What Medicare Is and How It Operates

Medicare is a federal health insurance program run by the Centers for Medicare & Medicaid Services (CMS). If you are 65 or older, or if you have been receiving Social Security Disability Insurance (SSDI) for 24 months, or if you have end-stage renal disease, you become may be able to access for Medicare. The program has four main parts — Original Medicare (Parts A and B), Part D (prescription drug coverage), and Part C (Medicare Advantage). Understanding which parts cover what, and when you need to sign up, prevents gaps in coverage and unexpected bills.

Medicare is not one insurance plan. It is a framework, and you choose how to use it. You can stay in Original Medicare and add separate coverage, or you can switch to a Medicare Advantage plan that bundles hospital, doctor, and drug coverage into one. The choices you make at 65 affect your costs for the rest of your life, because late enrollment penalties can be permanent.

Key Takeaways

  • Medicare Part A covers hospital stays, skilled nursing care, and hospice; Part B covers doctor visits and outpatient care; you pay premiums, deductibles, and coinsurance for both.
  • Part D (prescription drug coverage) and Part C (Medicare Advantage) are optional but signing up late can result in permanent penalties on your premiums.
  • Original Medicare (Parts A and B) lets you see any doctor who accepts Medicare, but you pay a share of the cost; Medicare Advantage plans have networks and lower out-of-pocket limits but restrict which doctors you can see.
  • You must sign up for Medicare within three months of turning 65, even if you are still working, or face a permanent 10% increase in your Part B premium for each year you delay.
  • Social Security will enroll you automatically in Parts A and B at 65 if you are already receiving benefits, but you must choose Part D and Part C yourself.

Original Medicare: Parts A and B

Part A covers inpatient hospital care, skilled nursing facility care (after a hospital stay), home health services, and hospice. You do not pay a monthly premium for Part A if you or your spouse paid Medicare taxes for at least 10 years. When you use Part A, you pay a deductible for each hospital stay (the amount changes yearly), and then Medicare covers most of the cost. If you stay longer than 60 days in the hospital, you begin paying coinsurance — a daily amount you owe out of pocket.

Part B covers doctor visits, outpatient surgery, diagnostic tests, and some preventive care. Part B has a monthly premium (the standard amount in 2024 is $164.90, but it varies based on your income). You also pay an annual deductible before Part B starts paying its share, and then you typically pay 20% of the cost of services while Medicare pays 80%. Part B does not cover routine dental, vision, or hearing care.

Original Medicare lets you see any doctor or hospital in the United States that accepts Medicare. You do not need permission from a primary care doctor to see a specialist. However, you are responsible for the costs Medicare does not cover — which is why many people buy a Medigap policy (supplemental insurance) to pay the deductibles and coinsurance that Original Medicare leaves behind.

Part D: Prescription Drug Coverage

Part D is optional, but signing up late carries a permanent penalty. If you do not join a Part D plan when you first become may be able to access, and you go without creditable drug coverage for more than 63 days, you will pay a penalty for as long as you have Medicare. The penalty is roughly 1% of the national average premium for each month you were without coverage.

Part D plans are offered by private insurance companies approved by Medicare. Each plan has a different list of covered drugs, different costs, and different pharmacies. You choose a plan during your initial enrollment period (the three months before and after the month you turn 65) or during the annual open enrollment period (October 15 to December 7 each year). You can change plans once a year.

Part D has a coverage structure with different cost stages. You pay a monthly premium, then a deductible, then a copay or coinsurance for each prescription until you reach a spending threshold. After that, you enter the "donut hole" — a gap where you pay more out of pocket — until your total spending reaches a catastrophic threshold, at which point Medicare covers most of the cost again.

Part C: Medicare Advantage Plans

Medicare Advantage (Part C) is an alternative to Original Medicare. Instead of using Parts A and B separately, you enroll in a private insurance plan that Medicare contracts with. The plan must cover everything Original Medicare covers, but it can do so with different rules, different costs, and different networks of doctors and hospitals.

Medicare Advantage plans often include Part D (drug coverage) and sometimes include dental, vision, or hearing coverage — benefits Original Medicare does not offer. However, most Medicare Advantage plans require you to use doctors and hospitals within their network. If you see an out-of-network provider, you may pay more or the plan may not cover the visit at all. You also typically need a referral from your primary care doctor to see a specialist.

Medicare Advantage plans have an annual out-of-pocket maximum — a cap on how much you will pay in a year for covered services. Once you reach that limit, the plan covers the rest. Original Medicare has no out-of-pocket maximum, which is why some people choose Medigap instead. You can switch between Original Medicare and Medicare Advantage once a year during the annual open enrollment period.

When and How to Sign Up

You become may be able to access for Medicare at 65. If you are already receiving Social Security retirement benefits, Medicare will enroll you automatically in Parts A and B. You will receive your Medicare card in the mail about three months before your 65th birthday. If you are not yet receiving Social Security, you must contact Social Security to sign up for Medicare.

Your initial enrollment period is seven months long: the three months before the month you turn 65, the month you turn 65, and the three months after. If you sign up during this window, your coverage starts the month you turn 65 (or the first of the month after you sign up, depending on when you enroll). If you miss this window, you can still sign up, but your coverage will be delayed and you may owe a permanent penalty.

If you are still working at 65 and have health insurance through your employer, you may be able to delay Part B without penalty. You must have creditable coverage (coverage as good as Medicare) through your job or your spouse's job. When you retire and lose that coverage, you have eight months to sign up for Part B without penalty. This is called the special enrollment period.

Costs You Will Pay

Medicare costs vary depending on which parts you choose and which plans you select. Part A has no monthly premium for most people, but you pay a deductible and coinsurance. Part B has a monthly premium and an annual deductible. Part D has a monthly premium that varies by plan. Medicare Advantage plans have monthly premiums (sometimes $0) and out-of-pocket costs when you use care.

Your Part B and Part D premiums may be higher if your income is above a certain threshold. This is called Income-Related Monthly Adjustment Amount (IRMAA). If you earned more than $97,000 as a single person or $194,000 as a married couple filing jointly in 2022, you will pay more for Part B and Part D in 2024. The income thresholds change yearly.

If your income is low, you may be able to get help paying your premiums and out-of-pocket costs through Medicaid (a joint federal and state program) or the Medicare Savings Program. Each state runs these programs differently, so contact your state Medicaid office or your State Health Insurance information Program (SHIP) to learn what you may be able to access.

What Medicare Does Not Cover

Original Medicare does not cover routine dental care, vision exams, eyeglasses, hearing aids, or routine hearing exams. It does not cover long-term care in a nursing home or assisted living facility (though it does cover skilled nursing care for a limited time after a hospital stay). It does not cover most prescription drugs unless you have Part D. It does not cover routine foot care, acupuncture, or most cosmetic surgery.

If you need coverage for these services, you can buy a Medigap policy to cover some gaps, enroll in a Medicare Advantage plan that may include some of these benefits, or pay out of pocket. Some people use a Health Savings Account (HSA) or set aside money specifically for these costs.

Questions to Ask Your Doctor or Medicare

Before you turn 65, ask your current doctor whether they accept Medicare. If you are considering a Medicare Advantage plan, ask whether your doctors are in the plan's network and whether you need referrals to see specialists. Ask your pharmacist which Part D plans cover your current medications and what the costs would be under each plan.

Contact Medicare directly at 1-800-MEDICARE (1-800-633-4227) or visit Medicare.gov to compare plans, check your enrollment status, or ask questions about coverage. You can also contact your State Health Insurance information Program (SHIP) — a free counseling service — by calling 1-877-839-2675. SHIP counselors can help you understand your options and compare plans based on your specific situation.

Frequently Asked Questions

Do I have to sign up for Medicare at 65 if I am still working?

You must sign up for Part A (hospital insurance) at 65 even if you are working. You can delay Part B if you have health insurance through your job or your spouse's job. When you retire and lose that coverage, you have eight months to sign up for Part B without penalty. If you miss this window, you will owe a permanent 10% penalty on your Part B premium.

What is the difference between Medigap and Medicare Advantage?

Medigap is supplemental insurance you buy from a private company to cover the deductibles and coinsurance that Original Medicare leaves behind. Medicare Advantage is an alternative to Original Medicare — a private plan that covers hospital and doctor care with different rules and networks. You cannot have both Medigap and Medicare Advantage at the same time.

Can I change my Medicare plan after I sign up?

Yes. You can change your Part D plan or switch between Original Medicare and Medicare Advantage once a year during the annual open enrollment period (October 15 to December 7). If you have a may have access to life event (such as losing employer coverage or moving to a new state), you may be able to change plans outside this window.

What happens if I cannot afford my Medicare premiums?

If your income is low, you may be able to get help through Medicaid, the Medicare Savings Program, or the Low-Income Subsidy program for Part D. Contact your state Medicaid office or your State Health Insurance information Program (SHIP) to learn what programs you may be able to access based on your income and assets.

Does Medicare cover preventive care?

Yes. Original Medicare covers many preventive services with no copay or coinsurance, including annual wellness visits, cancer screenings, cardiovascular screenings, and vaccinations. Medicare Advantage plans must cover the same preventive services. However, you still pay your Part B deductible for some services, so ask your doctor or plan what your costs will be.