Medicare is a healthcare program with a lot of moving parts. While seniors get the option to tailor their healthcare plan to their needs with additional insurance coverage, this type of structure can lead to confusion about what you need to pay. The one cost all seniors covered by Medicare need to understand is their premium.
Because Medicare has multiple parts, including Original Medicare, Parts A and Part B, prescription drug coverage (Part D), Medicare Advantage (Part C) and Medigap plans, there are different premiums seniors need to be aware of. Here’s a closer look at all the premiums associated with Medicare and how you can calculate your monthly Medicare costs.
Medicare Part A
Most seniors who have worked in the United States for 10 years will not pay a Medicare Part A premium. The cost of this premium is covered by Medicare taxes you paid throughout your career. This is why Medicare Part A is usually considered “premium-free”.
If you did not pay Medicare taxes at all or you only paid them for a short time, you might not qualify for premium-free Part A. In this case, you will owe a partial or full premium based on how long you paid taxes while working. This premium is set by the federal government each year. In 2021, the Medicare Part A premium is either $259 or $471.
If you have to pay for Medicare Part A, you might face a late enrollment penalty if you don’t sign up when you become eligible. This penalty increases your premium by 10 percent for twice the number of years you did not enroll. For example, if you become eligible for Medicare Part A in July 2021 but do not enroll until December 2022, you may face a 10 percent penalty for two years (twice the length of your year-long enrollment delay).
Medicare Part B
Medicare Part B charges a monthly premium that is based on your income. Unless you qualify for extra help from your state, you will be required to pay this premium upon enrolling in Medicare Part B.
Most seniors pay the standard premium amount for Part B. In 2021, that cost totals $148.50 per month. However, if your income exceeds a certain amount, you might need to pay a higher premium based on the income bracket you fall into.
Part B is also subject to a late enrollment penalty. You may face a late enrollment penalty if you don’t sign up for Medicare Part B when you become eligible. This penalty may raise the cost of your Part B premiums permanently. The penalty raises your premium by 10 percent for every 12-month period you were eligible for Medicare Part B but did not enroll. The longer you go without coverage, the higher the penalty will be.
For example, if you become eligible for Medicare Part B in July 2021 but you don’t enroll until December 2022, you may face a 10 percent penalty, which may increase your Part B premium by 10 percent for life. If you don’t enroll until December 2024, you may face a 30 percent penalty!
Medicare Part D
Most Medicare Prescription Drug plans (Part D) also have a monthly premium. This premium is paid in addition to your Part B premium. There are two parts to this: the premium associated with your Part D plan and a fee associated with your income bracket.
The premium you pay for Part D will depend on the type of drug plan you select. These premiums can vary depending on the types of drugs included in the plan’s formulary and the out-of-pocket costs the plan charges.
In addition to the monthly premium set by the plan, you may owe a fee based on your income. Most seniors will only owe their plan’s premium, but those with higher incomes may owe more based on the income bracket they fall into.
Like Medicare Part A and Part B, Medicare Part D is also subject to a late enrollment penalty. You may face this penalty if you go longer than 63 days without prescription drug coverage of some kind any time after your Initial Enrollment Period ends. This penalty is permanent, similarly to the Part B penalty.
How much extra you pay is determined by the number of months you went without prescription drug coverage multiplied by 1 percent of the “national base beneficiary premium” (which changes every year).
Medicare Advantage (Part C) plans do not have the same federally regulated premiums as Original Medicare does. Instead, the premium you’ll pay for your Medicare Advantage plan will depend on the insurer and the type of plan you purchase. Costs for these premiums may vary dramatically depending on the coverage included.
Some Medicare Advantage plans advertise $0 premiums. These zero-premium plans are legitimate but may still require costs for deductibles, copayments and coinsurance.
If you enroll in a Medicare Advantage plan, you will be responsible for paying the Medicare Advantage premium on top of your Medicare Part B premium. Some plans may pay for part or all of your Part B premium, but this is not guaranteed.
If you choose to enroll in a Medigap plan to help you cover some of the costs associated with Original Medicare, this plan will also charge you a monthly premium. The premium you pay will depend on the type of plan you enroll in and the company offering the plan. This premium must be paid in addition to the Part B premium.
The best time to enroll in a Medigap plan is during the enrollment period immediately following your Medicare Part B enrollment. During this period, private insurance companies cannot use your medical history to deny coverage or charge a higher premium. If you choose to purchase a Medigap plan outside of this enrollment period, you may be charged a higher monthly premium.
Calculating your Medicare premiums
In order to calculate your total monthly Medicare premiums, you’ll need to add the different premiums together based on the plans you’ve enrolled in. While this will look slightly different for everyone, here are a few generic examples.
- Original Medicare: Most seniors covered by Original Medicare and drug coverage will need to total their premiums for Part A (if applicable) + Part B + Part D.
- Original Medicare and Medigap: If you have a Medigap plan to help cover costs for Original Medicare, you’ll need to total the premiums for Part A + Part B + Part D + Medigap.
- Medicare Advantage: Most seniors covered by a Medicare Advantage plan that includes prescription drug coverage (Part D) will need to total their premiums for Part A (if applicable) + Part B + Part C.
It’s important to remember that Medicare premiums are not the same as other Medicare costs, such as your deductible, copayments or coinsurance. Premium payments do not count toward your yearly deductible. Any costs for healthcare services will need to be paid on top of your monthly Medicare premiums.
Medicare premiums can also change over time. The government may increase the costs for Medicare Parts A and B from year to year. Additionally, private insurance companies administering Medicare Part D, Medicare Advantage and Medigap plans may change their premiums once per year. If your Medicare costs will be changing, your insurer will send you a notice with information about the change in advance, so you can plan for the increased costs or find a new plan.
With a greater understanding of how Medicare premiums work, you can shop around for the Medicare plans that work best for your healthcare needs and budget. If you need help exploring your options, SeniorCare Benefits is ready to help! We represent a range of Medicare plans that can help you access the specific benefits and coverage you need. To learn more, please call us at 1-888-230-0269 so one our agents can assist you today.