How Are Medicare Costs Structured? Premiums, Deductibles, and Coinsurance

Medicare's dollar figures change every year, so this page deliberately avoids quoting them. What doesn't change is the structure — the categories of cost and how they fit together. Once you know the structure, the current numbers are a quick lookup on the official Medicare costs page, which is updated annually.

The four cost words that do all the work

• Premium — what you pay every month just to have the coverage, whether or not you use it.
• Deductible — what you pay out of pocket before coverage starts paying its share, over a set period.
• Coinsurance — a percentage of the cost you pay after the deductible is met.
• Copayment — a flat dollar amount per service or item, common in Medicare Advantage and Part D plans.

Every Medicare cost you'll encounter is one of these four things wearing a different label.

How the structure differs by part

Part A is premium-free for most people, because they earned it through enough years of Medicare-taxed work; those without that work history can pay a premium for it. Part A's out-of-pocket costs are built around a deductible per benefit period — a concept tied to hospital stays rather than the calendar year, and one of the more genuinely confusing corners of the program. The Medicare.gov costs page spells out how benefit periods and their coinsurance tiers work.

Part B has a standard monthly premium, an annual deductible, and then coinsurance — traditionally a percentage of the Medicare-approved amount for most services. Two wrinkles matter. First, higher-income beneficiaries pay an income-related monthly adjustment amount (IRMAA) on top of the standard premium, based on their tax return from two years earlier. Second, Original Medicare has no annual out-of-pocket maximum, which is a structural gap — and the main reason Medigap policies exist.

Part C (Medicare Advantage) plans set their own premiums, copayments, and networks, but must include an annual out-of-pocket maximum for covered medical services — a structural feature Original Medicare lacks. In exchange, costs depend heavily on staying in network and following plan rules. Independent analysis from KFF tracks how these plan costs and benefits vary across the market from year to year.

Part D plans each set a premium, and the design of drug cost-sharing phases has been substantially restructured in recent years, including the addition of an annual cap on out-of-pocket drug spending. Because formularies and tiers differ plan to plan, the same prescription can cost very different amounts under different plans.

Help exists for people with limited income

The cost structure above assumes full price, but it isn't the whole story. Programs exist that help pay premiums and cost-sharing for beneficiaries with limited income and resources — Medicare Savings Programs and the Part D low-income subsidy, among others. The National Council on Aging maintains consumer guidance on these programs, and a SHIP counselor can check eligibility for free.

Using this knowledge

When you read a plan document or an annual notice, translate every dollar figure back into the four words at the top of this page and ask which part of the structure it belongs to. Then verify current-year amounts on the official costs page rather than on any third-party site — including this one.