Medicare costs come from four places: Part A, Part B, whatever you add on top, and the surcharges that apply to higher earners. This page puts all of it in one view.
Part A — usually free, but not free of costs
Premium. Most people pay nothing. You get premium-free Part A if you or a spouse paid Medicare payroll taxes for at least 40 quarters. With 30 to 39 quarters there is a reduced monthly premium; below 30, a higher one.
Deductible. Part A has an inpatient hospital deductible that applies per benefit period, not per year. A benefit period begins on admission and ends after 60 consecutive days out of a hospital or skilled nursing facility. Two admissions eight months apart mean paying it twice in one calendar year.
Coinsurance. After the deductible, days 1–60 of a hospital stay carry no additional daily charge. Days 61–90 carry a daily coinsurance amount. Beyond that you draw on 60 lifetime reserve days, at a higher daily rate, and they do not renew. Skilled nursing facility care follows its own schedule: no charge for the first 20 days of a covered stay, then a daily coinsurance amount through day 100, then no coverage.
A Medigap policy covers most or all of this. On a Medicare Advantage plan the structure is replaced by the plan’s own inpatient copay schedule — commonly a fixed amount per day for the first several days of an admission.
Part B — the premium everybody pays
Premium. Part B has a standard monthly premium, usually deducted from your Social Security payment. If you are not yet claiming Social Security, Medicare bills you quarterly.
Deductible. An annual amount you pay before Part B starts participating.
Coinsurance. After the deductible, Part B pays 80 percent of the Medicare-approved amount and you pay 20 percent, with no annual cap. This is the structural gap that Medigap and Medicare Advantage both exist to address, from opposite directions.
Excess charges. A provider who does not accept Medicare assignment may bill up to 15 percent above the approved amount. Medigap Plan G covers excess charges; Plan N does not. Several states, including Massachusetts, prohibit them entirely.
IRMAA — the surcharge for higher earners
The income-related monthly adjustment amount adds to both your Part B and Part D premiums if your modified adjusted gross income exceeded a threshold two years earlier. It is tiered: cross a threshold by a single dollar and the full surcharge for that bracket applies.
The two-year lookback is what makes IRMAA feel unfair. Someone who retires at 65 is assessed on their income at 63, when they were still working at full salary.
If your income has dropped, file form SSA-44
Social Security will reconsider an IRMAA determination if the drop was caused by a life-changing event: retirement or reduced work hours, marriage, divorce, death of a spouse, loss of pension income, loss of income-producing property, or employer settlement.
The form is SSA-44. It is short, it is free, and a great many newly retired people never file it because nobody tells them it exists. If you retired this year and your Part B premium looks higher than you expected, this is almost certainly why.
Two other IRMAA planning points worth knowing:
- A large one-off gain matters twice. A Roth conversion, a property sale or an inherited IRA distribution can push you across a threshold, and the consequence appears two years later.
- It is per person, not per household. A married couple filing jointly are assessed on joint income but each pays their own surcharge.
Part D — how the drug money works
Four components:
- Monthly premium, which varies by plan and carries an IRMAA surcharge for higher earners
- Annual deductible, charged by some plans and waived on lower tiers by others
- Copays or coinsurance for each drug, set by its formulary tier
- An annual out-of-pocket cap — once your spending on covered drugs reaches it, covered drugs cost you nothing for the rest of the plan year
The cap is a meaningful improvement on how Part D worked historically, when beneficiaries on expensive specialty drugs kept paying a percentage indefinitely. It also changes which plan wins: for someone on a high-cost medication, a plan that reaches the cap efficiently can beat one with a lower premium.
There is also a monthly copay cap on covered insulin products, and recommended adult vaccines are covered with no cost sharing.
The most reliable way to compare Part D plans is on total annual cost, not premium. Our Part D total cost estimator does the arithmetic across three plans, or send us your drug list and we will run every plan in your county.
What each arrangement totals
The two realistic structures produce very different cost shapes.
| Cost | Original Medicare + Medigap + Part D | Medicare Advantage |
|---|---|---|
| Part B premium | Yes | Yes |
| Plan premium | Medigap premium + Part D premium | Often $0, sometimes modest |
| At the doctor | Usually nothing after the Part B deductible | A copay each visit |
| Specialist | Usually nothing | A higher copay |
| Hospital admission | Usually nothing | Per-day copay for the first several days |
| Annual worst case | Essentially the Part B deductible | Up to the plan’s out-of-pocket maximum |
| Predictability | High — cost is in the premium | Lower — cost follows usage |
| Premium trend over time | Rises with age and claims experience | Re-set annually, often stable |
The honest summary: Medigap moves your cost into a predictable monthly premium. Medicare Advantage moves it into variable usage costs with a hard annual ceiling. Which is better depends on your health, your appetite for variability, and how much premium you can comfortably carry every month for the next twenty-five years.
Help paying for it
Two programs reduce Medicare costs for people within income and asset limits, and both are widely under-claimed.
Extra Help (the Low Income Subsidy) reduces or eliminates Part D premiums, deductibles and copays. It is automatic if you have Medicaid, Supplemental Security Income or a Medicare Savings Program; otherwise you apply through Social Security. The limits are more generous than most people assume.
Medicare Savings Programs are state-administered and can pay your Part B premium, and depending on the program your deductibles and coinsurance too. Qualifying for one also confers automatic Extra Help.
We screen for all three in every review. There is no charge, and nothing in it for us — it is simply part of doing the job properly.
The cost mistakes we see most
- Choosing a Part D plan on premium alone. The cheapest premium in the county routinely loses on total cost for anyone taking several medications.
- Treating a $0 Advantage premium as $0 cost. The out-of-pocket maximum is the real number, and it varies enormously between plans in the same county.
- Never filing SSA-44 after retiring. A year of unnecessary IRMAA on both Part B and Part D, for want of a two-page form.
- Buying Medigap on first-year price. The rate history matters more than the opening quote. The cheapest policy at 65 can be the most expensive by 72.
- Not checking Extra Help. People who would qualify pay full price for years because nobody raised it.
Next steps
Read Medicare Advantage vs Medigap for the structural decision, then get in touch and we will price your actual options. No fee, and no obligation to change anything.
Frequently asked questions
Why is my Part B premium higher than my neighbor’s?
Almost certainly the income-related monthly adjustment amount, or IRMAA. It is a surcharge applied when your modified adjusted gross income from two years earlier exceeded a threshold. It also applies to Part D. If your income has since dropped because of a life-changing event such as retirement, you can ask Social Security to reconsider using form SSA-44.
Is a $0 premium Medicare Advantage plan really free?
The plan premium is zero; the care is not. You continue paying your Part B premium to Medicare, and you pay copays and coinsurance as you use services, up to the plan’s annual out-of-pocket maximum. That maximum, not the premium, is the number to compare between plans.
Does Medicare have an out-of-pocket maximum?
Original Medicare does not — there is no annual limit on your 20 percent share of Part B costs. Medicare Advantage plans are required to have one. A Medigap policy addresses the same problem from the other direction, by paying the coinsurance for you.
How can I lower what I pay?
Check Extra Help for Part D, and Medicare Savings Programs which can cover your Part B premium if you are within income and asset limits. Many people who qualify never apply because nobody tells them. We screen for both as part of any free review.