Medicare Costs & Coverage

While Medicare provides federally administered health insurance to millions of older Americans, you may still face several out-of-pocket costs. But other plans and options are available to help you meet those expenses.

There are four parts to Medicare — Parts A through D — as well as supplemental insurance, called Medigap, which affect your out-of-pocket costs.

Original Medicare, which is made up of Parts A and B, will cover inpatient care and hospital stays, as well as doctor visits, treatments, services and outpatient care.

Medicare typically covers things that fall under the umbrella of medically necessary care. This means that services like cosmetic surgery or non-medical procedures are rarely covered.

There are some areas that are exempted from Original Medicare coverage. This includes dental care, vision care and prescription drug coverage. These areas can be covered through private plans like Medicare Advantage.

Medicare Part A is hospital insurance. It covers inpatient hospital stays, skilled nursing facility care and hospice care. Long-term care is not covered under Part A.

If you receive Social Security for at least four months before your 65th birthday, you will be automatically enrolled in Part A and Part B. If you don’t receive Social Security before turning 65, you’ll need to sign up with Social Security to receive coverage.

Part A charges no monthly premium to anyone who paid Medicare taxes through their employer for at least ten years. Those who haven’t worked that long have to pay premiums for Part A coverage. Most beneficiaries do not have to pay the premium.

Medicare Part B covers most doctor visits, outpatient care, preventive services and some medical supplies. You may face a late enrollment penalty if you don’t sign up for Part B when you first become eligible.

The Part B deductible for 2022 is $233. After meeting your deductible, you are responsible for 20% of all costs under coinsurance.

Part B premiums are based on a progressive scale depending on how much income you have and whether you filed an individual or joint tax return.

Medicare Advantage plans, is an all-in-one alternative to Original Medicare. These plans are administered by private insurance companies approved by the federal government.

Medicare Advantage bundled plans include Part A and Part B and usually have Part D drug coverage. Plans may also include other extra benefits such as vision and dental.

Since Medicare Advantage plans are provided through private insurers, there are no fixed premiums, deductibles or coinsurance. Instead, they vary from plan to plan. You first must have Original Medicare before you can buy a Medicare Advantage plan.

The companies that administer the plans decide what to charge for premiums, deductibles and coinsurance once a year. Medicare does not have a hand in determining the costs. Changes take effect on Jan. 1 of the following year.

Medicare Part D, which is provided through private insurers like Medicare Advantage, covers prescription drugs. All Part D drug plans must provide a minimum coverage level set by Medicare. However, the type of drugs covered depends on the formulary, which is a list of prescription drugs covered. Formularies vary from plan to plan.

Formularies are broken into tiers. Each tier has a different cost-sharing amount. For example, Tier I drugs may include low-cost generic medications while Tier III drugs may include non-preferred name-brand medications. Part D coverage is often included in Medicare Advantage plans.

The cost of a Part D plan varies depending on cost and which drugs it covers. If you live in a high-income household, you may have to pay an extra cost to your standard Part D premium due to the income-related monthly adjustment amount (IRMAA).

If you do not sign up for Part D coverage when you first enroll in Medicare, you can still sign up later. But you will pay an ever-increasing penalty unless you have other creditable prescription drug coverage or you receive certain other assistance from the state or federal government.

The penalty, which applies if you don’t have some form of drug coverage 63 days after your initial Medicare enrollment period ends, is based on how long you waited to enroll in a prescription drug plan. It adds a cost for each month you went without enrolling on to all future monthly premium payments.

If you’re enrolled in Original Medicare, enrolling in Medicare supplemental insurance — also known as Medigap — may help cover additional costs such as copayments and deductibles.

The average monthly premium for Medigap was $175 per month, according to a 2017 study published by Harvard University. But costs can vary widely for a Medigap plan.

Companies are free to set their own prices for each plan they offer, but the rates are filed and reviewed by the various state insurance departments.

Different insurers may charge different premiums for the exact same plan, so it’s important to compare prices between companies to find the best deal.

Long-term care, vision, dental, hearing aids and eyeglasses generally aren’t covered with Medigap. Medicare Advantage plans cannot be paired with Medigap.