Insurance

Is Medicare Free?

By Chris Duderstadt

September 23, 2024

Is Medicare Free?

Key Points – Is Medicare Free?

  • Are You Waiting Until Age 65 to Retire?
  • Medicare Is Not 100% Free, But Parts of It Can Be
  • IRMAA’s Potential Impact
  • Understanding the Parts of Medicare: What They Cover and What They Cost
  • 6-Minute Read

Are You Waiting Until Age 65 to Retire?

One of the primary considerations for people as they plan for retirement is the cost of health insurance. Some people get uncomfortable with the possibility of retiring early because of the gap it creates before they’re Medicare eligible. They might prefer to keep their employer-sponsored health insurance rather than getting health insurance via the Marketplace or COBRA. That’s part of why people wait until becoming Medicare eligible at age 65 before retiring. Whether or not you decide to wait until 65 to retire, there’s one retirement planning myth we want to bust: the belief that Medicare is 100% free.

Medicare Is Not 100% Free, But Parts of It Can Be

Healthcare and taxes are two of the leading wealth-eroding factors in retirement in large part due to lack of planning. If you’re planning for retirement, it’s important to understand that Medicare is not 100% free, but parts of it can be.1 Let’s review the costs of Medicare.

Medicare Part A (Hospital Insurance)

Original Medicare includes Medicare Part A (hospital insurance) and Medicare Part B (medical insurance).2 It’s available to people who are 65 and older (or earlier if you’re disabled or have end-stage renal disease). According to the Centers for Medicare & Medicaid Services, Medicare Part A is premium-free for most people.3 The reason Medicare Part A is premium-free for so many people is because it has already been paid if you (or your spouse) has worked for at least 10 years and paid into Social Security.4

You can buy Medicare Part A if you (or your spouse) haven’t met that requirement. The monthly premium would be $278 if you’ve worked for between seven and a half and 10 years and $505 if you’ve worked for less than seven and a half years.

Medicare Part A Deductible

While Medicare Part A is free for most people, there is a deductible of $1,632 for an inpatient hospital stay for each benefit period in 2024.5 So, if you have multiple hospital stays in a year, you’ll incur that deductible multiple times since it isn’t an annual deductible. Each benefit period starts on the hospital admission date and lasts until you’ve been out of the hospital for 60 straight days. If you exceed that timeframe, you’ll owe an additional $408 per day for Days 61 through 90 and $816 per day for Days 91 through 150. You’ll pay all costs after Day 150.

The same deductible applies for skilled nursing facility stays, but the benefit period and daily coinsurance amounts are different. For days 21 through 100, you’ll owe an additional $204 per day. You’ll pay all costs after Day 100.

Medicare Part B (Medical Insurance)

Medicare Part B is not free. In 2024, the monthly premiums for Medicare Part B amount to $174.70 for most beneficiaries. It’s possible to pay less than that if your Social Security benefit won’t increase enough to cover $174.70 a month. This is an instance where the hold harmless provision prevents your Social Security benefit from decreasing when the cost of Medicare Part B increases.6

Watch Out for IRMAA

However, it’s also possible to pay more than $174.70 a month for Medicare Part B. That’s because of IRMAA, which stands for Medicare Income-Related Monthly Adjustment Amount. IRMAA is a potential surcharge on your Medicare Part B and D premiums if your Modified Adjusted Gross Income exceeds certain levels. One of the things that’s confusing about IRMAA is that it isn’t based on your taxable income from the current or prior year. IRMAA is based on your MAGI on your tax return from two years ago. That means that you need to be aware of your income from 2022 to determine if you’ll be subject to an IRMAA surcharge in 2024.

IRMAA Income Limits

Let’s review the IRMAA income limits. If you’re married and filing jointly, your MAGI from 2022 must be at or below $206,000 (or $103,000 if you’re a single filer). Look at Figure 1, below, to see how much more your Medicare Part B premium could be depending on your MAGI from 2022.

Is Medicare Free?

FIGURE 1 – 2024 Medicare Part B IRMAA Brackets – NerdWallet / medicare.gov7 and 10

Medicare Part B Deductible

There’s also an annual deductible for Medicare Part B. For 2024, it’s $240. Once that deductible has been met, Medicare typically covers 80% of the approved service costs.

What Medicare Part B Does (and Doesn’t) Cover

It’s important to understand what services Medicare Part B does and doesn’t cover. According to medicare.gov, Part B covers medically necessary services and preventive services, including ambulance services, clinical research, durable medical equipment, limited outpatient prescription drugs, mental health and substance use disorders, and oxygen equipment and accessories.8

Medicare.gov also shared a list of examples of items and services that Part B doesn’t cover.9 It includes eye exams for prescription eyeglasses, long-term care, cosmetic surgery, massage therapy, routine physical exams, hearing aids and exams for fitting them, concierge care, covered items or services you get from a doctor or other provider that has opted out of participating in Medicare (except in the case of an emergency or urgent need), and most dental care.

Medicare Part C (Medicare Advantage)

Also known as Medicare Advantage, Medicare Part C serves as an alternative to Parts A and B. Medicare Advantage plans are offered by Medicare-approved private companies, which must follow rules set by Medicare. They bundle various types of coverage, including Medicare Parts A, B, and D. Medicare Advantage plans can also include dental, vision, and hearing insurance. Note that you need to sign up for Medicare Part A or B before enrolling in a Medicare Advantage plan.

And, no, Medicare Part C is not free either. The premiums, deductibles, and copays will vary depending on your Medicare Advantage plan. The out-of-pocket limits will also vary.

Medicare Part D (Prescription Drug Coverage)

Medicare Part D pertains specifically to prescription drug coverage. Just like Medicare Part C, you need to sign up for Part A or B prior to enrolling in Part D. Medicare Part D plans are offered by Medicare-approved insurance companies and private companies.

IRMAA also needs to be considered if you have a Medicare Prescription Drug plan. Your premium will vary based upon your plan and income from two years prior. See Figure 2, below, for the IRMAA tiers for Medicare Part D.

Is Medicare Free?

FIGURE 2 – 2024 Medicare Part B IRMAA Brackets – NerdWallet / medicare.gov7 and 10

Finding a Prescription Drug Plan That Meets Your Needs

The prescription drugs that someone has in their Medicare Part D plan should depend on their health situation, but most plans will include drugs such as, HIV/AIDs treatments, antidepressants, antipsychotic medications, anti-convulsive treatments for seizure disorders, immunosuppressant drugs, and anticancer drugs (unless covered by Part B).11

Formularies and Tiers

The list of prescription drugs that a Medicare Part D plan provides is called a formulary. If there’s a drug you need that’s not available on the formulary, you’ll need to pay out of pocket for it, request an exception to have it included, or file an appeal.

The prescription drugs within each formulary are placed into tiers. Here’s an example from medicare.gov for how those tiers are structured.12

  • Tier 1—Lowest copayment: most generic prescription drugs
  • Tier 2—Medium copayment: preferred, brand-name prescription drugs
  • Tier 3—Higher copayment: non-preferred, brand-name prescription drugs
  • Specialty tier—Highest copayment: very high-cost prescription drugs

Medicare Supplement Insurance (Medigap)

Lastly, there’s Medicare Supplement Insurance, also known as Medigap. Medicare Supplement Insurance is additional insurance that can be purchased from a private health insurance company to help cover out-of-pocket costs from Medicare Parts A and B. Typically you need to be enrolled in Medicare Parts A and B to be eligible for Medigap. The cost of Medigap depends on the type of policy, the insurance company, and where you live, among other factors.

Medicare Is Not 100% Free, But Parts of It Can Be

Hopefully this article has helped to clear up any confusion you may have had about the retirement planning myth of Medicare being free. Determining your health insurance coverage best fits your specific needs is a critical component of the retirement planning process. It’s important to think about what coverage you will need at least five to 10 years prior to retirement.

Planning for health insurance in retirement is mentioned several times in our Retirement Planning Checklist. Download our most popular white paper below to review some key considerations surrounding healthcare and other aspects of retirement planning.

Is Medicare Free?

Retirement Plan Checklist

What Questions Do You Have About Medicare?

The cost of health insurance can potentially create a lot of financial stress for pre-retirees and retirees alike. Our team is ready to help you build a goals-based financial plan, which includes considerations for healthcare costs. Start a conversation with our team today as you attempt to gain more clarity about your financial future.

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Resources Mentioned in This Article

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Other Sources

[1] https://www.cms.gov/medicare/enrollment-renewal/original-part-a-b

[2] https://www.medicare.gov/providers-services/original-medicare

[3] https://www.cms.gov/medicare/enrollment-renewal/original-part-a-b

[4] https://www.ncoa.org/article/what-are-the-costs-of-original-medicare-parts-a-b/

[5] https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles

[6] https://blog.ssa.gov/how-the-hold-harmless-provision-protects-your-benefits/

[7 and 10] https://www.nerdwallet.com/article/insurance/medicare/what-is-the-medicare-irmaa

[8] https://www.medicare.gov/providers-services/original-medicare/part-b

[9] https://www.medicare.gov/providers-services/original-medicare/not-covered

[11] https://www.medicareinteractive.org/get-answers/medicare-prescription-drug-coverage-part-d/medicare-part-d-coverage/part-d-basics

[12] https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover

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The views expressed represent the opinion of Modern Wealth Management a Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.