Medicare is the federal health insurance program for people aged 65 and older and certain younger people with disabilities. Deciding when to enroll and understanding the costs associated with Medicare can be confusing for many who are approaching age 65. Medicare has different parts that cover different services, and each part has associated costs that the beneficiary must pay. Overall, the total out-of-pocket costs that a Medicare beneficiary pays depends on their individual health needs and the parts of Medicare they are enrolled in. However, looking at the average costs for a typical 65 year old can provide a general overview of how much original Medicare and Medicare Advantage plans cost.
Eligibility for Medicare at Age 65
Most Americans become eligible for Medicare when they turn 65. You are eligible to enroll in Medicare if:
- You are age 65 or older
- You are a U.S. citizen or permanent legal resident who has lived in the U.S. for at least 5 consecutive years
- You or your spouse worked and paid Medicare taxes for at least 10 years
People younger than 65 can also qualify for Medicare if they have certain disabilities or meet other special criteria.
When you turn 65, you have a 7-month Initial Enrollment Period to sign up for Medicare that includes the 3 months before you turn 65, the month you turn 65, and the 3 months after you turn 65. It’s important to enroll on time to avoid lifelong late enrollment penalties. There are 2 main ways to get Medicare coverage:
- Original Medicare which includes Part A (hospital coverage) and Part B (medical coverage)
- Medicare Advantage (also known as Part C) which offers private insurance plans that bundle Parts A and B and often Part D (prescription drug coverage) together
Part A Costs
Medicare Part A helps pay for inpatient hospital care as well as skilled nursing facility, home health, and hospice care. In 2023, here are the costs associated with Medicare Part A:
- Monthly premium: $0 for most people
- Deductible per benefit period: $1,600
- Coinsurance per day for days 61-90 of a hospital stay: $400
- Coinsurance per day for days 91-150 of a hospital stay: $800 (for each lifetime reserve day used)
- Coinsurance per day for days 21-100 of a skilled nursing facility stay: $200
The $0 monthly premium for Part A is because most people don’t have to pay a premium for it since you or your spouse paid Medicare taxes while working for at least 10 years.
If you aren’t eligible for premium-free Part A, you may be able to buy Part A if:
- You’re 65 or older and enrolled in Part B
- You’ve been lawfully admitted to the U.S. for permanent residence and have lived here for 5 years in a row
In 2023, the monthly premium for those who have to buy Part A is:
- $506 per month if you have 30-39 work credits
- $297 per month if you have less than 30 work credits
Part B Costs
Medicare Part B covers outpatient medical care including doctor’s visits, preventive care, lab tests, diagnostics, durable medical equipment, and more. Here are the standard costs for Part B coverage in 2023:
- Monthly premium: $164.90 (can be higher based on income)
- Annual deductible: $226
- Coinsurance: 20% of the Medicare-approved amount after meeting the deductible
The standard Part B premium is set each year by Medicare and usually increases by a small amount from the prior year. Higher income beneficiaries pay higher premiums according to the following income brackets:
| Modified Adjusted Gross Income (MAGI) | Part B Monthly Premium in 2023 |
|---|---|
| Less than $97,000 (single) | $164.90 |
| $97,001 – $123,000 | $230.80 |
| $123,001 – $153,000 | $329.70 |
| $153,001 – $183,000 | $428.60 |
| $183,001 – $499,999 | $527.50 |
| $500,000 and above | $547.00 |
Part D Costs
Medicare Part D is optional prescription drug coverage offered through private insurance companies. Costs vary significantly depending on the specific Part D plan you select. In 2023, the average nationwide Part D premium is approximately $31 per month. Other standard costs include:
- Annual deductible: $505
- Initial coverage limit: $4,660 in total drug costs paid by you and your plan
- Coinsurance/copays during the initial coverage stage: Varies by plan, around 25% coinsurance after meeting deductible on average
- Coverage gap: After you and your plan have paid $4,660, you pay 25% coinsurance for generic and brand-name drugs until your true out-of-pocket costs reach $7,400
Your actual Part D costs can vary significantly based on what medications you take, preferred pharmacies, and plan options. Plans with higher monthly premiums often have lower deductibles and copays.
Medicare Advantage Costs
Medicare Advantage plans are an alternative to original Medicare offered by private insurance companies. Here are the typical costs associated with Medicare Advantage plans:
- Monthly premium: $0 – $200 per month on average, can be higher for plans with extra benefits
- Deductible: $0 for most plans, but can be up to $1,000 for plans that cover out-of-network care
- Copays/coinsurance: Varies, but often around $10 – $50 for primary care and specialist visits, $150 – $350 per day for hospital stays
- Annual out-of-pocket limit: $8,300 for in-network care
- Prescription drug coverage: Usually included with copays varying by drug tier
Medicare Advantage costs can vary widely by location and plan. It’s important to compare several plans in your area. Many Medicare Advantage plans include extra benefits like dental, vision, hearing, and wellness programs for $0 premium.
Medigap Costs
Medigap is supplemental insurance that can help pay costs in original Medicare like copayments, coinsurance, and deductibles. The average premium for Medigap Plan G in 2023 is approximately $148 per month, but this can range from $120 – $200 depending on your state and insurer. The premium is in addition to the monthly Part B premium.
Estimated Total Medicare Costs for a Typical 65 Year Old
Given the standard costs outlined above, here is an estimate of total Medicare costs for a typical 65 year old enrolling in original Medicare with Medigap and Part D coverage:
- Part B premium: $164.90 per month
- Medigap Plan G premium: $148 per month (national average)
- Part D premium: $31 per month (national average)
- Part B deductible: $226 per year
- Part D deductible: $505 per year
- Total Monthly Premiums: Around $345 per month, or $4,140 per year
- Total Deductibles: $731 per year
- Additional Cost Sharing: 20% coinsurance for Part B services after deductible is met. Variable drug copays under Part D.
- Total Estimated Yearly Cost: Approximately $5,000 – $6,000 depending on medical services utilized
Of course, costs can be higher or lower than the estimates above based on your health status, prescription drug needs, and utilization of medical services. Those in poor health are likely to pay more out of pocket throughout the year, while healthier enrollees may spend less if they don’t need many services. However, these estimates give a general benchmark of Medicare costs for a typical 65 year old.
Ways to Save on Medicare Costs
If you’re concerned about being able to afford Medicare coverage, here are a few tips:
- Compare Medicare Advantage plans – Many have $0 premiums or include extra benefits
- Evaluate Part D plans carefully – Choose one that covers your medications at the lowest cost
- Consider Medigap alternatives – Select plans or insurance companies that offer lower premiums
- Check for state and federal assistance programs if you have limited income and resources
- Take advantage of free preventive benefits to stay healthy and avoid unnecessary services
- Always ask about generics, lower cost options, or discounts when you need medical care
With smart choices, you can reduce your Medicare expenditures, especially if you are in good health. Get help from your State Health Insurance Assistance Program (SHIP) if you have questions or need assistance.
Conclusion
While having Medicare coverage provides valuable health insurance protection, there are still a variety of out-of-pocket costs to understand and budget for in retirement. For a typical 65 year old enrolling in original Medicare with Medigap and Part D, total costs are estimated around $5,000 – $6,000 per year. However, premiums, deductibles, and cost sharing can be higher or lower than these averages depending on your situation. With research and careful choices, many seniors find Medicare affordable and are able to access the quality care they need.