What Medicare Is and Who Runs It

Medicare is health insurance run by the federal government for people 65 and older, some younger people with disabilities, and people with end-stage renal disease. It is not a program you explore for once and then own — it is insurance you pay into during your working years, and the government administers it when you turn 65.

The Centers for Medicare & Medicaid Services (CMS), which is part of the U.S. Department of Health and Human Services, runs the program. CMS sets the rules, decides what doctors and hospitals can charge, and pays the claims. You do not deal with CMS directly most of the time — instead, you deal with insurance companies that CMS hires to process your claims and manage your coverage.

Medicare is divided into four parts, and each part covers different things. Understanding which part covers what is the foundation for knowing how your insurance actually works when you need care.

Key Takeaways

  • Medicare has four parts: Part A covers hospital stays, Part B covers doctor visits and outpatient care, Part D covers prescription drugs, and Part C is an alternative plan that combines A, B, and D through a private insurance company.
  • You pay premiums (monthly fees) for Parts B and D, and you share costs with Medicare through deductibles, copayments, and coinsurance on the care you use.
  • You must sign up for Medicare during your enrollment window, which is usually the three months before and after your 65th birthday, or you may pay a penalty for the rest of your life.
  • Original Medicare (Parts A and B) lets you see any doctor or hospital that accepts Medicare, but you manage your own claims and coverage decisions.
  • Medicare Advantage plans (Part C) are run by private insurance companies and often have lower premiums but restrict which doctors you can see.

Part A: Hospital Insurance

Part A covers inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice care, and some home health services. Most people do not pay a monthly premium for Part A because they or their spouse paid Medicare taxes while working.

When you use Part A, you pay a deductible — a set amount you pay out of pocket before Medicare starts paying. For hospital stays in 2024, the deductible is $1,676 per benefit period. A benefit period starts when you enter the hospital and ends 60 days after you leave. If you go back to the hospital more than 60 days later, a new benefit period begins and you pay the deductible again.

After you pay the deductible, Medicare covers most of your hospital costs. However, if your stay is longer than 60 days in one benefit period, you start paying coinsurance — a daily amount you share with Medicare. The longer you stay, the more you pay per day. This is why many people buy supplemental insurance (called Medigap) to cover these costs.

Part B: Doctor Visits and Outpatient Care

Part B covers doctor visits, outpatient surgery, diagnostic tests, physical therapy, and other services you receive outside a hospital. Unlike Part A, you pay a monthly premium for Part B. The standard premium in 2024 is $164.90 per month, though higher earners pay more.

Part B also has a yearly deductible — $240 in 2024 — that you pay before Medicare starts sharing costs. After you meet the deductible, Medicare typically pays 80 percent of the cost of a covered service, and you pay 20 percent as coinsurance. This means if a doctor visit costs $100 after your deductible is met, Medicare pays $80 and you pay $20.

Part B does not cover everything. It does not cover routine dental care, vision exams, hearing aids, or most prescription drugs. You need to understand what Part B covers and what it does not before you assume your costs are covered.

Part D: Prescription Drug Coverage

Part D is prescription drug insurance. You choose a Part D plan from private insurance companies that CMS approves, and you pay a monthly premium that varies by plan. There is no single Part D plan — instead, dozens of plans exist, and they cover different drugs at different costs.

Each Part D plan has a yearly deductible (usually $35 to $100), and after you meet it, you pay a copayment or coinsurance for each prescription. The amount depends on which "tier" the drug is on — generic drugs are usually cheaper than brand-name drugs. If your yearly drug costs reach a certain amount (called the "coverage gap" or "donut hole"), your costs jump temporarily before Medicare and the plan start covering more again.

You must sign up for Part D when you first turn 65, or during the annual enrollment period (October 15 to December 7). If you wait and do not have other drug coverage, you pay a penalty on top of your premium for as long as you have Medicare.

Part C: Medicare Advantage Plans

Part C, also called Medicare Advantage, is an alternative to Original Medicare (Parts A and B). Instead of getting coverage directly from the government, you buy a plan from a private insurance company that CMS approves. The insurance company receives a payment from Medicare for each person enrolled, and in return, it must cover everything Part A and Part B cover, plus usually Part D (drugs).

Medicare Advantage plans often have lower or zero monthly premiums than Original Medicare, which makes them appealing. However, they usually require you to use doctors and hospitals in their network — if you see an out-of-network provider, you pay more or the plan does not cover it at all. Some plans require referrals from your primary care doctor before you see a specialist.

Medicare Advantage plans also have yearly out-of-pocket maximums, which means once you spend a certain amount on cost-sharing, the plan covers the rest for the year. Original Medicare does not have this cap, which is why many people on Original Medicare buy supplemental Medigap insurance.

How You Pay: Premiums, Deductibles, and Cost-Sharing

Medicare costs come in three forms. Premiums are monthly fees you pay whether you use care or not. Deductibles are amounts you pay out of pocket before Medicare or your plan starts paying. Cost-sharing — copayments and coinsurance — is what you pay for each service after you meet your deductible.

On Original Medicare, you pay premiums for Part B and Part D, a yearly deductible for Part B, and then 20 percent coinsurance for most services. Part A has a deductible per benefit period, not per year. On a Medicare Advantage plan, you typically pay a lower premium but have copayments for each doctor visit or service, and an annual out-of-pocket maximum that caps your total spending.

The amount you pay depends on which plan you choose, which doctors you see, and how much care you use. There is no single answer to "how much does Medicare cost" — it varies widely.

When to Sign Up and What Happens If You Miss the important date

You become may be able to access for Medicare the month you turn 65. Your initial enrollment period is the three months before your birthday month, your birthday month itself, and the three months after — seven months total. If you sign up during this window, your coverage starts the month you turn 65 (or the month after, depending on when you sign up).

If you do not sign up during your initial enrollment period, you can still sign up during the general enrollment period, which runs January 1 to March 31 each year. However, your coverage does not start until July 1, and you may pay a late enrollment penalty for the rest of your life. For Part B, the penalty is 10 percent of the standard premium for each full year you were may be able to access but did not sign up. For Part D, the penalty is 1 percent of the national average premium for each month you were may be able to access but did not sign up.

The only exception is if you had other health insurance (such as coverage through your job) when you turned 65. In that case, you have a special enrollment period to sign up for Medicare without penalty within 63 days of losing that coverage.

What Medicare Does Not Cover

Medicare covers a lot, but it has significant gaps. It does not cover routine dental care, eye exams, eyeglasses, or hearing aids. It does not cover long-term care in a nursing home (only short-term skilled nursing care after a hospital stay). It does not cover most cosmetic surgery, weight-loss surgery, or fertility treatments.

Many seniors buy Medigap (supplemental insurance) to cover the gaps in Original Medicare, or they choose Medicare Advantage plans that sometimes offer dental and vision benefits as add-ons. Understanding what Medicare does not cover is as important as understanding what it does, because the gaps can be expensive.

Frequently Asked Questions

Do I have to take Medicare at 65 if I am still working?

If you or your spouse are still working and have health insurance through that job, you can delay signing up for Part B without penalty. However, you should still sign up for Part A at 65 because it is usually free and covers hospital care. Once you or your spouse stop working, you have 63 days to sign up for Part B without penalty.

Can I switch from Original Medicare to Medicare Advantage or back again?

Yes, but only during certain times. The annual enrollment period runs October 15 to December 7, and any changes take effect January 1. You can also switch during the Medicare Advantage open enrollment period (January 1 to March 31) if you are already in a Medicare Advantage plan. Outside these windows, you cannot switch unless you have a may have access to life event such as moving out of your plan's service area.

What if I cannot afford my Medicare premiums and cost-sharing?

Several programs help low-income seniors pay for Medicare costs. The may have access to Medicare Beneficiary (QMB) program pays your Part B premium and cost-sharing. The Specified Low-Income Medicare Beneficiary (SLMB) program pays your Part B premium. The Medicare Savings Program helps with premiums and cost-sharing. You explore through your state Medicaid office, and income limits vary by state.

How do I know if a doctor accepts Medicare?

You can search the Medicare provider directory at Medicare.gov, or call your doctor's office and ask directly. Most doctors accept Medicare, but some do not. If a doctor does not accept Medicare, you pay the full cost out of pocket unless you have supplemental insurance that covers out-of-network care.

What happens to my Medicare if I move to another state?

Your Medicare coverage follows you — it works in all 50 states and U.S. territories. However, if you are in a Medicare Advantage plan, you may need to switch plans because plans are usually limited to specific service areas. Check with your plan before you move to see if it covers your new location.