Your Medicare premium depends on which parts of Medicare you have, how long you worked before enrolling, and how much income you report on your tax return. Most people pay nothing for Part A (hospital coverage) and a standard monthly rate for Part B (medical coverage), but higher earners pay significantly more. Here’s how each piece is calculated.
Part A: Work History Sets Your Premium
Part A covers hospital stays, skilled nursing care, and hospice. If you or your spouse paid Medicare taxes for at least 10 years (40 quarters of work credits), you pay $0 per month. This is why most people think of Part A as “free,” though it was funded through payroll taxes during your working years.
If you don’t have 40 quarters of work credits, you’ll pay a monthly premium. People with 30 to 39 quarters pay a reduced rate, while those with fewer than 30 quarters pay the full premium. For context, the full Part A premium can run over $400 per month, so this is a significant cost for people who didn’t work long enough in jobs that withheld Medicare taxes.
Part B: A Standard Rate Plus Income Adjustments
Part B covers doctor visits, outpatient care, preventive services, and medical equipment. The standard premium is set each year by the Centers for Medicare and Medicaid Services (CMS) based on provisions in the Social Security Act, and it reflects a portion of the overall program’s projected costs. Congress designed Part B so that beneficiary premiums cover roughly 25% of the program’s expenses, with the federal government picking up the remaining 75%.
Everyone starts at the same standard monthly rate, which CMS announces each fall for the following year. But if your income exceeds certain thresholds, you’ll pay more through a surcharge called the Income-Related Monthly Adjustment Amount, or IRMAA. This adjustment is based on your modified adjusted gross income (MAGI) from the tax return filed two years prior. So your 2026 premium, for example, is calculated using your 2024 tax return (or 2023 if 2024 isn’t available yet).
IRMAA works on a sliding scale with multiple income tiers. The higher your income, the larger the surcharge added to your standard premium. At the highest tier, beneficiaries pay a premium that covers a much larger share of Part B costs than the standard 25%. These brackets are updated annually and apply to both individual filers and married couples filing jointly.
When Your Income Drops After a Life Change
Because IRMAA uses a two-year-old tax return, your current premium might not reflect your actual financial situation. If you’ve experienced a major life change, such as retirement, divorce, death of a spouse, or loss of income-producing property, you can ask Social Security to use a more recent year’s income instead. This requires filing a specific request, but it can substantially lower your monthly cost if your income has genuinely decreased.
Part D: Plan Bids Drive Drug Coverage Costs
Part D covers prescription drugs and is offered through private insurance companies, so premiums vary from plan to plan. But there’s a national formula behind the pricing. Each year, every Part D plan submits a bid to CMS estimating what it will cost to provide the minimum required drug benefit for an average enrollee. CMS then calculates a national average monthly bid amount (NAMBA), which is an enrollment-weighted average of all those plan bids.
From the NAMBA, CMS derives the national base beneficiary premium. For 2026, that base premium is $38.99 per month. This base figure is the starting point. Your actual Part D premium depends on which specific plan you choose: plans that bid above the national average cost more, and plans that bid below it cost less. Plans offering enhanced benefits beyond the minimum coverage will also charge higher premiums.
Just like Part B, Part D has its own IRMAA surcharge for higher-income beneficiaries. The same income brackets and two-year look-back period apply, and the surcharge is added on top of whatever your chosen plan charges.
Medicare Advantage: How $0 Premium Plans Work
Medicare Advantage (Part C) plans are offered by private insurers as an alternative to traditional Medicare. To set their pricing, insurers estimate how much it will cost to cover Part A and Part B services for the average enrollee under each plan they offer, including administrative expenses and profit. They submit these cost estimates as bids to CMS.
CMS sets county-level benchmark payment amounts, and each plan’s bid is compared against the benchmark for its area. When a plan’s bid comes in below the benchmark, the plan receives a rebate from the federal government, which is the difference (or a portion of it) between the bid and the benchmark. Plans use these rebate dollars to offer extras: dental, vision, and hearing coverage, lower copays, reduced Part D premiums, or even a $0 monthly premium for the Advantage plan itself. Star ratings from CMS also influence how large those rebates can be, which is why highly rated plans often offer the richest benefits at the lowest cost to enrollees.
You still pay your Part B premium when enrolled in a Medicare Advantage plan. The Advantage plan premium (if any) is on top of that, though some plans use their rebate dollars to offset part of the Part B cost.
Late Enrollment Penalties
Signing up late for Medicare can permanently increase your premiums. These penalties aren’t one-time fees. They’re percentage increases added to your monthly premium, and for most people they last a lifetime.
Part A penalty: If you have to buy Part A and don’t enroll when first eligible, your premium increases by 10%. You’ll pay this higher rate for twice the number of years you delayed. So if you waited three years, you’d pay the penalty for six years.
Part B penalty: Your premium goes up 10% for every full 12-month period you could have had Part B but didn’t sign up. If you delayed two years, that’s a 20% surcharge on your Part B premium for life. This penalty doesn’t expire unless you qualified for a Special Enrollment Period that excused the gap.
Part D penalty: You’ll pay an extra 1% of the national base beneficiary premium for every month you went without creditable drug coverage after first becoming eligible, as long as that gap lasted 63 days or more. That works out to 12% per year of delay. With the 2026 base premium at $38.99, each uncovered month adds about $0.39 to your monthly premium permanently. The penalty stays with you for as long as you have Part D coverage, even if you switch plans.
The Hold Harmless Protection
There’s one more factor that can affect your actual Part B premium: a rule called the “hold harmless” provision. This prevents your Social Security benefit from shrinking due to a Part B premium increase. If the annual cost-of-living adjustment to your Social Security check isn’t large enough to absorb the full Part B increase, your premium rise is capped at the dollar amount of your cost-of-living raise. Your Social Security payment stays the same rather than dropping.
To qualify, you need to be receiving Social Security benefits for the last two months of the current year and have your Part B premiums deducted directly from those benefits. Most beneficiaries meet these criteria. However, people who pay IRMAA surcharges, those new to Medicare, and those who don’t yet collect Social Security are not protected by this rule and pay the full premium increase regardless.