Learn About Medicare Coverage Options and Health Care

Understanding Medicare: The Basics of How It Works

Medicare is a federal health insurance program for people age 65 and older, regardless of income or medical history. The program also covers some younger people with disabilities and individuals with end-stage renal disease. According to the Centers for Medicare & Medicaid Services (CMS), approximately 66 million people were enrolled in Medicare as of 2023.

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The program operates in several distinct parts, each covering different services. Part A covers hospital stays, including inpatient care, skilled nursing facility care after a hospital stay, hospice care, and some home health services. Part B covers doctor visits, outpatient services, medical equipment, and preventive care. Part D addresses prescription drug coverage through private insurance companies. Part C, also called Medicare Advantage, is an alternative way to receive Medicare benefits through private insurers approved by Medicare.

When you turn 65, Medicare becomes your primary health insurance unless you continue working and have employer coverage. The program is funded through payroll taxes throughout your working years. Workers and employers each contribute 1.45% of wages to the Hospital Insurance Trust Fund. Self-employed individuals pay the full 2.9%. These contributions accumulate over time and help fund Part A hospital benefits.

Understanding how Medicare works is important because it determines what medical services you can receive and how much you pay out of pocket. Different parts cover different services, and knowing which part covers what helps you make informed decisions about your health care. Many people use combinations of Medicare parts to create coverage that matches their health needs.

Practical takeaway: Medicare has four parts (A, B, C, and D), each covering different services. Learning what each part covers helps you understand your options when you turn 65.

Medicare Part A and Part B: Original Medicare Coverage

Original Medicare consists of Part A and Part B, the traditional government-run insurance program. Part A is hospital insurance, and Part B is medical insurance. Together, they form what many people consider the foundation of Medicare coverage.

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Part A covers hospital stays with specific requirements. If you are admitted to a hospital as an inpatient, Part A covers your room, meals, nursing care, and other hospital services. However, you pay a deductible for each benefit period. As of 2024, the Part A deductible is $1,632 per benefit period. A benefit period begins the day you enter the hospital and ends 60 days after you leave without receiving inpatient hospital care. If you are readmitted after this 60-day period, you owe another deductible. After you pay the deductible, Medicare covers all costs for the first 60 days. Days 61-90 require you to pay a daily coinsurance amount (currently $408 per day). Beyond 90 days, you have access to lifetime reserve days, limited to 60 over your entire life, with higher coinsurance amounts.

Skilled nursing facility care is also covered under Part A, but only if it follows a hospital stay of at least three days. This covers care in a facility specifically providing skilled nursing or rehabilitation services. The first 20 days are fully covered after you pay the Part A deductible. Days 21-100 require you to pay a daily coinsurance amount ($204 per day in 2024). After 100 days in a benefit period, you pay all costs.

Part B covers physician services, outpatient care, and preventive services. This includes office visits with doctors, visits to specialists, diagnostic tests, mental health services, and physical therapy. Part B also covers durable medical equipment like wheelchairs, oxygen equipment, and continuous positive airway pressure (CPAP) machines. To use Part B, you pay a monthly premium (currently $174.70 for most beneficiaries in 2024), an annual deductible ($240 in 2024), and coinsurance of 20% for most services after you meet the deductible.

One important distinction is that Original Medicare is not a managed care plan. You can visit any doctor or hospital that accepts Medicare. You do not need referrals from a primary care doctor to see a specialist. This flexibility appeals to many people who want control over their medical decisions.

Practical takeaway: Original Medicare (Part A and B) has separate deductibles, coinsurance, and copays for different services. Understanding these costs helps you budget for health care expenses.

Medicare Advantage (Part C): An Alternative Coverage Option

Medicare Advantage, also called Part C, is an alternative way to receive your Medicare benefits through a private insurance company approved by Medicare. Instead of using Original Medicare (Parts A and B), you enroll in a Medicare Advantage plan, and the private insurer receives a set payment from Medicare to cover your care. Approximately 28 million people, or about 42% of Medicare beneficiaries, were enrolled in Medicare Advantage plans as of 2023.

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Medicare Advantage plans combine Part A and Part B coverage and often include Part D prescription drug coverage in one plan. Most Medicare Advantage plans are Health Maintenance Organization (HMO) plans or Preferred Provider Organization (PPO) plans. HMO plans require you to choose a primary care doctor and get referrals to see specialists. You generally must use doctors and hospitals within the plan's network. PPO plans offer more flexibility, allowing you to see specialists without referrals and use out-of-network providers, though at higher costs.

The appeal of Medicare Advantage plans includes lower premiums and out-of-pocket costs compared to Original Medicare for many people. Many plans charge zero monthly premiums beyond the Part B premium you already pay to Medicare. Additional benefits often included in Medicare Advantage plans are not covered by Original Medicare, such as dental care (cleanings and exams), vision care (eye exams and glasses), hearing aids, and fitness programs. For people with chronic conditions who visit doctors frequently, the predictable out-of-pocket maximum can be financially beneficial. These maximums range from $3,200 to $10,500 annually, depending on the plan.

However, Medicare Advantage plans have trade-offs. You are restricted to in-network doctors and hospitals in HMO plans, which can limit your choices if you have specific doctor preferences. Prior authorization requirements mean your doctor must obtain approval from the insurance company before certain treatments or procedures. Out-of-pocket costs may be higher if you use out-of-network providers. Additionally, benefits vary by plan and location, and plans can change their benefits, premiums, and networks each year.

If you enroll in a Medicare Advantage plan, you must maintain Part B and pay the Part B premium. You cannot use both Original Medicare and Medicare Advantage simultaneously. If you decide to switch back to Original Medicare, there are specific enrollment periods when you can make this change without penalties.

Practical takeaway: Medicare Advantage plans combine Parts A and B through private insurers and often include dental and vision benefits. They offer lower premiums but restrict doctor choices in HMO plans.

Medicare Part D: Prescription Drug Coverage

Medicare Part D is prescription drug coverage provided by private insurance companies approved by Medicare. If you have Original Medicare (Parts A and B), enrolling in a Part D plan is optional but recommended. If you do not enroll when first eligible and later join, you may pay a late enrollment penalty for each month you were without coverage. The penalty is approximately 1% of the national base beneficiary premium ($34.70 in 2024) multiplied by the number of months you delayed enrollment. This penalty is permanent and added to your monthly premium for as long as you have Part D coverage.

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Part D covers both brand-name and generic prescription medications. Each plan has a formulary, which is a list of covered medications. Formularies vary between plans, meaning one medication may be covered under one plan but not another. Plans also have preferred and non-preferred tiers. Preferred medications (usually generic drugs) have lower copays, while non-preferred drugs cost more. Some medications require prior authorization or step therapy, meaning you must try a less expensive alternative first.

Part D has a specific benefit structure with different cost-sharing stages. In 2024, you first pay a monthly premium (varying by plan, averaging around $35). You then pay out-of-pocket costs until you reach the deductible, currently up to $545. After meeting the deductible, you pay a copay or coinsurance for each prescription (typically $5-$50 for generic drugs and $15-$150 for brand-name drugs). Once your combined out-of-pocket spending reaches $5