No, the Medicare program is not free; its cost-sharing model includes a variety of out-of-pocket costs for beneficiaries.
Although Medicare provides health care coverage specially to people aged 65 and over, there is a lot of misunderstanding about whether or not it is free. There is no uniform answer here because Medicare benefits are divided into parts that each have different restrictions. However, in general, Medicare is not free if you're enrolling at age 65.
Although there is a version of Medicare hospital insurance that doesn’t require you to pay premiums, even this is not fully free. We’ll take a look at all of the details below.
Medicare Part A: Is It Free?
Medicare Part A covers your inpatient medical costs, which include most hospital care as well as hospice care and medical care in skilled nursing facilities. Medicare Part A is one of the parts of Original Medicare, which is what you will most likely enroll in when you turn 65.
There are two options for Medicare Part A, and they depend on how long you have been paying Medicare taxes. There is a premium-free version of Medicare Part A, which will not require you to pay monthly premiums. However, even then, it isn’t fully free.
Premium-Free Part A: Do I Qualify?
If you or your spouse worked and paid Medicare taxes for ten or more years, you will qualify for premium-free Part A. Most people will qualify for premium-free Part A, and it is by far the most common option for Medicare beneficiaries.
The way that Medicare often describes your eligibility is by noting that you will qualify if you are eligible for social security benefits. Social security benefits are granted under very similar situations to what we described above, but it's important to note that it's possible to be eligible for social security retirement benefits but not for Medicare health insurance, and vice versa.
Premium-free Part A is just what it sounds like: you will pay no monthly premiums, ever.
Premium-Free Part A and Other Costs: Deductibles and Coinsurance
Although Medicare Part A is available to most in its premium-free version, that doesn’t mean there aren’t other costs associated with this insurance coverage. Like with most insurance plans, you will still be subject to a yearly deductible as well as coinsurance payments.
In 2023, the Part A deductible is $1,600. As with other plans, your Medicare coverage will kick in after you pay your deductible, although you may still have to pay a percentage of the Medicare-approved amount even after your deductible is paid.
Medicare Part A Coinsurance Costs
Although coinsurance payments are usually a percentage of your overall bill, they work a bit differently for Medicare Part A. Under Part A, you pay no coinsurance at all for your first 60 days of hospitalization during a given benefit period. For days 61-90 of the benefit period, you will have a $400 per day coinsurance.
For days 91 and beyond, you will pay a $800 per day fee for each lifetime reserve day that you use. Each Medicare beneficiary has 60 lifetime reserve days, and these do not reset after each benefit period passes, but are only used once. Once the 60 lifetime reserve days are complete, you will be responsible for all costs. This is very important to keep in mind if you are experiencing long term care.
How Much do Part A Premiums Cost?
Although most people qualify for premium-free Part A insurance, some people who do not qualify will have to pay monthly premiums. These people will fall into two categories:
1. If you paid Medicare taxes for under 30 quarters (7.5 years), your monthly premium will be $506 per month.
2. If you paid Medicare taxes for 30-39 quarters, your monthly premium will be $278 per month.
Can Medicare Part B Be Free?
Medicare Part B will cover your outpatient care. Part B coverage takes care of most of your doctors' visits, but notably excludes dental care, vision, and most prescription drug charges if they are not a direct part of your visit.
Unlike Part A, Medicare Part B will always cost something at every stage. You will pay a monthly premium, and your plan will be subject to deductibles and coinsurance payments.
Medicare Part B Premiums
Part A premiums, when they must be paid, cost the same for everyone. Part B premiums, on the other hand, can vary depending on your income. The standard Part B premium is $164.90 per month.
If you earned more than $97,000 in the relevant tax year ($194,000 if you're married filing jointly), then you may owe the Income-Related Monthly Adjustment Amount (IRMAA), which applies to both Part B and Part D. The table below shows the rate at each income level:
Medicare Part B: Deductibles
The Medicare Part B deductible for 2023 is $226. Once your deductible is covered, your coverage will kick in. For many people, the deductible is exhausted after just one doctor's visit.
Medicare Part B: Coinsurance Payment
Once you meet your deductible, you will still have to pay a coinsurance. This coinsurance will be a standard rate of 20% of the Medicare-approved amount of a given procedure or cost.
Medicare Part C: Is It Free?
Medicare Part C, also known as Medicare Advantage, also comes with costs at every stage. Unlike Part A and Part B, Medicare Advantage plans are purchased from private insurance companies. There are premiums associated with Part C, but like other private medical insurance plans, they will vary widely depending on the details of their health coverage and other factors.
Although Part C plans may vary, they are all required to offer you the same coverage as Part A and Part B. Many plans will also offer more coverage, and these plans often come with some restrictions, like provider networks.
What Fees Does Part C Come With?
Because Medicare Advantage plans vary so widely, it’s hard to say up-front what the fees of any given plan will be. One difference these plans do have from Original Medicare is that you may have to pay a copayment.
This will be a fixed fee that you pay for each doctor’s visit, depending on the type of visit it is. Original Medicare doesn’t use a copayment, but make sure to look at the details of your Medicare Advantage plan, to see if it has one.
How Much Will I Pay for Part D?
Medicare Part D offers your prescription drug coverage. Like Part C, these plans are offered by private insurance companies, rather than the government. However, all of these drug plans will offer a certain level of coverage, and there is a government-prescribed pricing structure as well.
Part D Premiums
Medicare Part D monthly premiums can be set by the private insurance company that offers them. However, your premium may be higher if you're what Medicare calls a "high earner". See the table above for the adjustment amount for each income bracket.
Remember, these are the amounts you will pay in addition to your monthly premiums, not the monthly premiums themselves.
How Much Is the Part D Deductible, Copayment, and Coinsurance?
The Part D deductible will vary according to your plan, but it can’t be any higher than $505 per year in 2023. Once you pay your deductible, you may have to pay a coinsurance or copayment, but this will vary from plan to plan.
The Part D “Donut Hole” and “Catastrophic Coverage”
Once you reach your yearly deductible, your out-pocket-costs for Medicare Part D will be around 25% of drug costs - even in the donut hole (also known as the coverage gap). There's a lot of confusion about the donut hole, because many people don't realize that, before the Affordable Care Act (ACA) passed, Medicare beneficiaries were responsible for 100% of their drug costs while in the donut hole. The passage of ACA included provisions that closed that donut hole, shifting the majority of the drug's cost from the insurance company to the drug manufacturer.
You'll leave the donut hole and enter the catastrophic coverage phase once your out-of-pocket (plus a percentage of what the drug manufacturer pays) totals $4,660 in 2023. You can examine the full details here
So, How Much Will I Pay?
As you can see, Medicare is most certainly not free. Even if you only have Part A insurance (which we don’t recommend aside from certain limited circumstances, like additional health coverage from your employer group health plan), you will still have some fees to pay. How much Medicare will cost you overall can vary hugely, so we can’t offer any specific numbers.
This can vary even more if you factor in things like Medigap policies. The important thing is to understand that Medicare is not free and to know which fees you can expect to pay, so you can find the best coverage for your situation.
Find a Medicare Plan in your area
It's FREE with no obligation