Quick Answer
Once you turn 65, you generally do not have to pay a premium for Medicare Part A (hospital insurance) if you or your spouse paid Medicare taxes while working. However, you will need to pay premiums for Medicare Part B (medical insurance) and usually for Part D (prescription drug coverage). The standard Part B premium amount in 2023 is $164.90 per month. Part D premiums vary by plan but average around $32 per month.
When Does Medicare Coverage Start?
Medicare eligibility begins at age 65 for most Americans. Specifically, you become eligible on the first day of the month you turn 65.
For example, if your 65th birthday is June 20, 2023, your Medicare coverage will start on June 1, 2023. It’s important to enroll in Medicare on time to avoid lifelong late enrollment penalties.
Some people under 65 can qualify for Medicare if they have certain disabilities or meet other special criteria. But for most, turning 65 is the key milestone for gaining Medicare eligibility.
Medicare Part A – Hospital Insurance
Medicare Part A covers inpatient care received in hospitals as well as skilled nursing facilities, hospice care, and some home health care services.
In most cases, there is no Part A premium. You can get Part A premium-free if:
– You or your spouse paid Medicare taxes for at least 10 years (40 quarters) while working, or
– You receive Social Security or Railroad Retirement Board benefits
According to the Social Security Administration, about 99% of Americans aged 65+ do not have to pay premiums for Medicare Part A.
If you aren’t eligible for premium-free Part A, you may be able to buy Part A coverage by paying premiums of $278 per month in 2023. This applies if:
– You or your spouse paid Medicare taxes for less than 30 quarters (7-9 years), or
– You do not receive Social Security or Railroad Retirement Board benefits
Medicare Part A Late Enrollment Penalties
If you become eligible for premium-free Part A at 65 but do not sign up when you are first eligible, you may have to pay a late enrollment penalty if you enroll later. This penalty is 10% of the standard Part A premium ($278 in 2023) for twice the number of years you delayed enrollment.
For example, if you wait 3 years to enroll in Part A, your monthly premium would be 10% x $278 x (2 x 3 years) = $166.80 per month.
To avoid this penalty, it is important to enroll in Medicare Part A as soon as you become eligible by turning 65.
Medicare Part B – Medical Insurance
Medicare Part B covers a wide range of outpatient medical services including doctor visits, preventive screenings, lab tests, x-rays, durable medical equipment, mental health care, and more.
Unlike Part A, most people do pay premiums for Part B coverage. The standard Medicare Part B premium amount in 2023 is $164.90 per month.
Higher income seniors pay more for their Part B premiums based on the following income brackets:
| Individual Tax Return Income | Married Filing Jointly Income | 2023 Part B Monthly Premium |
|---|---|---|
| Less than $97,000 | Less than $194,000 | $164.90 |
| $97,001 – $123,000 | $194,001 – $246,000 | $225.90 |
| $123,001 – $153,000 | $246,001 – $306,000 | $297.00 |
| $153,001 – $183,000 | $306,001 – $366,000 | $368.10 |
| $183,001 – $499,999 | $366,001 – $749,999 | $439.20 |
| Above $500,000 | Above $750,000 | $506.50 |
In addition to premiums, most beneficiaries have to pay an annual Medicare Part B deductible of $226 in 2023 before coverage kicks in.
Medicare Part B Late Enrollment Penalties
As with Part A, failing to sign up for Part B when you first become eligible at 65 can result in late enrollment penalties. The Part B late penalty is 10% of the standard premium for every 12-month period that you delayed enrollment.
For instance, if you wait 2 years to enroll in Part B, your monthly premium would be 10% higher for the rest of your life. With the standard premium at $164.90 in 2023, that 2-year delay would tack on an extra $32.98 each month.
The late enrollment penalty is designed to encourage people to enroll in Medicare when first eligible. The best way to avoid this surcharge is to sign up for Medicare as soon as you turn 65 and qualify.
Medicare Part D – Prescription Drug Coverage
Original Medicare (Part A and Part B) does not cover most prescription medications. To help fill this gap in coverage, Medicare Part D provides prescription drug coverage through private insurance plans.
Part D plans are optional, but there is a financial penalty if you delay enrollment unless you have drug coverage from another source that is at least as good as standard Medicare (known as “creditable coverage”).
The average monthly premium for Medicare Part D plans is around $32 in 2023, but costs vary significantly by plan. In addition to premiums, most Part D plans have an annual deductible up to $505 in 2023. Cost sharing amounts like copays or coinsurance will also apply when you fill prescriptions.
If you do not sign up when you are first eligible and don’t have creditable drug coverage, you will face a permanent late enrollment penalty added to your Part D premiums. The penalty is 1% of the national average premium ($45.77 in 2023) for every month you did not have coverage.
For example, if you go 14 months without Part D or other coverage, your premium would be 14% higher permanently. In 2023, that would add about $6.41 onto your monthly Part D costs.
Medicare Supplement Plans
One way some seniors cover their Medicare costs is through Medigap or Medicare Supplement Insurance plans. These private insurance policies help pay for Medicare out-of-pocket costs like deductibles, copays, and coinsurance.
Some key facts about Medigap plans:
– They only work with Original Medicare, not Medicare Advantage
– You pay a monthly premium in addition to your Medicare premiums
– There are 10 standardized plans labeled A, B, C, D, F, G, K, L, M and N
– Plan F and Plan C are only available if you were eligible for Medicare before Jan. 1, 2020
– Costs vary by plan type, benefits, and insurance company. Average premiums are around $150 per month.
– You may face underwriting or health screening if enrolling after your Medigap open enrollment period
Having a Medicare Supplement plan can provide more financial protection and predictable healthcare costs for many seniors on Original Medicare. But the extra premiums add to the overall Medicare costs.
Medicare Advantage Plans
Medicare Advantage, also known as Medicare Part C, offers an alternative way for beneficiaries to get their Medicare benefits. These plans are offered by private insurance companies approved by Medicare.
With Medicare Advantage, all your Part A and Part B coverage is delivered through the plan, not Original Medicare. Medicare Advantage plans must cover all services covered under Parts A and B. Many plans offer additional benefits like vision, hearing, dental, and wellness programs.
Key facts about Medicare Advantage:
– You must continue paying your Part B premium
– Plans have an annual limit on out-of-pocket costs for covered medical services
– They typically have copays or coinsurance for services instead of 20% coinsurance under Original Medicare
– Many plans charge $0 premiums, but premiums average around $19 per month
– Most plans include prescription drug coverage
– Provider networks are limited – you may need to see doctors and hospitals in the plan’s network
Medicare Advantage offers bundled benefits and cost sharing limits that appeal to many enrollees. However, the networks can be restrictive and cover less out-of-network care compared to Original Medicare.
Medigap vs Medicare Advantage
Choosing between Medigap and Medicare Advantage involves trade-offs:
Medigap
- Works with Original Medicare
- Covers coinsurance and copays
- Lets you see any Medicare provider
- Premiums don’t change when health declines
- Doesn’t cover prescription drugs
- Higher overall costs due to premiums
Medicare Advantage
- Replaces Original Medicare
- Lower copays and out-of-pocket maximums
- Limited provider network
- Premiums may increase due to health
- Usually includes drug coverage
- Lower premium costs in many cases
There is no “best” option for everyone. It depends on your budget, health needs, doctors, medications, and preferred type of coverage.
Many people switch between Medigap and Medicare Advantage to find the right approach over time. You can change plans each year during Medicare’s Annual Election Period from October 15 to December 7.
Other Medicare Costs
In addition to the premiums, deductibles, and cost sharing we’ve discussed, some other costs to be aware of with Medicare include:
Medicare Administrative Costs
Several administrative fees are deducted from your Social Security payments each month if you get Social Security:
– Part B Premium: Standard amount, currently $164.90 in 2023
– Part D Premium: Varies by plan, average of $32 per month
– Medicare Advantage Premium: Average of $19 per month if you have MA instead of Original Medicare
These premium deductions reduce your Social Security payment. If your Social Security benefit is less than the total premium amounts owed, you will receive a bill from Medicare each month.
Medicare Late Enrollment and Gap Coverage Penalties
As discussed earlier, failing to enroll in Medicare and supplemental coverage when first eligible can trigger late penalties that permanently increase your premium costs. Make sure you understand these penalties and enroll on time to avoid unnecessary costs.
Part B and Part D Income-Related Premium Surcharges
Higher income individuals pay more for their Part B and Part D coverage based on taxable income levels. Married couples get charged based on their combined income. Be aware that higher retirement income could push you into a tier with higher Medicare costs.
Limited Out-of-Pocket Maximums
There is no annual cap on your medical costs under Original Medicare. You must pay 20% coinsurance on all covered services. Having secondary insurance like Medigap or Medicare Advantage establishes an annual limit on your costs and gives you more financial protection.
Long-Term Care and Dental/Vision/Hearing Costs
Medicare does not cover long-term custodial care or most routine dental, vision, and hearing services. You will need to pay for these services out-of-pocket unless you have additional coverage.
Conclusion
Turning 65 brings Medicare eligibility, but it does not mean all your healthcare is free. You will need to budget for Medicare premiums, deductibles, copays or coinsurance. Costs will be higher if you do not enroll promptly when first eligible.
Most people get Part A premium-free but must pay for Part B coverage. Part D drug plans have additional premiums. Medigap and Medicare Advantage plans also charge premiums but cap out-of-pocket costs.
Carefully consider the total costs of different Medicare options. Weigh the expenses against the coverage and flexibility each option provides. Use Medicare’s Annual Election Period each fall to adjust your coverage.
Understanding what Medicare does and does not cover is crucial for financial planning. Speak to a Medicare consultant or SHIP counselor in your state if you need help reviewing plan choices and the associated costs.
