- Medicare is the federally run health insurance program that provides coverage to seniors age 65 and older.
- Medicare has five parts: Part A, Part B, Part D, Medigap and Medicare Advantage (a.k.a. Medicare Part C).
- Some seniors choose to sign up for Medicare Part A, Part B and Part D with a Medigap policy, while others choose a Medicare Advantage plan, which bundles all of the other parts into one plan.
- You can sign up for Medicare during your initial enrollment period, the annual general enrollment period or a special enrollment period after you lose your other coverage.
It’s a rite of passage for retirees: going on Medicare. The government-run health insurance program means you no longer have to rely on an employer for insurance.
As freeing as that sounds, Medicare can be pretty complicated. There are various parts of Medicare, each offering a different type of coverage, and there are supplemental plans as well as private insurance plans that you can get instead of Medicare.
Confused? Don’t worry. We explain what the different parts of Medicare are, how they work and what you need to know before you sign up.
Inside this article
What is the Medicare definition?
Medicare is a federal health insurance program for individuals age 65 and older. It’s one of several social safety nets in place to help provide for seniors during their retirement.
Medicare was created alongside Medicaid in 1965. Both programs were signed into law by President Lyndon B. Johnson. The original program included two parts, known as Original Medicare. The program has been expanded since then to increase the services covered and create additional parts of the program.
Today, Medicare is one of the largest social programs in the United States. Nearly 64 million seniors are enrolled in Original Medicare, and roughly 27 million are enrolled in the Medicare alternatives that are available.
How Medicare works
Similar to Social Security retirement benefits, Medicare is funded through payroll taxes. Workers pay 1.45% of their wages in Medicare taxes and their employers pay another 1.45%.
Once you reach age 65, you’re eligible to sign up for Medicare. And depending on how many years you worked, you may be eligible for certain Medicare parts for free.
As you’ll learn below, Medicare is actually broken up into several different parts. Some of those parts are run by the federal government, while others are run by private companies (but still regulated by the federal government).
Parts of Medicare
The Medicare program can be broken down into five parts: Medicare Part A, Medicare Part B, Medicare Part D, Medigap and Medicare Advantage.
Medicare Part A
Medicare Part A, which is one half of Original Medicare, is known as hospital insurance. It provides coverage when you receive inpatient care via:
A skilled nursing facility
A nursing home
Home health care
You have to be admitted by a doctor’s order and the hospital you go to must accept Medicare.
Medicare Part A covers services such as semi-private rooms, meals, nursing care, drugs and other hospital services. It applies in acute care hospitals, critical access hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities and long-term care hospitals.
Medicare Part A generally doesn’t cover very long-term stays in a hospital or nursing facility. After you pay a deductible, it will cover everything for the first 60 days, part of your stay for the next 90 days, and an even smaller part of your stay for what is known as “lifetime reserve days” after the first 90 days.
After that, you must pay for everything out of pocket. These costs may differ slightly for different types of care, such as in skilled nursing facilities or hospice care.
What it costs: As long as you meet the work requirements that apply to Social Security retirement benefits, you won’t pay a monthly premium for your Medicare Part A coverage. If you don’t qualify for premium-free coverage, you will pay either $274 or $499 per month, depending on how long you worked and paid Medicare taxes.
Medicare Part B
Medicare Part B, the other half of Original Medicare, is medical insurance similar to your current health insurance plan. It covers two different types of services.
First, Medicare Part B covers any medical services and supplies needed to diagnose or treat a medical condition. Second, it covers preventive services such as annual wellness visits and vaccines. For preventive care, you won’t pay anything out of pocket. But for other services, you’ll pay a deductible as you would with traditional health insurance.
What it costs: Unlike Medicare Part A, Medicare Part B isn’t free. Instead, you will pay a monthly premium. The premium can be deducted from your Social Security retirement check or billed to you directly.
The standard premium is $170.10 per month for those earning $91,000 per year or less (or $182,000 or less for a married couple). However, the premiums increase with your income and go up to $578.30 per month for individuals earning $500,000 or more and couples earning $750,000 or more.
Medicare Part D
Medicare Part D is a later addition to Medicare and is designed to cover prescription drugs. While it’s regulated by the federal government, Medicare Part D is actually offered by private companies and there are many plans to choose from.
Each Medicare Part D plan has what’s called a formulary, or a list of the drugs that are covered. Each plan must include at least two drugs in the most commonly prescribed classes and categories, and there will often be at least one generic and one name-brand version.
Medicare Part D plans have tiers of prescription drugs. Those at the lowest tiers are most affordable, while those in the higher tiers are more expensive. The generic versions of drugs are likely to be found in the lower tiers. If, for some reason, the drugs in your plan or those in the lowest tiers don’t work for you, your doctor may request an exception from your plan. To request an exception—either for a drug in a higher tier or one that isn’t included in the formulary —the doctor should submit a written request to the plan, along with supporting information about why they believe it’s necessary.
Like many insurance plans, Medicare Part D requires premiums, a deductible and copayments/coinsurance. One important thing to note is that Medicare Part D has a coverage gap—also known as a donut hole—where your plan will cover little of your expenses.
In this gap, which occurs after you and your plan have spent $4,430 on drugs in a year, you’ll pay up to 25% of the cost of a brand-name drug. The manufacturer will discount 70% of the price, while your plan will pay the other 5%. For generic drugs, you’ll pay 25% in the coverage gap, while your plan will pay the other 75%.
What it costs: You’ll have to pay a monthly premium for Medicare Part D. The amount you’ll pay depends on the plan you choose, with the average premium being $33.37 per month. You may also pay an additional monthly amount if your income exceeds $91,000 for a single filer or $182,000 for joint filers. The highest earners will pay an additional $77.90 on top of their premiums.
Medicare meets many of the health care coverage needs of seniors, but it does have some gaps. That’s where Medigap policies come in. These policies, offered by private companies, are designed to supplement your existing Medicare coverage. They cover many of the same services, but above and beyond the amount that Original Medicare covers.
What it costs: The cost of a Medigap plan depends on the plan you choose and your health situation. You could pay more in some areas if you are older or have a history of health problems. Plans can range from less than $50 to several hundred dollars per month.
Medicare Advantage, often known as Medicare Part C, is essentially all of the different parts of Medicare wrapped into one. Unlike Medigap policies, which you would purchase to supplement your Medicare coverage, a Medicare Advantage plan would replace your Medicare coverage.
Medicare Advantage plans look very similar to traditional health insurance plans. They cover preventive and outpatient medical care, hospital care and prescription drugs. They also often cover services not covered by Original Medicare, including dental, vision and hearing services.
“In Nevada, our Medicare Advantage market has been getting stronger every year and now almost all plans include comprehensive dental coverage, vision insurance, hearing aid benefits, gym memberships, etc.,” says Kyle Devries, a broker at Health Benefits Associates.
These plans are similar to traditional health insurance plans in other ways as well. They usually have medical networks that you must stay in to have your care covered. They also have deductibles, copayments and coinsurance.
What it costs: Many Medicare Advantage plans have low premiums, and some even have no premiums at all. That being said, you will continue to pay your Medicare Part B premium while you’re on a Medicare Advantage plan.
Medicare is designed to provide health insurance coverage to individuals age 65 and older. Since the program was created, it has been expanded to cover those with disabilities and those with permanent kidney failure.
Everyone age 65 is eligible for Medicare. However, whether you’re able to receive Part A for free depends on your work history. Just like the qualifications for receiving Social Security retirement benefits, you or your spouse must have worked a certain number of years and paid the Medicare payroll tax to receive free coverage.
Otherwise, you should expect to pay a premium for each part of Medicare you sign up for.
Enrolling in Medicare
There are a few different ways you can enroll in Medicare. When you’ll enroll usually depends on whether you (or your spouse) are still working and covered by an employer-sponsored plan at the time you turn 65.
Initial enrollment period
The three months before and after your 65th birthday are your initial enrollment period and when most people sign up for Medicare Part A and Part B. if you fail to sign up and aren’t covered by another health insurance plan, you may be subject to a late enrollment penalty.
General enrollment period
Each year, there is a general enrollment period for anyone who didn’t sign up for Medicare during their initial enrollment period. This period lasts from Jan. 1 through March 31, with coverage starting July 1.
Special enrollment period
If you didn’t sign up for Medicare because you were covered by a different plan, then you may be eligible for a special enrollment period when you lose your coverage. This period will last for eight months after you lose your other group health insurance plan.
“The easiest way to enroll in Part A and Part B is online on the Social Security Administration’s website,” Devries says. “This will be the quickest way as well.”
The enrollment process is a bit different for signing up for Medicare Part D, Medigap or Medicare Advantage. To sign up for those, you’ll do so during open enrollment periods in the fall and spring. From Oct. 15 through Dec. 7, switch from Original Medicare to Medicare Advantage, switch from Medicare Advantage back to Original Medicare, switch from Medicare Advantage plan to another or sign up for a Medicare drug plan.
Finally, from Jan. 1 through March 31, you can switch Medicare Advantage plans or switch from Medicare Advantage to Original Medicare.
“After someone receives their Medicare card, I highly recommend going to a local broker,” Devries says. “Local brokers will know the market better than anyone and make sure you are in the right plan for your needs. National brokers tend to not know about the local insurance plans and only sell national carriers.”