The Government Pays for Most of Medicare—But You Still Have Plenty to Handle

Key Takeaways

• While Medicare is largely funded by the federal government, you are still responsible for premiums, deductibles, coinsurance, and other out-of-pocket costs.

• Making informed choices about your Medicare coverage in 2025 helps prevent unexpected bills and ensures you receive the right care at the right cost.

Medicare Funding: What the Government Covers

The federal government shoulders the majority of Medicare’s funding. Payroll taxes, general revenues, and beneficiary premiums contribute to the overall structure. Here’s how that breaks down:

• Medicare Part A (Hospital Insurance): Funded mostly through payroll taxes paid by employers and employees during working years. Most people don’t pay a monthly premium for Part A if they or their spouse worked and paid Medicare taxes for at least 10 years.

• Medicare Part B (Medical Insurance): Funded through monthly premiums and general federal revenues. While the government covers a large portion of the cost, beneficiaries must pay a standard monthly premium—$185 in 2025—plus an annual deductible of $257.

• Medicare Part D (Prescription Drug Coverage): Financed through premiums, state payments, and federal subsidies. You pay a monthly premium, and in 2025, your out-of-pocket drug expenses are capped at $2,000.

Despite this substantial government contribution, the rest falls on you—and understanding your financial responsibilities can help you plan wisely.

The Costs You Handle in 2025

Even though Medicare is not private insurance, it still requires you to share in the costs of care. In 2025, these include:

1. Premiums

You pay monthly premiums for:

• Part B (standard premium: $185/month in 2025)

• Part D (average premium: $46.50/month)

• Optional supplemental coverage such as Medigap or Medicare Advantage (costs vary but are not covered by the government)

2. Deductibles

These are the amounts you pay out of pocket before Medicare starts covering your services:

• Part A deductible: $1,676 per benefit period

• Part B deductible: $257 annually

• Part D deductible: Up to $590 in 2025, depending on your plan

3. Coinsurance and Copayments

After your deductible is met, you typically pay:

• 20% of approved costs under Part B for doctor visits, outpatient care, and medical equipment

• Daily coinsurance for hospital stays:

  • Days 1–60: $0

  • Days 61–90: $419/day

  • Days 91–100 (lifetime reserve days): $838/day

Skilled nursing facility coinsurance is $209.50 per day from days 21 to 100.

4. Out-of-Pocket Drug Costs

For prescription coverage through Part D, you’re now protected by a $2,000 annual cap in 2025. This includes all spending: your deductible, copayments, and coinsurance.

You Must Still Actively Enroll and Manage Coverage

Contrary to common belief, Medicare does not automatically adjust itself to fit your needs. You have responsibilities each year:

• Initial Enrollment Period: 7 months around your 65th birthday

• General Enrollment Period: January 1 to March 31 annually (for those who missed their initial window)

• Open Enrollment Period: October 15 to December 7 each year

• Medicare Advantage Open Enrollment: January 1 to March 31 (for changes within Medicare Advantage only)

You’re also responsible for:

• Reviewing your Annual Notice of Change (ANOC) each fall

• Making changes if costs, coverage, or prescriptions have changed

• Ensuring you don’t miss deadlines to avoid penalties or gaps in coverage

Financial Pitfalls to Watch Out For

Not Enrolling in Medicare on Time

Missing your enrollment window may lead to lifelong late penalties:

• Part B Late Enrollment Penalty: A 10% increase for each 12-month period you were eligible but not enrolled

• Part D Late Enrollment Penalty: 1% of the national base premium for each uncovered month

Choosing the Wrong Drug Plan

Even with the $2,000 cap, selecting a plan that doesn’t cover your medications can result in high costs. Always check the plan’s formulary before enrolling.

Assuming Medicare Covers Everything

Medicare has gaps. It does not cover:

• Routine dental care

• Hearing aids

• Most vision care

• Long-term custodial care

You may need to purchase supplemental coverage or pay out of pocket for these services.

You May Face Higher Premiums Based on Income

In 2025, if your modified adjusted gross income (MAGI) from 2023 exceeds $106,000 (individual) or $212,000 (joint), you’ll pay an Income-Related Monthly Adjustment Amount (IRMAA) for Parts B and D.

These adjustments are based on a sliding scale. The higher your income, the more you pay—on top of your base premiums.

What About Supplemental Insurance?

Because Original Medicare doesn’t cover everything, many people purchase extra coverage. Your options include:

• Medigap (Medicare Supplement Insurance): Helps cover Part A and B cost-sharing

• Medicare Advantage (Part C): Offers bundled coverage with extras like dental or vision (plan details and costs vary)

Note: While these options can reduce your out-of-pocket costs, they come with separate premiums, which are your responsibility.

Coordinating Medicare with Other Coverage

Some people have additional health insurance through:

• Employer-sponsored plans

• Veterans Affairs (VA)

• TRICARE for military retirees

• Medicaid (for those with limited income and resources)

If you have other coverage, Medicare coordinates benefits with it. You must inform Medicare of any other insurance to avoid claim issues.

Keeping Track of Your Medicare Costs

To avoid surprises, keep a clear record of:

• Monthly premium payments

• Deductibles paid to date

• Drug spending toward your $2,000 cap

• Explanations of Benefits (EOBs) from your plan

Some people find it helpful to create a Medicare expense tracker or use online tools to monitor spending throughout the year.

Can You Reduce Your Costs?

Yes—depending on your income and resources, you may qualify for help:

• Medicare Savings Programs (MSPs): Help with Part A and B costs

• Extra Help: Reduces drug plan costs

• State Pharmaceutical Assistance Programs (SPAPs): May offer additional drug cost support

If you think you qualify, contact your state Medicaid office or speak with a licensed agent listed on this website.

Key Points to Remember in 2025

Medicare works best when you understand the shared responsibility. In 2025:

• The federal government continues to pay most of the costs

• You are still responsible for premiums, deductibles, copays, and drug expenses up to $2,000

• Annual enrollment periods are your chance to make cost-saving choices

• Supplemental coverage is often necessary to manage out-of-pocket risks

• Higher-income beneficiaries face IRMAA adjustments

Taking Ownership of Your Medicare Decisions

Your role in Medicare isn’t passive. The more you understand how the system works—and what your share of the costs are—the better prepared you are to make smart decisions.

Whether you’re new to Medicare or reassessing your coverage for the year ahead, it helps to speak with someone who understands all the options.

Get in touch with a licensed agent listed on this website to review your current plan and explore ways to reduce your costs without compromising your care.