Table of Contents:

  1. How Is Medicare Funded?
  2. How Much Does Medicare Part A Cost?
  3. How Much Does Medicare Part B Cost?
  4. What If I Can’t Pay My Monthly Part B Premium?
  5. What Qualifies as a Life-Changing Event?
  6. What If I Can’t Afford to Pay My Part A and Part B Premiums?
  7. How Do I Apply to Join a Medicare Savings Program?
  8. How Much Does Part D Coverage Cost?
  9. What Is the Part D Coverage Gap?
  10. What If I Can’t Afford My Part D Prescription Drug Coverage?
  11. How Much Does Medicare Advantage Cost?
  12. How Much Do Medigap Policies Cost?

How Is Medicare Funded?

Medicare receives funding through a combination of payroll taxes and federal allocations as well as the premiums paid by some Medicare beneficiaries.

How Much Does Medicare Part A Cost?

Medicare Part A is free for the following groups:

  • Eligible individuals who have paid (or whose spouse has paid) Medicare taxes for at least ten years.
  • Eligible individuals under 65 who have received Social Security disability benefits or Railroad Retirement benefits for at least two years.
  • Eligible individuals with ESRD who are receiving dialysis treatment and have paid (or whose spouse/parent has paid) Medicare taxes for at least ten years.
  • Eligible individuals with ALS who are receiving Social Security disability payments and have paid (or whose spouse/parent has paid) Medicare taxes for at least ten years.

Medicare Part A premiums are adjusted each year. In 2021, they are as follows:

  • $259/month for individuals who have paid (or whose spouse/parent has paid) Medicare taxes for 7.5 or more years.
  • $471/month for individuals who have paid (or whose spouse/parent has paid) Medicare taxes for fewer than 7.5 years.

Medicare Part A beneficiaries incur a number of charges if they are hospitalized. In 2021, they are as follows:

  • Hospitalized Medicare Part A beneficiaries pay a deductible of $1,484/benefit period.
  • After Part A beneficiaries have spent 60 days in the hospital, they are charged $371/day.
  • Beneficiaries have access to 60 “lifetime reserve days” which they can use if they’re hospitalized for more than 90 days during a single benefit period. Lifetime reserve coinsurance totals $742/day.
  • Part A beneficiaries in skilled nursing facilities incur a coinsurance of $185.50/day for days 21 through 100 of their stay.

How Much Does Medicare Part B Cost?

All Medicare Part B beneficiaries pay a monthly premium. In 2021, both the standard premium and the income-related monthly adjustment amount (IRMAA) scale are based on income tax returns from 2019.

  • Individuals with incomes below $88,000/year or couples with combined incomes below $176,000/year pay the standard monthly premium. In 2021, this premium is $148.50/month.
  • Individuals who earn more than $88,000/year or couples who earn more than a combined $176,000/year will pay between $207.90/month and $504.90/month in 2021.

An eligible individual who chooses not to enroll in Medicare Part B at age 65 must pay a late-enrollment premium if they enroll at a later date.

  • This premium increases by 10% every year that an eligible individual could have enrolled in Medicare Part B but did not do so.
  • Persons who opt out of Part B coverage because they are already covered by their employer or their spouse’s employer are exempt from this fee.

What If I Can’t Pay My Monthly Part B Premium?

If a life-changing event has reduced your income in the last two years, you can appeal to have the IRMAA adjusted.

What Qualifies as a Life-Changing Event?

Beneficiaries can appeal to the Social Security Administration to reduce or eliminate their Part B IRMAA if they have experienced one of the following life-changing events:

  • Marriage
  • Divorce/Annulment
  • Death of Spouse
  • Work Stoppage
  • Work Reduction
  • Loss of Income-Producing Property
  • Loss of Pension Income
  • Employer Settlement Payment

What If I Can’t Afford to Pay My Part A and Part B Premiums?

Limited-income Medicare beneficiaries can enroll in Medicare Savings Programs (MSPs) to help cover the costs associated with Medicare Part A and Medicare Part B.

There are four MSPs:

  • Qualified Medicare Beneficiary (QMB) Program: The most comprehensive MSP, this program helps cover premiums, copays, coinsurance, and deductibles for both Medicare Part A and Medicare Part B. In the continental United States, the income limit for 2021 is $1,084/month for individuals and $1,457/month for couples. In Alaska, the income limit is $1,349/month for individuals and $1,816/month for couples. In Hawaii, the income limit is $1,243/month for individuals and $1,673/month for couples. The asset limits are set at $7,860 for individuals and $11,800 for couples in all 50 states.
  • Specified Low-Income Medicare Beneficiary (SLMB) Program: The SLMB Program covers Part B premiums. In the continental United States, the income limit is $1,296/month for individuals and $1,744/month for couples. In Alaska, the income limit is $1,615/month for individuals and $2,175/month for couples. In Hawaii, the income limit is $1,488 for individuals and $2,003 for couples. The asset limits are set at $7,860 for individuals and $11,800 for couples in all 50 states.
  • Qualified Individual (QI) Program: Enrollment in this program, which covers premiums for Medicare Part B, is granted on a first-come, first-serve basis. In the continental United States, the income limit is $1,456/month for individuals and $1,960/month for couples. In Alaska, the income limit is $1,814/month for individuals and $2,445/month for couples. In Hawaii, the income limit is $1,672/month for individuals and $2,251/month for couples. The asset limits are set at $7,860 for individuals and $11,800 for couples in all 50 states.
  • Qualified Disabled and Working Individuals (QDWI) Program: QDWIs are disabled people who have returned to work and, as a result, lost their access to premium-free Medicare Part A. In the continental United States, the income limit is $4,339/month for individuals and $5,833/month for couples. In Alaska, the income limit is $5,401/month for individuals and $7,269/month for couples. In Hawaii, the income limit is $4,977/month for individuals and $6,697/month for couples. As with other MSPs, the asset limit is consistent across the entire country. At $4,000 for individuals and $6,000 for couples, it is lower than that of the other programs.

Several states have their own naming conventions for MSPs. In Maryland, for example, the QI Program is called SLMB Plus.

How Do I Apply to Join a Medicare Savings Program?

Funding for MSPs comes from Medicaid. As such, your eligibility is determined by your state’s Medicaid office. Each state has its own specific set of guidelines. You will typically need to provide the following documentation to determine your eligibility:

  • Your Social Security card
  • Your Medicare ID
  • Your birth certificate, passport, or proof of permanent legal residence
  • Proof of address
  • Proof of income
  • Information regarding your assets

If you are denied membership in an MSP, you have a right to appeal the decision. If you are approved, you will need to renew your membership each year. This process will also vary depending on your home state.

How Much Does Part D Coverage Cost?

The average stand-alone prescription drug plan charged a premium of $42.05/month in 2020. Because Part D plans are issued by private insurance companies, benefits, pricing, and drug formularies can vary greatly. The average Medicare beneficiary will have a choice of 27 Part D plans. The premiums for stand-alone PDPs range from $7/month to $89/month.

Individuals who earn more than $87,000/year and couples who earn more than $174,000/year pay an additional premium for Part D coverage.

  • This additional premium ranges from $12.30/month to $77.14/month. If you or your spouse have experienced a life-changing event, you can appeal this increase.

Once you have selected a PDP, there are four ways to pay your monthly premium:

  • Deductions from your personal account.
  • Deductions from your Social Security check.
  • Charges to your credit or debit card.
  • Monthly bills in the mail.

PDP deductibles will vary from plan to plan.

  • As of 2021, no Medicare PDP can charge a deductible greater than $445/year.
  • Some PDPs do not charge deductibles at all.

Copays and coinsurance will vary from plan to plan and drug to drug.

What Is the Part D Coverage Gap?

Most PDPs have a coverage gap. The term refers to a temporary limit on what the plan will cover. In 2021, beneficiaries who spend more than $4,130 on covered drugs will enter the coverage gap. The gap closes when they have spent $6,550. This is called the “catastrophic coverage level.” At this point, beneficiaries will either pay $3.70 for generic drugs and $9.20 for name-brand drugs or 5% of the total cost (whichever is higher). If you qualify for the Extra Help program, you will not enter the coverage gap.

  • Beneficiaries will pay no more than 25% the price of a brand-name drug while they are in the coverage gap. In the coverage gap, drug manufacturers cover 70% of the cost and plan providers cover the additional 5%. The manufacturer’s contribution will count toward your out-of-pocket spending and help get you out of the coverage gap. You will also pay 25% of the drug’s dispensing fee.
  • Beneficiaries will pay 25% for generic drugs while in the coverage gap. Medicare will cover the additional 75%. Only your contributions will count toward helping you get out of the coverage gap.

These costs count toward the coverage gap:

  • Annual deductibles, copayments, and coinsurance
  • The discount you get while in the coverage gap
  • The payments you make while in the coverage gap

These costs do not count toward the coverage gap:

  • Your PDP’s premium
  • Pharmacy dispensing fees
  • Payment for drugs that are not covered by your PDP

What If I Can’t Afford My Part D Prescription Drug Coverage?

Medicare offers support to Part D beneficiaries through its Extra Help program. The program is broken into two distinct sub-programs based on income level and beneficiary status:

  • Partial Extra Help: Individuals who are beneficiaries of Medicare alone may qualify if they earn less than $1,615/month, and couples may qualify if they earn less than $2,175/month. The program reduces premiums and deductibles and puts a cap on prescription copays after $6,350 in out-of-pocket spending.
  • Full Extra Help: Individuals who are beneficiaries of Medicare alone may qualify if they earn less than $1,456/month, and couples may qualify if they earn less than $1,960/month. Individuals who are beneficiaries of both Medicare as well as Medicaid and/or an MSP may qualify if they earn less than $1,083/month. Couples may qualify if they earn less than $1,457/month. The program eliminates premiums and deductibles and dramatically reduces prescription copays.

QMBs, SLMBs, and QIs are automatically eligible to receive Extra Help.

How Much Does Medicare Advantage Cost?

Part C enrollees pay a premium to their private insurance provider in addition to their monthly Part B premium ($144.30/month). In 2019, the average monthly premium for a Medicare Advantage plan was around $29/month. These premiums can vary greatly from provider to provider and will depend on a number of factors. These include:

  • Whether or not the plan covers some or all of your Part B premium
  • Whether or not your plan has a yearly deductible or any additional deductibles
  • Your copayments and coinsurance
  • The type of healthcare services you require and the regularity with which you require them
  • Whether or not you stay “in network”
  • Whether or not you qualify for Medicaid or additional support from the state

There are a number of zero-premium plans. More than 90% of enrollees live in areas where these plans are available. Nearly half of enrollees opted for one of these plans in 2019.

Unlike Medicare Part A and B, Medicare Advantage plans place a cap on in-network out-of-pocket expenses ($6,700/year). This cap has remained static since 2011. Keep in mind, however, that it only applies to services that are also covered by Medicare Part A and B. There is no cap on the cost of prescription drugs until an enrollee hits the catastrophic coverage limit.

How Much Do Medigap Policies Cost?

The cost of a Medigap policy will vary depending on the insurance carrier and the specific plan. Carriers use three methods to determine their pricing:

  • Community-Rated Pricing: This method charges all enrollees the same price regardless of their age. Premiums may change over time, but they will always remain consistent for each enrollee. Eight states (Arkansas, Connecticut, Massachusetts, Maine, Minnesota, New York, Vermont, and Washington) require carriers to use this method.
  • Issue-Age-Rated Pricing: This method bases pricing on the age of the individual purchasing the policy. The older you are, the higher your premium. It’s important to enroll in an issue-age-rated plan as soon as possible to secure the lowest possible price.
  • Attained-Age-Rated Pricing: These premiums continue to rise as the policyholder ages. As such, they are often the least expensive option during your initial eligibility period. Costs will go up with each subsequent year.

You may pay a higher premium — or be denied coverage altogether — if you neglect to enroll during your initial eligibility period.

 

Information adapted from the Centers for Medicare & Medicaid Services

Additional data and cost information adapted from the Social Security Administration and Medicare Rights Center and the National Council on Aging

Program Operations Manual System (POMS), 2019. Social Security Administration.

Extra Help Program, 2021. Social Security Administration.

Medicare Advantage, 2019. Kaiser Family Foundation.

Medicare Part D: A First Look at Medicare Prescription Drug Plans in 2021, 2020. Kaiser Family Foundation.