There's no premium for Part A if you paid enough in Medicare taxes while working. Part B requires a monthly premium — at the standard rate of $121.80 a month in 2016. Part D drug plans charge additional premiums, and so do most Medicare Advantage plans.
You pay higher premiums for Parts B and D if your modified adjusted gross income on your latest tax return is above $85,000 if you're single, or $170,000 if you're married and filing joint returns. (For details see "Medicare Premiums: Rules for Higher-Income Beneficiaries.")
You pay annual deductibles for Part B ($166 in 2016) and Part D (up to $360 in 2016; or up to $400 in 2017) before coverage kicks in. Part A has a deductible ($1,288 in 2016) for hospital stays. Some Part D and Medicare Advantage plans reduce or waive deductibles.
In traditional Medicare (Parts A and B), you pay 20 percent of the Medicare-approved amounts for most Part B services. In Part A, after meeting the deductible you pay nothing more for up to 60 days in the hospital in any one benefit period, but additional days may require daily copays. In Part D and Medicare Advantage plans, you pay the copays required by your plan.
Part D drug coverage
Drug coverage is uniquely designed. Depending on the cost of the drugs you use, you may move through four different phases of coverage during each calendar year:
- Annual deductible: This is an amount you may pay out of pocket for your drugs before coverage kicks in. Many Part D plans charge no deductible or less than the maximum amount set by law — $360 in 2016; $400 in 2017.
- Initial coverage period: You pay the copays required under your plan until the total cost of your drugs — what you've paid and what your plan has paid — reaches a certain amount ($3,310 in 2016; $3,700 in 2017) from the beginning of the year or, if you joined the program partway through the year, from when your coverage began.
- Coverage gap (aka "the doughnut hole"): Once your drug costs exceed the initial coverage limit above, you're in the doughnut hole. Your plan then pays nothing, unless it provides some coverage in the gap. But in 2016—thanks to discounts provided by the manufacturers and the federal government—you pay 45 percent of the cost of brand-name drugs and 58 percent of the cost of generics. In 2017, you pay 40 percent and 51 percent respectively. 2010 Affordable Care Act (“Obamacare”), which will also gradually reduce your costs every year until by 2020 you'll pay no more than 25 percent of the price of any drug in the gap.)
- Catastrophic coverage: When the amount you’ve paid out of pocket for your drugs since the beginning of the year (deductibles, copays and anything you spent in the gap) plus any manufacturers’ discounts on brand-name drugs you received in the gap), reach a certain limit, coverage resumes. The limit is $4,850 in 2016, $4,950 in 2017. You then pay no more than 5 percent of the cost of any drug until the end of the year.
This cycle of phases — deductible, initial coverage, doughnut hole and catastrophic coverage — repeats itself every calendar year. So if you are in the doughnut hole at the end of December, full coverage begins again Jan. 1 or, if your plan has an annual deductible, as soon as you've met it. If your drug costs are not high, you may not reach the doughnut hole at all.
For detailed information on how the Medicare prescription drug program works, see the AARP Bulletin's consumer guide "Medicare Part D & You."
Help Paying Out-of-Pocket Expenses
Help paying for Parts A and B: If your income is low, you may qualify for Medicaid or a Medicare Savings Program, both run by the states. Depending on which program you're eligible for, the state pays your Part B premiums and maybe other out-of-pocket costs. To find contact information for Medicare Savings Programs, go to Medicare's online state-by-state list or call Social Security at 1-800-772-1213. To see if you qualify for Medicaid, call your state medical assistance program at the number given in the state pages of your telephone directory or contact your SHIP.
Help paying for Part D: If your income is under a certain level, you may qualify for the Extra Help program in Part D, which provides low-cost drug coverage — zero or reduced premiums and deductibles, and low copays. For more information on this program, see related article "Extra Help Paying for Prescriptions." To apply, call Social Security at 1-800-772-1213
Medicare supplemental insurance (known as medigap) is private insurance you can buy to cover some or most of the out-of-pocket expenses of traditional Medicare — such as the hospital deductible and Part B copays — depending on the policy you choose. You cannot use medigap if you're in a Medicare Advantage plan.
If you're 65 or older and buy a policy within six months of enrolling in Part B, medigap insurers cannot deny you coverage or require higher premiums because of current or past health problems. You may be able to buy medigap later on and still have these guarantees, in some circumstances. These federal protections only apply to people 65 and older, though some states have similar laws for younger beneficiaries. If you have Medicare because of disability, contact your state insurance department for information.
For more information on medigap insurance, see the Medicare publication "Choosing a Medigap Policy" (PDF). For step-by-step guidance on comparing different medigap plans, see related article "Medigap Explained."
Patricia Barry is the author of Medicare for Dummies 2nd edition (Wiley/AARP, September 2015).