Medicare isn’t free. This catches many retirees by surprise.

Medicare has a reputation for simplicity. You turn 65 and get access to free universal health insurance. This is true to a certain degree, and that’s one of the reasons the program is overwhelmingly popular among recipients. However, in practice, Medicare has many carve-outs and exceptions. Indeed, it didn’t even cover prescription drugs until about 20 years ago.

The program is better thought of as your basic insurance plan in retirement. Medicare will cover much of what you need, but not everything. This is where gap insurance and long-term care insurance come in.

It’s also where Medicare premiums come in, because again… Medicare isn’t free.

Medicare has a series of premiums, deductibles and copayments that apply to all patients. The Centers for Medicare and Medicaid Services (CMS) updates these costs every year to reflect inflation and the underlying costs of care. The exact amounts range based on each Medicare plan (Parts A, B, C and D), the care you are seeking and your income status.

In 2024, at the very least, you should budget to spend about $2,088 on combined premiums and another $1,872 on deductibles.

Here’s how it works. A financial advisor can also help you navigate Medicare, long-term care and other retirement considerations.

What Are Medicare Costs?

Medicare has four different plans: Parts A, B, C and D. Each offers different coverage.

Part A – Hospital, hospice and home health care coverage
Part B – Doctor’s visits, outpatient care, preventative medicine, and medical equipment
Part C – Known as Medicare Advantage, can provide alternative Part A and B coverage
Part D – Outpatient prescription drug coverage

Each of these parts have different cost structures based on your income and needs. Part A and Part B have broadly similar costs for most enrollees, while the costs of Part C and Part D depend on your individual plan.

Broadly, Medicare plans have four different types of costs:

Premium – The amount you must pay each month for coverage
Deductible – The amount you must pay for costs before your plan pays for care
Copayment – A specific dollar amount you must pay for any given services
Coinsurance – A percentage of costs you must pay for any given services

How Much Does Medicare Cost In 2024?

The CMS has published its updated costs for 2024. There is no annual limit on out-of-pocket costs for Medicare Part A, Part B or Part D coverage. However, you can limit your costs by enrolling in either a Part C plan (Medicare Advantage) or enrolling in a supplemental insurance policy (gap insurance).

Medicare Part A

Premiums – Typically $0

Most people don’t pay premiums for Medicare Part A.

If you or a spouse paid Medicare taxes for at least 10 years, or meet certain other requirements, you generally will not pay premiums for this plan. If you do not meet the requirements for “premium-free Part A” you can enroll for either $278 or $505 per month.

Deductible – Typically $1,632 per stay

This deductible applies for each hospital stay, known as a “benefit period.” This means that you can have several benefit periods in a year, and you will have to pay the deductible each time. As noted above, without an Advantage or gap plan, there is no upper limit to these costs.

Copayment and Coinsurance – Typically around 20%

The shared payment section of Part A varies based on any given service. The most common shared payment is 20% applied to durable medical equipment. If you stay in a nursing home, you will pay costs of $0, $204 or 100% of your daily expenses depending on how long you stay.

A financial advisor can help you decide an appropriate level of coverage based on your financial circumstances. Get matched with an advisor today.

Medicare Part B

Premiums – At least $174.70 per month/$2,092.80 per year

This premium can increase based on your income. In 2024, rates climb for households that make more than $103,000/$206,000 single/joint. Your premiums might also be increased based on an ongoing penalty if you do not enroll in Medicare Part B when you are eligible.

Deductible – $240 per year

The Part B deductible is a flat annual rate. Each participant in Medicare Part B has a $240 deductible before the plan begins paying costs. This applies once each year.

Copayment and Coinsurance – Typically around 20%

The shared payment section of Part B varies widely based on what services you receive. However, the most common form is a 20% coinsurance payment. This applies to care such as general services, like an outpatient doctor’s visit, and durable medical equipment.

Medicare Part C

There is no set structure for Medicare Part C.

This plan is known as “Medicare Advantage.” It is a public/private partnership program through which enrollees can purchase private insurance that supplements or replaces traditional Medicare. Per the HHS: “a Medicare Advantage Plan… will provide all of your Part A (Hospital Insurance) and Part B (Medical Insurance) coverage. Medicare Advantage Plans may offer extra coverage, such as vision, hearing, dental, and/or health and wellness programs. Most include Medicare prescription drug coverage (Part D).”

While enrollees must pay Part B premiums, otherwise the costs of a Medicare Part C plan depend on the specific plan. This includes premiums, deductibles, copayments and coinsurance all based on a specific plan’s costs.

Medicare Part D

Prices for Medicare Part D range.

This plan is a public/private partnership that offers additional prescription drug coverage beyond traditional Medicare (Part A and Part B). When you enroll in Part D, you choose a plan and coverage to join. Your costs will then depend on which plan you select, although there are a few rules.

In 2024, no Part D plan may have a deductible higher than $545. Premiums range, but on average a Part D plan costs $55.50 per month/$666 per year. Your premiums can increase based on income. Households above $103,000/$206,000 single/joint will pay increased premiums, with a flat rate applied to their Part D premium based on their income tier.

Premiums can also increase for enrollees that have a significant gap in coverage. Consider discussing the cost of your healthcare in retirement with a fiduciary financial advisor.

The Bottom Line

While Medicare is heavily subsidized, it is not entirely free. This program comes with premiums, deductibles and cost sharing based on the specific plan you use and the nature of your care. In 2024, enrollees should expect to spend at least $2,088 on plan deductibles to receive traditional coverage.

Tips On Maximizing Medicare

Make the most of your Medicare. With these three steps, you can make sure that your Medicare provides you with the best coverage, for the best value, on the market.
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