What is Medicare? Understand your coverage options

As you plan for retirement, healthcare is likely one of your biggest considerations. Understanding your options is key to making sure you have the coverage you need when you need it.

Medicare is a cornerstone of healthcare coverage for most retirees, but navigating its various parts can be challenging. This guide will break down what Medicare is, how its different parts work, and what you need to know to enroll.

What is Medicare?

Medicare is a federal health insurance program, primarily for people who are 65 years and older.

Medicare has four parts (plus extras), each of which has a different purpose:

• Medicare Part A (hospital insurance): Covers hospital stays, care in a skilled nursing facility, hospice care and some home health.
• Medicare Part B (medical insurance): Covers certain doctors’ services, outpatient care, medical supplies and many preventive services.
• Medicare Supplemental Insurance (Medigap): Extra coverage for Parts A and B provided by a private insurer that helps you pay for copayments, coinsurance and deductibles.
• Medicare Advantage Plan (Part C): Coverage from a private insurer that provides benefits found in both Parts A and B and usually Part D. Most plans include dental, vision and prescription coverage. 
• Medicare Part D (drug coverage): A supplemental plan for Parts A and B that cover prescription drugs costs.

Original Medicare or Medicare Advantage: what are the differences?

When you sign up for Medicare, you’ll have the option to choose Original Medicare or a Medicare Advantage Plan. Note that you’ll have Original Medicare unless you specifically sign up for a Medicare Advantage Plan.

Here’s how each compares.

Original Medicare (aka Traditional Medicare)

Original Medicare includes Medicare Part A (hospital insurance) and Part B (medical insurance).

• Usually $0 on out-of-pocket costs.
• You pay the monthly premium for Part B.
• For Part B covered services, you usually pay 20% of the Medicare-approved amount after you meet your deductible.
• Accepted everywhere that accepts Medicare. Generally accepted in every state or U.S. territory.
• Referrals are not typically required to see a specialist.
• Medicare Part D (drug coverage) must be purchased separately.
• Supplemental Insurance (Medigap) must be purchased separately.
• Rule of thumb: Those who need frequent medical care often choose Original Medicare to keep their total medical costs flat.

Medicare Advantage (Part C)

• Medicare Advantage is an approved Medicare plan provided by a private insurer that includes Part A, Part B and often Part D coverage.
• Out-of-pocket costs vary by plan; each plan has an out-of-pocket maximum.  Once you reach your plan’s limit you’ll pay nothing for the services covered for the rest of the year.
• You pay the monthly Part B Premium and may also have to pay the plan’s premium.
• You may be limited to doctors and providers in the plan’s network and service area.
• Referral to see a specialist is often required.
• Usually includes Medicare Part D (drug coverage) as part of the premium.
• Most plans 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 Advantage (Part C).

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

Original Medicare Part A and Part B: enrolling and eligibility basics

All Medicare policies are individual, so if you have a spouse, you will enroll separately.

• Part A is free, if you’ve paid Medicare taxes for at least 40 quarters (or about 10 years)
• Part B is $185 or higher per month in 2025, depending on your income

The Medicare Initial Enrollment Period is a seven-month window:

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

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

Late enrollment incurs penalties and permanently higher premiums.

While you don’t need to re-enroll in Medicare every year, it’s a good idea to review your plan during the Medicare Annual Enrollment Period each fall. This is the perfect time to check for changes in costs or coverage and ensure your current plan still meets your needs.

You can either stick with your existing Medicare plan or switch to a new one. If you don’t take action, your current coverage will automatically renew for the following year.

Medical Supplemental Insurance (Medigap)

Medigap is extra insurance you can buy from a private insurance company to help pay for your share of out-of-pocket costs in Original Medicare. You can only buy Medigap if you have Original Medicare.

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 Part D

Original Medicare does not provide coverage for prescription drugs. To add coverage, many people join a separate Medicare-approved drug plan or enroll in a Medicare Advantage Plan (Part C) that includes Part D coverage. 

• Medicare Part D charges a late enrollment penalty if you don’t sign up when you’re first eligible.
• Although all plans are required to cover a wide range of prescription drugs, each Medicare-approved drug plan will have its own list of covered drugs.
• Premiums, copayments and coinsurance for Medicare-approved drug plans may differ based on factors like your drugs or your provider network. Review each plan carefully to select the right coverage.