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How can there be a zero-premium Medicare plan?

Updated: Feb 12, 2021

Updated: Feb 8, 2019

A somewhat surprising aspect of Medicare related insurance is the existence of policies that have no premium. Given how expensive health insurance can be generally, it seems impossible that a policy could be "free". How does this work?

The answer lies in the relationship between the Medicare program and private insurance companies. There are several ways insurance companies may cover Medicare-eligible people. This private coverage must be at least as good as the basic Medicare coverage, and can be better. The insurers receive reimbursements from Medicare for those members. If the insurer can provide the benefits at the cost Medicare reimburses them, then no additional premium is needed from the individual insured person. Thus, zero premium. Of course, the Medicare-eligible have paid into the system for many years, so "free" only refers to amounts in addition to these contributions.

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