One of the most common Medicare misunderstandings is the belief that Medicare is free.
It isn’t.
This belief usually comes from a reasonable assumption: during our working years, we paid Medicare taxes, so Medicare must be prepaid insurance. In reality, those taxes only fund part of the program, and they only apply to certain types of coverage.
To understand how much Medicare costs, you first need to understand that Medicare is not a single product. It is a system made up of multiple parts, each with its own cost rules.
Some Medicare costs are fixed and recurring. Others only appear when you use health care services. Confusing the two is where many financial surprises begin.
The Two Types of Medicare Costs
Medicare costs fall into two broad categories:
- Monthly costs — what you pay to have coverage
- Cost sharing — what you pay when you use care
Both matter, but they behave very differently.
Monthly Medicare Costs
Most people will pay at least one monthly Medicare premium.
If you or your spouse worked long enough and paid Medicare taxes for the required number of years, you will receive Medicare Part A (hospital insurance) without a monthly premium. That is the only part of Medicare that may be premium-free.
Everyone else pays a monthly premium for Medicare Part B, which covers doctor visits, outpatient care, tests, diagnostics, medical equipment, and many other services. This premium is set annually by the federal government and applies regardless of whether you choose Original Medicare or a private Medicare Advantage plan.
In addition to Part B, you may also pay:
- a monthly premium for a Medicare Advantage plan,
- a monthly premium for a prescription drug plan,
- or both.
Some plans advertise a “zero-dollar premium,” but that does not eliminate your Part B premium. It simply means the plan does not charge an additional premium beyond what you already pay for Part B.
For higher-income individuals, monthly costs can increase further through income-related monthly adjustment amounts, commonly known as IRMAA. These surcharges apply to both Part B and prescription drug coverage and are based on prior-year tax returns. Once applied, they increase your monthly costs regardless of how often you use care.
Monthly costs are predictable. They are also unavoidable once assessed. That makes them one of the most important Medicare expenses to understand early.
Cost Sharing: The Other Half of the Equation
Monthly premiums are only the cost of having coverage. They do not represent the cost of receiving care.
Medicare is designed as an 80/20 cost-sharing system. Medicare generally pays about 80 percent of approved medical costs, and beneficiaries are responsible for the remaining share through deductibles, copayments, and coinsurance.
These shared costs apply when you:
- visit doctors or specialists,
- receive outpatient care,
- go to the emergency room,
- have lab tests or diagnostic imaging,
- or require hospital services.
With Original Medicare, these cost-sharing amounts are standardized and set by federal rules. With Medicare Advantage plans, cost-sharing amounts are set by each plan within government guidelines, which means they can vary widely.
This is where many people underestimate their potential costs. Monthly premiums may look manageable, but cost sharing can add up quickly when care is needed.
Why “Low Monthly Cost” Can Be Misleading
A common mistake is evaluating Medicare options based only on monthly premiums.
Lower monthly costs often shift more financial responsibility to cost sharing. Higher monthly costs may reduce cost sharing later. Neither approach is inherently better — but they create very different financial outcomes depending on your health and how often you use medical services.
Medicare does not eliminate health care costs. It redistributes them.
Understanding how costs are divided between monthly premiums and pay-as-you-go expenses is critical to avoiding unpleasant surprises.
What This Chapter Sets Up
This chapter establishes two foundational truths:
- Medicare always has a cost — even before you see a doctor.
- The real financial impact of Medicare depends on how monthly costs and cost sharing work together.
In the chapters that follow, we’ll break these cost categories apart and examine them individually — from everyday care to hospital stays, prescription drugs, supplemental coverage, and worst-case exposure.
Once you understand how each cost category behaves, Medicare stops feeling unpredictable and starts feeling manageable.
Monthly Costs and Cost Sharing
Reorganized by CPT
CPT 1: Monthly Costs
(Fixed, recurring, unavoidable expenses)
- Why isn’t Medicare free if I paid Medicare taxes while working?
- What Medicare costs are truly monthly and unavoidable?
- Which parts of Medicare charge a monthly premium?
- Why does everyone pay a Medicare Part B premium?
- Is Medicare Part A ever free, and when isn’t it?
- Do zero-dollar Medicare Advantage plans actually cost nothing?
- Why do Medicare Advantage plans still require the Part B premium?
- How do Medicare Part D premiums work alongside other Medicare costs?
- Can I have both Medicare Advantage and a separate drug plan premium?
- Why do Medicare premiums vary by plan and location?
CPT 2: Prescription Drug Costs
(Premiums only here — usage comes later)
- How do Medicare Part D premiums work alongside other Medicare costs?
- Can I have both Medicare Advantage and a separate drug plan premium?
Note: These questions appear in Monthly Costs conceptually, but they belong structurally under Prescription Drug Costs because they anchor future Part D explainers.
This is a good cross-over — not a problem.
CPT 3: Monthly Costs (Income-Related Adjustments)
(IRMAA is still Monthly Costs, just a sub-class)
- What is IRMAA and why does it increase monthly Medicare costs?
- How does prior-year income affect current Medicare premiums?
- Which Medicare premiums are affected by income surcharges?
- Why do IRMAA costs apply even if I rarely use health care?
IRMAA stays entirely in Monthly Costs.
It does not belong in Worst-Case or Supplemental.
CPT 4: Routine Care Costs
(Day-to-day cost sharing)
- What does Medicare’s 80/20 cost-sharing system really mean?
- What is the difference between deductibles, copayments, and coinsurance?
- When do Medicare cost-sharing expenses actually apply?
- Which medical services trigger cost sharing under Medicare?
CPT 5: Hospital & Acute Care Costs
(Cost sharing becomes meaningful here)
- How is cost sharing different under Original Medicare versus Medicare Advantage?
- Why can Medicare Advantage cost sharing vary so widely by plan?
These feel general, but in practice they resolve around:
- inpatient stays
- ER
- observation vs admission
Which makes Hospital & Acute Care the right structural home.
CPT 6: Worst-Case / Maximum Out-of-Pocket Costs
(Risk, compounding, exposure)
- Are Medicare cost-sharing amounts fixed or can they change?
- Why can low monthly Medicare costs lead to higher total spending?
- How does Medicare redistribute costs instead of eliminating them?
- Which Medicare costs are predictable and which are not?
- How do monthly premiums and cost sharing work together over time?
These questions explicitly deal with exposure over time, not individual bills — perfect fit for Worst-Case CPT.