Paying for Medicare Advantage: Costs and Financial Assistance

Page Reviewed / Updated - October 14, 2020

Written By: Laura Larimer

Expert Reviewed By: Joshua Iversen, President, Syzygy Financial LLC

Table of Contents

• Understanding the Three Basic Premiums of Medicare Advantage
• Medicare Part A Premiums
• Medicare Part B Premiums
• Medicare Advantage Premiums
• Financial Assistance for the Costs of Medicare Advantage
• The Medicare Savings Program (MSP)
• Extra Help
• Frequently Asked Questions

A Medicare Advantage plan is a type of Medicare that is administered by a private insurance company rather than by the government. It provides health coverage that is equal to or better than that provided by Original Medicare, and it also offers the benefit of out-of-pocket spending limits that can help keep healthcare costs low. The average senior spent $29 on their Medicare Advantage premiums in 2019, an affordable amount by most standards. However, that “average” premium spending number does not include the Part A and B premiums that most seniors have to pay in addition to their private insurance premiums. The issue of facing multiple premiums is one example of why understanding the costs of Medicare Advantage isn’t always as simple as it first appears.

When seniors consider Medicare Advantage plans, they need to understand the variety of premiums that they may owe, and they also need to investigate the factors that affect their premium rates. For low-income seniors, it’s also important to look into financial assistance for Medicare Advantage costs that may otherwise be too high for a limited budget. Our guide will help you explore all of these factors in detail.

Understanding the Three Basic Premiums of Medicare Advantage

To have a Medicare Advantage plan, most seniors need to pay two separate monthly premiums (membership fees), and some need to pay three. For seniors who have previously relied on a single, private insurance plan for their healthcare, the presence of three distinct premiums can be bewildering. However, multiple premiums don’t necessarily mean high costs. Read on to understand why there are multiple premiums, who the premiums are paid to, and how much they usually cost.

Medicare Part A Premiums

Medicare Part A is considered “hospital insurance,” and it provides coverage for stays in hospitals and skilled nursing facilities. It also covers hospice and some forms of home health care. Part A costs, as in all Medicare costs, are “shared” with the patient rather than being 100% covered.

When a senior chooses to use Medicare Advantage they should recognize that:

• Any Part A coverage they need will now be provided by the private plan that they choose rather than by Original Medicare.
• Medicare will give some funding to the private plan in recognition of the fact that that plan is taking on the liability of meeting the senior’s medical needs.  

Now that you know the basics of Part A, you can read on to learn how premiums work with this portion of Medicare.

What You’re Obligated to Pay

Everyone who pays taxes in the United States contributes to the cost of Original Medicare, which includes Part A. For the majority of taxpayers, Part A will actually be provided  “premium free.”

You can get Part A premium-free at 65+ if:

• You’re eligible for or enrolled in retirement benefits from either the Railroad Retirement Board or Social Security.
• You and/or your spouse had Medicare-covered government employment when you worked. 

You can also usually get Part A premium-free before age 65 if:

• You have End-Stage Renal Disease (ESRD).
• You have received disability benefits from Social Security or the Railroad Retirement Board for two years or more. 

If you don’t meet one of the requirements above, then you’ll most likely have to pay the Part A premium. In 2020, this premium will cost you between $252-$458 each month, or up to $5,496 in a year. The premiums will change slightly every year to account for inflation and other economic factors. Part A premiums are paid to Medicare.

Factors That Affect Your Premiums

As mentioned earlier, eligibility and/or enrollment in retirement or disability benefits from the Railroad Retirement Board or Social Security almost always results in a $0 premium for Part A. For those who do have to pay for Part A, however, the primary determinant of the monthly premium will be how many quarters the person paid Medicare taxes during their working years. In 2020, those who paid taxes for 30-39 quarters will owe $252 per month, while those that paid Medicare taxes will for less than 30 quarters owe the more substantial $458 each month.

For those who are required to pay a premium for Part A, it’s imperative to sign up as soon as one becomes eligible (check eligibility here). Those who sign up late may have to pay a penalty of 10% higher rates than they otherwise would have paid. The penalty will last for twice the number of years that the person delayed signing up. For seniors who already have to pay the maximum premium for Part A, the penalty in 2020 may translate to over $45 extra dollars each month.

Medicare Part B Premiums

Part B of Original Medicare covers “medically necessary” and “preventative” services. The range of supplies, tests, doctor visits, emergency medical transportation, and services that are covered under Part B is extensive. As with Part A, Medicare gives some funding to the insurance company in recognition of the company taking on the responsibility of providing Part B coverage. 

What You’re Obligated to Pay 

When you get Medicare Advantage you continue to pay for your Part B premium. If you receive retirement benefits from the Railroad Retirement Board, the Office of Personnel Management, or Social Security, then your Part B premium can be automatically deducted from that monthly benefit. If you don’t receive any of the above, or if you owe more for your premium than you receive in retirement benefits, then you’ll receive a bill for Part B from Medicare.

Each year Medicare releases a standard premium amount as well as a table that details non-standard premium amounts. The standard amount is what most seniors owe, and in 2020 this amount is $144.60. However, the amount charged can be as high as $491.60 per month.

Factors That Affect Your Premiums

Income levels determine premium rates. Individuals who have an income of $87,000 or less receive the so-called “standard rate” of $144 that was mentioned above. Those who are married and file jointly can have an income of $174,000 or less and receive the standard rate. Beyond the standard rate, there are five additional rate categories. Each category lists relevant details for those filing single, filing jointly, or for those who are married but choose to file as single individuals. Individuals with incomes of $500,000+ and couples with incomes of $750,000+ will owe the highest possible rate of $491.60 per month. To find the full range of premium rates that Medicare has released for 2020, view the chart on the official Medicare website. 

It’s important to note that the income levels used to determine premiums are derived from the senior’s tax return from two years prior. Therefore, 2020 rates are determined by 2018 tax returns, and so on. This somewhat unusual method of determining rates is due to the way the IRS releases tax information to the Social Security Administration.

Like Part A, Part B has a late signup penalty. Part B penalties can be even steeper than those of Part A, and can sometimes result in a lifelong penalty of 20% of the standard enrollment fee. Make sure you understand when you should enroll. In some cases, the late enrollment fee may cost the senior nearly $350 extra each year.

Medicare Advantage Premiums

In addition to paying the Part B premium and potentially the Part A premium as well, Medicare Advantage recipients sometimes need to pay a premium to the private insurance provider. Seniors can choose to have this amount deducted from their Social Security benefits like their Part B premium is, or they can pay it directly to the company. Unlike with premiums for Part A and Part B, consumers have a choice in their premium levels since they can select the company they like best. Read on for more information about Medicare Advantage premiums.

Your Local Medicare Advantage Premium Options

Unlike Original Medicare, which is a government program, private insurance companies offer Medicare Advantage plans. A variety of factors determine which plans are available in which areas. For example, some insurance companies are only licensed in certain states or counties. Others may be licensed nearly everywhere but may choose not to offer Medicare Advantage plans in all areas due to the cost associated with operating those plans. Seniors in some areas may have just a few Medicare Advantage options, while seniors in other areas may have as many as twenty or thirty different Medicare Advantage plans to choose from. To discover which insurance companies offer Medicare Advantage plans in your area, visit the Medicare.gov plan comparison tool. 

Understanding the Range of Premiums

One of the most surprising features of Medicare Advantage plans is that many of them have $0 premiums. Seeing “$0” listed next to a plan may initially set off alarm bells in many seniors’ heads. They may think “this is a poor quality plan” or “nothing is free, so this must be a scam.” Neither is true. The range of available Medicare Advantage plan premiums that seniors can choose from is usually between $0-$500, though this can vary by location and year. Companies that offer $0 or otherwise very low premiums are able to do so for multiple legitimate reasons, which we explore in detail below.

Common reasons that companies offer $0 or very low premiums:

• Medicare Reimbursement: As discussed earlier, Medicare is funded through income taxes, Part B premiums, and sometimes Part A premiums. When seniors choose a Medicare Advantage plan, Medicare passes funding that it would otherwise retain to the private insurance company. Since the company receives some reimbursement through Medicare, they can afford to offer low premiums to seniors. Seniors are still paying for their insurance, just not directly to the insurance company.
• Health Networks: Medicare Advantage insurance companies may place limits on the way they provide coverage, though the coverage must be roughly equivalent to or better than that provided by Original Medicare. Health networks are the primary way that insurance companies place cost-savings limits on coverage. With a network, seniors must visit pre-approved hospitals, doctors, and other providers to get the best level of coverage. Visiting an out-of-network provider usually results in a significantly higher fee. When companies save money through networks, they are better able to afford to offer a low premium.
• Deductibles, co-pays, and coinsurance: Original Medicare and Medicare Advantage plans both have deductibles (the yearly out-of-pocket amount the patient must pay before the insurance coverage begins), co-pays (the flat fee that the patient pays to receive a service, with insurance paying the rest), and coinsurance (the percentage of the cost of a service that the patient pays, with insurance paying the rest). Insurance companies have some latitude on how they set their deductibles, co-pays, and, to a lesser extent, coinsurance. Sometimes what enables a company to offer a low premium is that it is setting its deductibles, co-pays, and/or coinsurance at higher than average rates. 

Any of the above factors may explain how a plan can have a low or even $0 premium. However, it’s also important to understand why some plans have premiums that range from $200-$500 in spite of the factors detailed above. Oftentimes these comparatively high premiums exist because a plan is offering valuable services that cannot be obtained through Original Medicare. If they choose to, insurance companies may offer an abundance of “extras” such as hearing, vision, prescription drug coverage (called Medicare Part D), dental coverage, gym memberships, transportation services, and much more. The premium may be high because the coverage of the plan is objectively better than a $0 premium plan that offers identical coverage to that of Original Medicare. Additionally, plans with higher premiums are likely to have lower deductibles, copays, and coinsurance.

Ultimately there is such a wide range of Medicare Advantage premiums because companies have financial support from Original Medicare, options for limiting their administrative costs, and the ability to choose the kinds of extras, if any, that they offer. Of course, some premiums will inevitably be high simply because the insurance company is overcharging. It’s important to dig into the specifics of each plan to determine if the premium cost is merited or excessive. For more help with understanding the relationships between premium costs and the coverage offered, you can read How to Compare Medicare Advantage Plans.

Financial Assistance for the Costs of Medicare Advantage

Original Medicare is designed to provide affordable medical care to retirement-aged Americans as well as to those with certain disabilities. The general emphasis of the Medicare program, including Medicare Advantage plans, is cost-sharing rather than 100% coverage of medical expenses. Under normal circumstances, seniors can expect to be responsible for various premiums and deductibles as well as for approximately 20% of the cost of many services they need.

For low-income seniors, the general standard of affordability and cost-sharing in Medicare isn’t always manageable. Some seniors need more financial assistance. Thankfully, there are a variety of government programs available to those who need them. Read on to learn more.

The Medicare Savings Program (MSP)

The Medicare Savings Program is a collaboration between the federal government and state health plans. In general, this program provides financial assistance with Medicare premiums, deductibles, and coinsurance. However, states control precisely how they administer it. To get exact information, you’ll need to look into your state’s program.

The MSP consists of four distinct programs. These programs meet slightly different needs. Each program has its own federally set income limits, though some states, especially Alaska and Hawaii, may make further modifications. The income limits listed for the MSP programs below are for 2020, and income limits change each year. These programs have resource (asset) limits as well. Countable resources include bonds, stocks, and checking and savings accounts. Resources that are not counted include the senior’s home, one car, burial plots, up to $1,500 set aside for burial expenses, and various personal items.

Qualified Medicare Beneficiary (QMB)

Under the Qualified Medicare Beneficiary portion of the Medicare Savings Program, qualified applicants can receive help paying for Part A and Part B premiums, deductibles, coinsurance, and copayments. This is the most generous of the financial assistance programs provided under MSP.

To qualify financially, you must fit the following criteria:

• Single: If you’re single you must have a monthly income of no more than $1,084, and your resources (assets) must be $7,860 or less. 
• Married: If you’re married your monthly income must be no more than $1,457, and your resources must be $11,800 or less. 

Specified Low-Income Medicare Beneficiary (SLMB)

The Specified Low-Income Medicare Beneficiary (SLMB) only helps residents with Part B premiums. This program is for those who have Part A and who also have low-income and resources. While Part B premiums are only one of the costs associated with Medicare Advantage, getting help with these premiums may save a low-income senior over $1,000 a year, depending on how much assistance the program offers them.

 The income limits for this program as are follows:

• Single: A single senior’s income must be $1,296 or lower, and his or her resources must be no greater than $7,860.
• Married: A married senior’s income must be no greater than $1,744 per month, and her or his resources must be no greater than $11,800. 

Qualifying Individual (QI or QI-1)

The Qualified Individual Program (QI), like the SLMB Program, helps with Part B premiums. However, the QI program has slightly higher income limits than the SLMB program, and it is only for those who do not qualify for Medicaid.

Income and Resource Limits for QI Benefits:

• Single: Seniors who are single must have a monthly income of $1,456 or less and have resources of $7,860 or less. 
• Married: Seniors who are married must have a monthly income of $1,960 or less and have resources of $11,800 or less.

Those who qualify for Medicaid are automatically disqualified for the QI benefit. Also, those who wish to receive QI must reapply each year. This benefit is limited and offered on a “first-come, first-served” basis, so some qualified applicants may not receive it due to limited funding.

Qualified Disabled & Working Individuals (QDWI)

The Qualified Disabled & Working Individuals (QDWI) Program helps recipients only with paying for their Part A premiums. It has a different target population than the previously mentioned programs.

To qualify for this program, applicants must meet any (not all) of the following criteria:

• Be someone under 65 years old who is disabled but working
• Be someone who has lost their premium-free Part A coverage due to returning to work
• Be someone who is not getting medical coverage from their state
• Be someone who has income and resources below the stated income thresholds (below)

The income and resource limits for the QDWI program are as follows:

• Single: For single seniors to qualify, they must have a monthly income of no more than $4,339 and resources of no more than $4,000. 
• Married: For married seniors to qualify, they must have a monthly income of no more than $5,833 and resources of no more than $6,000.

Extra Help

Social Security offers a program called Extra Help that can provide assistance with prescription drug costs for Medicare recipients. The online application for this program may be found on the official SocialSecurity Administration website. Prescription drug coverage is often included in Medicare Advantage plans, but Extra Help can improve on that coverage. The exact amount of help that a person can receive from this program depends, in part, on the kinds of medication that they need. However, according to the Social Security Administration, some people receive about $5,000 in assistance each year. 

The Extra Help Program is distinct from the Medicare Savings Program (MSP), but it can work alongside MSP to meet seniors’ needs. In fact, those who are eligible for QMB, SLMB, or QI are automatically also eligible for this program. Those who participate in these programs should apply for Extra Help. Some people, however, will be automatically enrolled and need not complete an application.

The following groups are automatically enrolled in Extra Help:

• Those who are already enrolled in both Medicare and Medicaid
• Those who are already enrolled in Medicare and who also receive Supplemental Security Income (SSI) 

In addition to the above dual eligibility details, eligibility can be determined based on the following criteria.

Applicants must fit the following eligibility standards in 2020: 

• Have Medicare Parts A and B already
• Live in Washington D.C. or one of the 50 states
• Have an annual income of $19,140 for single applicants and $25,860 for married applicants (roughly $1,595 and $2,155 per month, respectively)
• Have countable assets less than $14,610 for single applicants or $29,160 for married applicants (countable assets rules are similar to those of MSP, but applicants should review exact details on assets that are included on the application)

Frequently Asked Questions

Can all seniors use a Medicare Advantage plan?

Eligibility for Medicare Advantage is the same as eligibility for Original Medicare. The one exception to this is with certain Special Needs Plans, which have additional eligibility standards related to certain illnesses, disabilities, and even financial statuses. In general, to be eligible for Medicare or Medicare Advantage, you must be 65 or older or else have certain disabilities and/or End-Stage Renal Disease (ESRD). Some people are automatically enrolled in Medicare if they are already receiving Social Security benefits, but many people need to apply.

When seniors first become eligible for Medicare, they can choose if they want to use Original Medicare or Medicare Advantage. Those who are already using Original Medicare may also choose to switch to a Medicare Advantage plan during certain enrollment periods. There are penalties for enrolling in Parts A and B late, so it’s good for seniors to look into their eligibility and make plans before they turn 65.

What does Medicare Advantage cover? 

Medicare Advantage provides, at minimum, approximately the same amount of coverage as Original Medicare. This means that at a minimum it covers a variety of common medical and preventative needs, including hospital and nursing home stays, ambulance rides, primary doctor and specialist visits, tests, and a variety of other services and items. Coverage is offered with deductibles, copays, coinsurance, in a fashion similar to that of Original Medicare. However, unlike Original Medicare, coverage is usually limited to “healthcare networks,” that is, pre-approved providers. Medicare Advantage can also include services and perks that Original Medicare does not offer, including additional coverage for prescription drugs, dental work, vision, hearing, and more.

How do I know if Medicare Advantage is right for me?

Exactly who Medicare Advantage benefits the most is a matter of debate; there’s not just one clear-cut answer. However, it can be a good option for many seniors. According to CMS, those who choose Medicare Advantage “have all the same rights and protections” as those with coverage through Original Medicare. CMS also says that many customers save money yearly with Medicare Advantage plans. Ultimately, the fitness of a Medicare Advantage plan for an individual depends on his or her willingness to use a health network, which most Medicare Advantage Plans have, and on his or her assessment of the value of a particular plan's basic features and extras. 

When can my Medicare Advantage premiums change?

Medicare Advantage plans can change their coverage and premium costs once each year. They are required to send an Annual Notice of Change (ANOC) each year by September 30th. In addition to the possibility of the Medicare Advantage premium changing, your Medicare Parts A and B premiums will likely go up a small amount each year. To find the current year’s Part A and B premiums, you can visit Medicare’s website. If you do not approve of changes that are happening to your Medicare Advantage plan, you will typically have an opportunity to change plans. However, it’s not possible to change your Part B premium requirements unless you qualify for one of the MSP options discussed above.

Why do I have to keep paying for Parts A and B if I have Medicare Advantage?

Those who have Medicare Advantage need to keep paying their Part A (if applicable) and Part B premiums because they still have a form of Medicare. When they pay their Medicare premiums, Medicare passes some of those funds to the insurance company that the senior chooses for their Medicare Advantage coverage. The only time that a senior with Medicare Advantage will not need to pay their Original Medicare premiums is if they qualify for and apply for the Medicare Savings Program and get some or all of their premiums covered by that program.