What is Medicare? Understanding your coverage options

Enrolling at the right time, as well as reviewing your plan annually, can save you money and give you the best coverage for your needs.

Tags: Healthcare, Insurance, Planning, Be prepared
Published: May 18, 2022

Medicare is a federal health insurance program, primarily for people who are 65 years and older. Medicare has four parts, plus some alternatives, each of which has a different purpose:

  • Medicare Part A: Covers hospital stays, care in a skilled nursing facility, hospice care and some home health.
  • Medicare Part B: Covers certain doctors’ services, outpatient care, medical supplies and preventive services.
  • Medigap: Supplemental coverage for Parts A and B provided by private insurers that in most cases eliminates all copayments, coinsurance and deductibles.
  • Medicare Part C (also known as Medicare Advantage): Coverage from private insurers that provides benefits found in both Parts A and B and frequently D. Plans often reduces copayments and coinsurance and may include dental, vision and prescription coverage. 
  • Medicare Part D: Supplemental plans for Parts A and B that cover prescription drugs costs.

 

Medicare Part A and B: Enrolling basics

All Medicare policies are individual, so you and your spouse will sign up separately.

Medicare Part A and B are often referred to as “Traditional” or “Original” Medicare. For most seniors and situations, the cost is standardized:

  • Part A is free, if you've paid Medicare taxes for at least 40 quarters (or about 10 years)
  • Part B is currently $170.10 or higher per month, depending on your income

You need to enroll in both Part A and Part B to have access to other Medicare options, such as Part D and Medicare Supplement Insurance (Medigap).

 

Medicare Part A and B: Eligibility and timing basics

You’re eligible to enroll in Medicare during a seven-month window:

  • Three months before your 65th birthday month
  • Your 65th birthday month
  • Three months after your 65th birthday month

If you’re enrolled in Social Security before age 65, you’ll be enrolled in Parts A and B automatically.

Late enrollment incurs penalties and permanently higher premiums.

If you’re still working, you have the option to enroll as you turn 65, and you’ll also have another eight-month enrollment window after you stop working.

 

Medicare C or Medigap: What are the differences? 

You can’t purchase both Medicare Part C and Medigap. You’ll need to choose the option that best fits your needs. Here’s how they compare.

 

Medicare C (aka Medicare Advantage)

  • Lower premiums
  • Higher out-of-pocket costs that vary by plan; each plan has an out-of-pocket maximum
  • HMO or PPO option: possible limited in-network doctor selection or out-of-network rules
  • Referral to see specialist often required
  • Usually only local or regional coverage
  • Usually includes Medicare Part D as part of the premium
  • Some include extra coverage for vision, dental and hearing aids
  • Rule of thumb: Those who seldom see the doctor often opt for the lower premiums of Medicare Part C.

If you sign up for Medicare Part C, review your coverage annually. Coverage, benefits and costs of Medicare Part C plans change each year. Reviewing your plan could save you money, help you find a better coverage fit — or both.

 

Medigap (aka Medicare Supplement Insurance)

  • Higher premiums (can be up to 2 or 3 times that of Medicare C)
  • Usually $0 on out-of-pocket costs
  • Accepted everywhere that accepts Medicare
  • Usually referrals are not required to see a specialist
  • Generally accepted in every state or U.S. territory and some plans may be accepted internationally when traveling
  • Medicare Part D must be purchased separately
  • Coverage for extras must be added through additional plans
  • Rule of thumb: Those who need frequent medical care often choose Medigap to keep their total medical costs flat.

It may not be advantageous to switch plans when enrolled in Medigap. During the initial enrollment period for Medigap, you’ll receive guaranteed issue:

  • One standard rate regardless of your health status
  • No denial of coverage based on your health status

In most instances, if you later switch, you’ll no longer receive this protection, meaning that changing Medigap plans could cost you money.

 

Medicare D

Medicare Part A and Part B do not provide coverage for prescription drugs. To add coverage, many people join a prescription drug plan (PDP) or enroll in a Medicare Part C plan that includes Part D (MA-PD). 

  • Medicare Part D charges a late enrollment penalty if you don’t sign up when you’re first eligible.
  • PDPs add coverage for prescription drugs to Medicare. However, separate plans cover separate drugs. Review each plan carefully to select the right coverage.
  • Premiums, copayments and coinsurance for prescription drug plans differ based on factors like your drugs or your provider network. Review your options carefully to find the best option.

Frequently asked questions

  • What are the 4 types of Medicare? hides details

    The 4 types of Medicare are:

    • Part A covers costs for stays in hospitals and skilled nursing facilities. Medicare Part A is often referred to as hospital insurance.
    • Part B provides coverage for more traditional medical care like doctor visits.
    • Part C is coverage provided by a private insurance company that replace Part A, Part B and often, Part D. Medicare Part C is also known as Medicare Advantage.
    • Part D covers prescription drugs. These plans are run by private insurance companies and can help offset out-of-pocket costs for drugs.
  • Does Medicare cover dental? shows details

    Medicare doesn’t cover most dental care services but may pay dental costs for procedures required to complete other medical treatment. If you need to have emergency or complicated dental procedures, Medicare Part A (hospital insurance) may pay for related hospital stays, though typically not for the specific dental procedures. Some Medicare Advantage plans (Part C) offer forms of dental coverage as part of their plans.

  • What is the cost of Medicare Part A? shows details

    Medicare Part A doesn’t require a monthly premium for most enrollees. However, if you paid Medicare taxes for less than 30 quarters of your working life, the current standard Part A premium is $499 per month. If you paid Medicare taxes for 30-39 quarters, the current standard Part A premium is $274 per month.

    In addition, all beneficiaries will be subject to a $1,556 deductible for each benefit period. A benefit period is defined as beginning the day you enter the hospital or facility and ends after you have not needed inpatient care for 60 days in a row. A daily coinsurance cost of $389 or more per day applies if inpatient hospital or skilled nursing stays last beyond 60 days.

  • What does Medicare Part A cover? shows details

    Medicare Part A helps cover:

    • Inpatient care in a hospital
    • Inpatient care in a skilled nursing facility (not including custodial or long-term care)
    • Hospice care
    • Home health care
    • Inpatient care in a religious non-medical health care institution
  • What is the cost of Part B Medicare coverage? shows details

    The monthly premium cost for Medicare Part B is based on your annual income and typically increases every year. The current base monthly premium cost for Part B coverage is $170.10. However, if your annual income in 2020 (used to determine your 2022 Medicare Part B premium) exceeded $91,000 (single tax filer or married filing separate) or $182,000 (married filing jointly), your premium will be higher. At those thresholds and beyond, the monthly Medicare Part B premium in 2022 ranges from $238.10 to $578.30. In addition, there is an annual deductible of $233 for all enrollees. 

  • What does Medicare Part B cover? shows details

    Medicare Part B, the medical insurance portion of Medicare coverage, helps meet the costs of medically necessary doctor’s services, outpatient care, home health services, durable medical equipment and mental health services. It also covers other medical services, including many preventive services.

 

Healthcare can be one of your largest expenses as you get older. Are you ready for healthcare costs in retirement?