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How much does Medicare cost?

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Medicare is a federal health insurance program for people when they reach 65. You can usually choose between multiple Medicare options. 

You can go with Original Medicare, add on a Part D prescription benefit plan and choose a Medigap option to help pay for care -- or you can pick a Medicare Advantage policy with supplemental offerings.

One of the important differences between Medicare plans is costs. Original Medicare offers standard costs, while you can find wide varieties among Medicare Advantage plans. 

Here are the differences between Original Medicare and Medicare Advantage, how much they cost and how to choose a Medicare plan. 

 

What’s the difference between Original Medicare and Medicare Advantage? 

Original Medicare, also called Parts A and B, has been an option from the start of Medicare in 1965:

  • Part A covers hospital stays.
  • Part B handles physician visits, outpatient care, medical supplies and preventive services. 

The Centers for Medicare and Medicaid Services (CMS) runs the national program. People with Original Medicare are also eligible for Part D and Medigap. Part D is a prescription drug benefit, while Medigap helps pay for out-of-pocket costs. 

Meanwhile, private insurers offer Medicare Advantage plans with CMS oversight. Most people with Medicare have Original Medicare, but that’s changing. The Centers for Medicare and Medicare Services (CMS) predicts that 42% of Medicare members will sign up for Medicare Advantage in 2021. That’s expected to move closer to half of members over the next decade. 

CMS predicts that 26.9 million people will have Medicare Advantage in 2021. There will also be more plan options. CMS said the average county will have 47 plan options in 2021 -- an increase from an average of 39 in 2020. 

UnitedHealthcare and Humana make up the most Medicare Advantage members, but many insurers have grown their Medicare Advantage membership over the past few years. 

Almost two-thirds of Medicare Advantage members are in HMOs. About one-third are in PPOs, which have higher premiums, but more flexibility, such as a larger network. 

Unlike Original Medicare, you’re not able to add on other types of coverage like Part D to a Medicare Advantage plan. That’s because Medicare Advantage offerings already provide additional coverage within the plan. Supplemental benefits include prescription drugs, vision and dental. 

 

Original Medicare costs

Medicare Part A is free for most Americans -- as long as you paid Medicare taxes for at least 40 quarters. So, if you worked for 10 years and paid Medicare taxes, you won’t have to pay premiums for Part A. 

Medicare hasn't decided on rates for 2021 yet. In 2020, people who didn't pay enough previous taxes, paid between $252 and $458 monthly for Part A. 

Part A had a $1,364 deductible in 2020. You’ll have to pay for health care services until you reach that deductible. 

Part B costs $143.30 monthly for most Americans in 2020. That premium is expected to increase to at least $153.30 in 2021. Also, higher-income people may have to pay higher premiums. How much more? Depending on your income, you could pay more than double monthly. People with incomes above $500,000 (and joint filers for those making more than $700,000) paid $491.60 monthly in 2020.

The Part B annual deductible was only about $197, which is much lower than most Medicare Advantage plans. Once you reach the deductible, Medicare pays 80% of costs and you pay the other 20%. 

 

Medicare Advantage costs

Medicare Advantage costs vary by state, insurer, plan type and specific offering. The average monthly Medicare Advantage premium is only $21 for 2021. Insurers also offer plans with no premiums. However, you’ll likely pay more out of pocket for those plans when you need health care services.

Medicare Advantage plans vary widely. It’s essential to dig into each plan to find out which one works best for you. 

For instance, you may find a plan with higher premiums, but with more supplement benefits. Nearly all Medicare Advantage plans have prescription benefits. 

CMS has also expanded insurer Medicare Advantage options. Now, they can offer reimbursements for rides to doctor appointments, meal delivery and adult care services. People with chronic illnesses may also get help for grocery shopping, improved home environments and transportation for non-medical needs. 

 

Medicare Part D cost

You can couple a Part D prescription drug plan with Original Medicare, which doesn’t have prescription benefits. 

The average basic monthly Part D premium is $30.50 in 2021. The standard Part D deductible is $455. Once you reach the deductible, you pay 25% of the costs until you reach $4,020 in prescription drug costs. Then, you pay 37% for generics and 25% on brand-name drugs until $6,350 in out-of-pocket costs. Finally, once you exceed that limit, you pay 5% out-of-pocket for prescription drugs. 

Make sure to review your prescriptions and get assurance that the Part D policy covers your medication. 

 

Medigap cost

Medigap helps pay out-of-pocket costs for people with Original Medicare. There are 10 standardized Medigap plans, which enable you to compare apples-to-apples. 

Private insurers offer Medigap policies. These plans pay for co-payments, deductibles and coinsurance, including hospital stays, physician service or prescription drugs. 

The cost of Medicare varies, but you can find high-deductible policies under $100 a month. Other Medigap plans, which have lower deductibles, can cost more than $300 monthly. 

Medigap premiums can vary by age depending on the plan. 

 

Costs by Medicare plan

Here's a break down of monthly premiums by Medicare plan. Make sure you understand the deductible for your specific plan and how that affects out-of-pocket costs. You may find a low-premium Medicare Advantage plan, but it usually has much higher out-of-pocket costs than Original Medicare. 

Type of MedicareAvg. monthly premiums
Original Medicare$153.30*
Part D$30.50
Medicare Advantage$21
MedigapVaries, as low as under $100 to more than $300 depending on policy

*Medicare Part A is usually free. Estimated premium for 2021. Final number expected in November 2020. 

 

Choosing a Medicare plan

Whether you choose Original Medicare or Medicare Advantage depends on many factors:

  • Plans offered in your state
  • Costs
  • Quality of care
  • Other coverage, such as a spouse’s health plan
  • Provider and hospital network
  • Supplemental offerings
  • Type of plan

A 2019 Insurance.com survey found that Original Medicare received higher marks than Medicare Advantage:

  • 82% of people with Original Medicare gave their plans high scores and no one rated their plan with the lowest rating.
  • 72% with Medicare Advantage gave their health insurance high marks with 7% giving plans the lowest mark. 

In our survey, Medicare Advantage received similar marks as employer-sponsored health insurance, which is also offered by private insurers. These plans received much higher marks than individual health insurance plans. 

Your first step should be to see if your providers and favored hospitals and facilities are considered in-network. You don’t want to sign up for a Medicare Advantage plan only to find out that your doctor isn’t in-network. 

Also, look into the plan specifics. For instance, a health maintenance organization might be a cheaper option but are you OK with only going to providers in a potentially narrow network? You might find a high-deductible health plan with low premiums, but will you have enough savings to help pay deductibles?

CMS offers star ratings for plans. The federal agency rates plans with star ratings that come from membership surveys, quality and performance. 

You can use CMS’ Medicare Plan Finder to compare Original Medicare and Medicare Advantage plans. 

Costs are a critical piece when deciding on a Medicare plan, but make sure you understand your options before deciding.