Medicare is a federal health insurance program run by the Centers for Medicare & Medicaid Services

Medicare is health insurance paid for by Social Security taxes during your working years. The federal government runs it through an agency called the Centers for Medicare & Medicaid Services (CMS), which is part of the U.S. Department of Health and Human Services. You become may be able to access for Medicare at age 65, regardless of your income or health history. Some younger people with disabilities or end-stage renal disease can also join.

Medicare is not means-tested, which means your savings or income do not disqualify you. You do not have to be retired to join at 65 — you can still be working. The program has four parts, each covering different types of care, and you choose which parts you want based on your situation.

Key Takeaways

  • Medicare is a federal program you pay into through payroll taxes, and it becomes available to you at age 65 without a financial means test.
  • Part A covers hospital stays and skilled nursing care; Part B covers doctor visits and outpatient services; Part D covers prescription drugs; and Part C is an alternative plan run by private insurers.
  • You must sign up during your Initial Enrollment Period (the three months before, the month of, and three months after your 65th birthday) or face a permanent penalty on your premiums.
  • Medicare does not cover everything — it has deductibles, copayments, and gaps, which is why many people also buy supplemental insurance or choose a Medicare Advantage plan.
  • You can change your coverage choices once a year during the Annual Enrollment Period, which runs from October 15 to December 7.

What Medicare Part A covers: hospital and skilled nursing care

Part A is hospital insurance. It covers inpatient hospital stays, skilled nursing facility care (not long-term custodial care), hospice care, and some home health services. You pay a deductible for each hospital stay, and after 60 days in the hospital, you start paying coinsurance — a daily amount that increases the longer you stay.

Most people do not pay a monthly premium for Part A because they or their spouse paid Medicare taxes for at least 10 years while working. If you did not work long enough, you can buy Part A, but the premium is higher if you wait past 65 to sign up. Part A does not cover routine doctor visits, prescription drugs, or long-term custodial care in a nursing home.

What Medicare Part B covers: doctor visits and outpatient care

Part B is medical insurance. It covers doctor visits, outpatient hospital services, diagnostic tests, physical therapy, mental health services, and durable medical equipment like wheelchairs or oxygen. You pay a monthly premium for Part B, and the amount depends on your income — higher earners pay more. You also pay a yearly deductible and then 20 percent coinsurance for most services after that.

Part B is optional, but if you do not sign up when you turn 65 and you do not have other creditable coverage, you will pay a permanent 10 percent penalty on your premiums for every year you delayed. This penalty stays with you for life, so signing up on time matters even if you think you will not use it right away.

What Medicare Part D covers: prescription drugs

Part D is prescription drug coverage. You choose a plan from private insurers that contract with Medicare, and each plan has a different list of covered drugs, copayments, and deductibles. Plans change every year, so the drug that was covered last year might not be this year, or the copayment might go up.

Part D has a coverage gap called the "donut hole" — after you and your plan have spent a certain amount on drugs, you pay more out of pocket until you reach catastrophic coverage. The exact amounts change each year. Like Part B, if you do not sign up for Part D when you first become may be able to access and you do not have other creditable drug coverage, you pay a permanent penalty on your premiums.

What Medicare Part C is: an alternative way to get Parts A, B, and D

Part C, also called Medicare Advantage, is a private insurance alternative to Original Medicare (Parts A and B). Instead of going to any doctor who accepts Medicare, you choose a plan run by a private insurer, and that plan covers your hospital care, doctor visits, and usually prescription drugs all in one policy. Many Part C plans have $0 premiums, though you still pay the Part B premium to Medicare.

The trade-off is that Part C plans usually have networks — you must use doctors and hospitals in the plan's network, or pay more. Some plans require referrals to see specialists. Part C plans often include dental, vision, or hearing coverage that Original Medicare does not. You can switch between Original Medicare and Part C once a year during the Annual Enrollment Period.

What Medicare does not cover

Medicare has significant gaps. It does not cover routine dental care, eyeglasses, hearing aids, or long-term custodial care in a nursing home or at home. It does not cover most preventive care like annual physicals (though some preventive services are covered at no cost). It does not cover cosmetic surgery or most weight-loss surgery.

Because of these gaps, many people buy a supplemental policy, called Medigap, which pays some of the deductibles and coinsurance that Original Medicare leaves behind. Medigap is sold by private insurers and is separate from Medicare itself. If you choose Part C instead, you do not need Medigap because Part C is your complete coverage.

When and how to sign up for Medicare

Your Initial Enrollment Period is the three months before your 65th birthday, the month you turn 65, and the three months after. During this seven-month window, you can sign up for Part A, Part B, and Part D without penalty. You sign up through Medicare.gov, by phone at 1-800-MEDICARE, or in person at your local Social Security office.

If you miss your Initial Enrollment Period, you can still sign up, but you will pay a permanent penalty on Part B and Part D premiums. The only exception is if you have creditable coverage through an employer or union — in that case, you have eight months after that coverage ends to sign up without penalty. After you turn 65, you can change your coverage choices once a year during the Annual Enrollment Period (October 15 to December 7).

Frequently Asked Questions

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

If you are still working and covered by your employer's health plan, you can delay Part B without penalty as long as your employer has 20 or more employees. You must still sign up for Part A at 65 unless you are covered by a group health plan through your employer. Check with your employer's benefits office about the exact rules for your situation.

What is the difference between Original Medicare and Medicare Advantage?

Original Medicare (Parts A and B) lets you see any doctor or hospital that accepts Medicare, and you pay deductibles and coinsurance. Medicare Advantage (Part C) is run by private insurers, usually has lower or no premiums, but restricts you to a network of doctors and hospitals. Both cover the same basic services, but the way you pay and which providers you can use are different.

Can I have both Medigap and Medicare Advantage?

No. Medigap is designed to work with Original Medicare. If you have Medicare Advantage, you do not need Medigap because your Part C plan is your complete coverage. If you switch from Medicare Advantage to Original Medicare, you can buy Medigap, but there are limited times to do so without being denied or charged more.

What happens if I do not sign up for Part D when I turn 65?

If you do not have other creditable drug coverage and you do not sign up during your Initial Enrollment Period, you will pay a permanent penalty on your Part D premiums for every month you were without coverage. The penalty is about 1 percent of the national average Part D premium per month of delay, and it stays with you for life.

Can I change my Medicare coverage if I made a mistake?

You can change your coverage once a year during the Annual Enrollment Period (October 15 to December 7). If you made a mistake during your Initial Enrollment Period, you may be able to appeal, but the window is limited. Contact Medicare at 1-800-MEDICARE to ask about your specific situation.