Medicare funds come from the taxes you pay throughout your working life. Your out-of-pocket costs once you’re enrolled depend on how long you’ve worked and paid taxes and the part of Medicare that provides coverage.
Keep reading to learn how Medicare is funded and what you would pay monthly depending on how long you’ve paid your taxes, income, and the specific Medicare part.
Since Medicare is a government program, it’s easy to assume it might be free. But in fact, Medicare is funded in large part by the taxes you pay throughout your working years. Other funding sources include contributions from the federal government, the government of your state, interest, and beneficiary premiums.
There are several different Medicare programs or parts, each serving different health needs. Once you’re enrolled, these programs have different monthly costs in the form of premiums, copayments, and deductibles that may depend on how much time you’ve worked and paid taxes in the United States.
Medicare Part A seems “free,” but it’s one of those benefits you have actually paid for through the taxes you paid during your working years. Many people will pay no monthly premium for Medicare Part A, which covers inpatient hospital and hospice care and limited skilled nursing and home healthcare services.
Once you’re enrolled, your exact costs for Part A depend on your situation and how long you worked. You will pay no monthly premium for Medicare Part A if you are older than age 65 and any of these apply:
- You receive retirement benefits from Social Security.
- You receive retirement benefits from the Railroad Retirement Board.
- You or your spouse worked for the government and received Medicare coverage.
You may also qualify for premium-free Medicare Part A if you are under age 65 and any of these apply:
- You have received Social Security disability benefits for 24 months.
- You have received Railroad Retirement Board disability benefits for 24 months.
- You have end stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS).
If you do not quality for premium-free Medicare Part A, you will pay a premium based on the number of quarters you worked in your lifetime. Each 3-month quarter counts as one credit toward Part A.
| Amount of time worked (and paid into Medicare) | Monthly premium in 2024 |
|---|---|
| < 30 quarters/credits (360 weeks) | $505 |
| 30–39 quarters (360–468 weeks) | $278 |
While Part A covers your inpatient care and some home health needs, you must also have Part B coverage for other medical visits and preventive care. Medicare Part B doesn’t offer a premium-free option like Part A. Monthly premiums are charged based on your income level, but not everyone receives a bill for their premium.
Your Medicare Part B premium will be automatically deducted from your monthly benefits check if you receive any of the following:
- Social Security benefits
- payments from the Railroad Retirement Board
- payments from the Office of Personnel Management
For those who pay a Part B premium, charges vary based on income level. Your 2024 annual income calculates what you will pay in 2024.
| Annual income with individual tax return | Annual income with joint tax return | Annual income while married but filing separately | Premium |
|---|---|---|---|
| ≤$103,000 | ≤$206,000 | ≤$103,000 | $174.70 |
| $103,000-$129,000 | $206,000-$258,000 | not applicable | $244.60 |
| $129,000-$161,000 | $258,000-$322,000 | not applicable | $349.40 |
| $161,000-$193,000 | $322,000- $386,000 | not applicable | $454.20 |
| $193,000-$500,000 | $386,000-$750,000 | $103,000-$397,000 | $559.00 |
| ≥$500,000 | ≥$750,000 | ≥$397,000 | $594.00 |
Medicare Part C (Medicare Advantage) plans are private insurance plans that combine the aspects of both Medicare Part A and Medicare Part B, plus other services. Private companies receive funding from Medicare, so some plans may offer reduced or even $0 monthly premiums.
Specific Part C premium costs vary by plan. Medicare Part C plans offer various service options, coverage types, and prices. Some even cover services like eye exams, dental care, hearing aids, and fitness programs.
Plans that offer no monthly premiums may still have other costs, though, like copays, coinsurance, and deductibles. Most plans, however, include out-of-pocket maximums. Medicare offers an online tool to compare costs and services included with Medicare Advantage plans offered in your area.
Medicare Part D covers prescription medications and is paid through premiums and other fees. Medicare Advantage plans may include prescription coverage, but you will still be responsible for some of your medication costs.
Premium costs vary by area and plan, and you can work with your physician to make sure the medications you are prescribed are included in the drug list (called a formulary) that Medicare approves. If your medication is not on the approved list, your physician can request an exception or choose a different medication.
Medigap (Medicare Supplement) policies are available through private insurance companies. They are not free but may help you save money on other Medicare program costs.
Some Medigap plans cover the costs of the Medicare Part B deductible. However, in 2015, a law was passed (the Medicare Access and CHIP Reauthorization Act of 2015 [MACRA]) that made it illegal for Medicare Supplement plans (Medigap) to pay for part B deductibles for new enrollees beginning in 2020.
While people who already had a plan that paid this premium keep their coverage, new Medicare enrollees cannot sign up for supplement plans that pay for the Part B premium since January 1, 2020. However, if you were already enrolled in Medicare and had a Medigap plan that pays the Part B deductible, you can keep it.
Medicare offers an online tool to find Medigap programs in your area. You can compare premium costs and what copays and deductibles apply. Medigap benefits kick in after basic Medicare programs like Part A and Part B coverage are exhausted.
Learn more: How does MACRA affect my Medicare plans?
Is Medicare free for seniors in the United States?
The cost of Medicare depends on the Medicare part and how long you’ve worked and paid taxes in the U.S. That said, older adults with lower incomes may qualify for certain reduced-cost programs. In addition, some people may be eligible for Medicare and Medicaid, which may streamline the cost.
Do I automatically get Medicare when I turn 65?
When you reach the age of 65, you will automatically receive Medicare Part A for hospital insurance and Part B for medical insurance. However, you need to follow some steps to make sure you’re getting the exact coverage you want, including prescription drug coverage (Part D), for example.
Medicare coverage is complex, and there are a lot of considerations that are unique to your situation.
There are no totally “free” Medicare programs. How long you worked, how much you make, and how much you can afford to pay as a deductible before your benefits kick in are all factors involved in calculating your Medicare costs.
While some programs offer low or “free” premiums, compare plans and consider all the costs involved, including deductibles, copayments, and coinsurance.