Living on a fixed income during retirement will make you think hard about your finances. It’s normal to prepare for retirement by trying to cut back here and there before the day comes. But do you know the costs that come with Medicare? Do you have to pay for Medicare? Unfortunately, it's a little more complex than a simple yes-or-no answer because you might pay for some parts of Original Medicare while not having to pay for others.
Do You Have to Pay for Medicare?
Whether or not you pay for Medicare depends on your work history and the taxes you paid during that time. Those who qualify for premium-free Medicare Part A (hospital insurance) won’t have to pay any premiums for that part of their Medicare coverage. To qualify for this specific plan, you must meet one of the following requirements: ·
- Worked at least 10 calendar years (40 quarters) at any job where you paid Social Security taxes in the U.S.
- Are eligible for Railroad Retirement benefits.
- Have a spouse who has met one of the two previous requirements.
If you haven’t met any of the previous requirements, then your monthly premium will vary depending on some other factors. Those who worked between 30 and 39 quarters will have a lower premium than those who worked fewer than 30. The premium will also change from year to year.
The Medicare Part B premium is a flat rate for most people each year, but those with higher incomes can pay a higher rate. In 2024, Part B premiums will range from $174.70 to $594.001 per month based on income reported on income tax filing from 2023. You can reference the chart here to find out exactly where you fall on the scale for your monthly premium.
If you choose to sign up for a Medicare Advantage (Part C) plan, your monthly premium will vary based on the plan that you choose and can change every year. Medicare Advantage plans are private Medicare-approved plans that offer coverage for things not included in Part A and B. It’s important to keep in mind that you also need to keep paying your Part B premium each month. A Part C plan isn’t a replacement for coverage with Original Medicare.
Similarly, Medicare Part D (prescription drug) coverage will vary by plan. You can choose the plan that best fits your medication needs and budget. The cost of your Part D plan may also vary depending on your income.
Costs Associated with Medicare Plans
In addition to paying your monthly premiums, there will be other out-of-pocket costs related to your Medicare coverage. Each plan has attached deductibles, copayments and coinsurance that will increase your medical costs. Let’s look at the costs associated with each.
Medicare Part A
While most people won’t have a Part A premium, you will be required to pay a $1,632 deductible in 2024 for each inpatient hospital benefit period. An inpatient benefit period is 90 days of coverage for a stay in a hospital. During this time, you’ll pay $0 during days 1 through 60 after meeting your deductible. From days 61 through 90, Medicare requires a $408 coinsurance each day. After 90 days, you’ll pay $816 each day in coinsurance while using your 60 lifetime reverse days. Medicare lifetime reserve days are a single group of coverage days that can’t be replenished.
Medicare Part B The out-of-pocket costs associated with Part B are more complicated because it covers much more than Part A. Beneficiaries pay an annual deductible ($240 in 2024) before Medicare starts to pay for anything. Once the deductible has been met, beneficiaries are responsible for 20% of the costs for services with coinsurance. This coinsurance coverage includes cover for:
- Home health care
- Inpatient hospital care
- Outpatient mental health care
- Partial hospitalization mental health care
- Outpatient hospital care
Medicare Parts C and D
Out-of-pocket costs for Part C (Medicare Advantage) and Part D (prescription drug) plans will vary based on the plan you choose and can change each year with coverage options.
Medicare Out-of-Pocket Maximums
Medical expenses can add up quickly, making for excessive costs that take years to pay off. Fortunately, Medicare Advantage plans are required to set an out-of-pocket maximum to protect beneficiaries from costs getting too high. In 2024, the out-of-pocket maximum is increased to $8,850 (up from $8,300 in 2023)3. Everything you pay toward copays, coinsurance and reaching your deductible goes toward your out-of-pocket maximum.
Your out-of-pocket maximum with Medicare Part D is what’s referred to as a “catastrophic coverage phase” and limits the amount you pay for prescription drugs. Once beneficiaries reach $8,000 of out-of-pocket expenses, there will no longer be a copay for covered medications.
Drug manufacturer discounts and copays go toward reaching the $8,000 maximum, so the actual out-of-pocket costs could end up being lower. It's essential to understand the costs of having Medicare during retirement so you can plan your budget. Every month you’ll have to pay your premium and coinsurance, copays and deductibles for each plan will add more to that initial cost. Reach out to a member of our team to learn more and find a Medicare Advantage program that fits your budget and needs.
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