plan to be secondary and help with the leftover costs. For example, a Plan G will cover the Part A deductible and cost-sharing and the Part B coinsurance. The only amount you would be responsible for between Medicare and Plan G would be the Part B annual deductible. However, Medigap plans do not help with Part D.

The other option is a Medicare Advantage plan which is an alternative way to receive your Medicare benefits. Each plan has its deductible, maximum out-of-pocket costs, and copays or coinsurance for services. The amounts will vary with each plan.

Conclusion

Medicare has premiums, deductibles, and cost-sharing that beneficiaries are must pay. These amounts can change each year, and your supplemental plan will determine your cost-sharing when you use your insurance. It is essential to review the benefits and coverage of your plan to know what you can expect.