The Medicare program organizes benefits into four separate components, each with its own cost-sharing and premium requirements. Parts A and B together are referred to as traditional fee-for-service (FFS) Medicare, in which the federal government directly pays for covered health services. In 2022, 64.7 million people were enrolled in Medicare Part A, and 59.5 million were enrolled in Medicare Part B (Board of Trustees, 2023).
Medicare Part A covers inpatient hospital services, including room and board, hospital facility use, inpatient drugs/biologics and supplies, and diagnostic and therapeutic items. Part A also covers limited periods of patient stays in post-hospital skilled nursing facilities and covers hospice care and home health care following a stay in a hospital/skilled nursing facility. Part A includes a deductible and coinsurance for hospital inpatient stays and daily coinsurance payments for skilled nursing facility care.
Table A-1: Medicare Part A Deductibles and Coinsurance, 2023
||Skilled nursing facility
|Days 91-150 (lifetime reserve days)
||Days 101 and over
||Beneficiary responsible for all costs
|Days 151 and over
||Beneficiary responsible for all costs
Part A is primarily financed by a 1.45% payroll tax on all wage and salary income for the worker and the employer. Self-employed persons pay the full 2.9% of earnings. A vast majority of enrollees are eligible for premium-free Part A benefits if they or their spouse are eligible for Social Security payments and have paid Medicare eligible payroll taxes for 40 quarters (10 years). Individuals ages 65 and older without 40 quarters of coverage may choose to enroll and pay the full Part A monthly premium; however, 99 percent of Medicare beneficiaries do not pay a Part A premium (CMS.gov, 2022).
Medicare Part B is a voluntary program that helps pay for doctor bills and other outpatient health care. It covers physician services, outpatient hospital services, and inpatient prescription drugs/biologics, durable medical equipment, clinical laboratory and diagnostic tests, and other medical services, including preventive care, physical and occupational therapy, speech–language pathology therapy, and ambulance care. Part B covers home health care when such care does not follow a stay in a hospital or skilled nursing facility. However, Part A covers all home health care for Medicare beneficiaries who lack Part B coverage. Part B enrollees are subject to a deductible of $226 in 2023 and a standard coinsurance of 20 percent for most covered services, except for clinical laboratory tests, home health agency services, and preventive care services (CMS.gov, 2022).
Part B coverage also has a monthly premium. For 2023, the standard monthly premium is $164.90 (CMS.gov, 2022). Since 2007, individuals with modified adjusted gross incomes that exceed a specific threshold are subject to a higher income-related premium. The highest income adjusted monthly premium is $560.50 in 2023 (Medicare.gov, 2023). Beneficiaries who enroll in Part B after their initial enrollment period pay a premium surcharge (penalty) unless they are employed and receive employer-sponsored health insurance benefits. The penalty is waived for beneficiaries eligible for a special enrollment period, such as when an individual has previously had employer coverage or is a federal retiree.
Beneficiaries with low incomes who do not qualify for Medicaid in their states may still qualify for programs that provide cost-sharing assistance that reduces or eliminates their OOP costs. These programs are described in “Premium and Cost-Sharing Assistance”.
Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. (2023). 2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Table II.B1. Retrieved from: https://www.cms.gov/oact/tr/2023
CMS.gov. (2022). 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts. Retrieved from: https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly
Medicare.gov. (2023). Costs. Part A (Hospital Insurance) costs. Retrieved from: https://www.medicare.gov/basics/costs/medicare-costs