Figuring out how Medicare works feels a little like learning the alphabet for the first time.
There are the four general parts of Medicare: A, B, C, and D. Then you have the 10 types of Medicare supplementplans: A, B, C, D, F, G, K, L, M, and N.
As confusing as that might seem, it's important to take the time to educate yourself. Medicare’s parts and supplement plans cover different things. They have different costs; participating doctor and hospital networks; availability; and other rules. You'll most likely be enrolled in multiple parts and/or plans at the same time. Getting familiar with them lets you choose the best health insurance for your needs.
Part A: Hospital Services
Medicare Parts A and B are run by a federal agency called the Centers for Medicare and Medicaid Services. Together, these two parts are known as Original Medicare. With Original Medicare, you can see any doctor or hospital anywhere in the country -- as long as they participate in the program and are accepting new Medicare patients. If you see a non-participating doctor, your out-of-pocket expenses go up.
Most people sign up for Original Medicare during their initial enrollment period. This is the 7-month period that starts 3 months before the month of your 65th birthday and ends 3 months after.
OK, how about Part A specifically? This is Medicare’s program for illness or injury serious enough to need care in a hospital or other health care facility. Generally, Part A covers:
- A hospital stay that a doctor says is needed
- A stay in a skilled nursing facility or nursing home when that care is short-term, ordered by a doctor, and follows a hospital stay
- Home health care for services your doctor orders, like physical, occupational, and speech therapies
- Hospice care when doctors certify that you're expected to die within 6 months
Most people can get Part A without paying a premium. If you or your spouse paid Medicare taxes for at least 10 years, you qualify for no-premium coverage. You also qualify if you get retirement benefits from Social Security or the Railroad Retirement Board.
If not, you can buy coverage. Your premium amount varies, depending on how long you paid Medicare taxes while you worked. You'll also pay a deductible. After that, you're responsible for a share of costs (this is called coinsurance).
While Part A is meant for inpatient care, don't make the mistake of thinking that it will pay for assisted-living care or long-term care that wasn't ordered by your doctor.
“Part A is not going to cover your long-term care costs unless they are really medically necessary,” says Julia Friedman, a consulting actuary with Milliman in Brookfield, WI. So you might also investigate private long-term-care insurance.
Part B: Medical Services
Part B is Medicare’s coverage for doctor visits, tests, and other outpatient services. It covers medically necessary services and some preventive ones, like checkups. It also may pay for:
- Participation in a clinical research study
- Ambulance rides (including some nonemergency trips)
- "Durable" medical equipment like walkers or oxygen tanks
- Mental health services
- Certain prescription drugs that are usually given by a doctor or at a hospital
With Part B, you pay:
- A premium that can increase with your income
- A deductible
- Typically, 20% of the costs for each medical service (as coinsurance)
This raises an important point: Original Medicare may be run by the government, but that doesn’t mean it’s free to you.
“Medicare is often better coverage than you had from private insurance before age 65, but it is not free these days. Even people of modest means incur costs,” says Lina Walker, PhD, vice president of health security at the AARP’s Public Policy Institute.
Also, keep in mind that parts A and B don’t cover most dental care, eye exams, hearing aids or exams to fit them, cosmetic surgery, acupuncture, or routine foot care. Parts A and B also don’t cover most prescription drugs. You need to enroll in a Part D or Medicare Advantage plan for that.
Part C: Medicare Advantage
If you want extra services like those -- and are willing to pay more to get them -- Part C, or a Medicare Advantage plan, may be for you.
These plans are basically another way to get your Medicare benefits. They're sold by private insurance companies that are approved by Medicare.
The plans must at least offer you the same benefits as Part A and Part B. The private insurers then add extra services. In addition to vision, dental, and hearing services, these sometimes include things like:
- A wellness program
- Adult day-care services
- Transportation to doctor visits
Most also offer the prescription drug coverage you'd otherwise get through Medicare Part D (more on that later).
With Part C, the government pays the insurance company a fixed amount per month for your care. But the company sets your out-of-pocket costs. You also deal with deductibles and coinsurance, just as you did with your employer’s insurance.
Some Medicare Advantage plans also charge monthly premiums. If you enroll in one of these, you may pay that on top of your Part B premium. Some plans, though, cover all or part of your Part B premiums. You might hear this called the "give-back benefit."
A few other things to remember about Medicare Advantage plans:
- You can choose among several types: Health maintenance organizations (HMOs), preferred provider organizations (PPOs), private fee-for-service (PFFS) plans, and special needs plans (SNPs). Each operates a bit differently.
- You may need a referral to see a specialist, or preauthorization for certain services.
- Medicare Advantage plans generally have smaller networks of doctors and hospitals than Original Medicare does. And people in rural areas may have fewer plans to choose from, Friedman says.
- Your Medicare Advantage insurer can make changes to your out-of-pocket fees as often as once a year.
- You can’t enroll in Medicare Advantage and buy a private Medicare supplement (Medigap) plan at the same time.
Part D: Prescription Drugs
Maybe you don't want to sign up for a Medicare Advantage plan, or the plans in your area don't offer the kind of drug coverage you need. You’ve got one more option to explore: a private insurance company’s Part D plan.
All Part D plans must offer a range of prescription drugs that people with Medicare often take, plus more specialized medications like cancer drugs and insulin. Each Part D plan publishes a list of its covered drugs, called a formulary. In each formulary, drugs are organized into different levels with varying costs.
Bear these points in mind about Part D plans:
- You must have Part A and Part B coverage to enroll in one.
- Drug coverage is optional. But if you don't sign up for Part D when you first enroll in Medicare, you may pay penalties for joining later on.
- If you get drug coverage through your Medicare Advantage plan, you don't need a separate Part D plan.
Medicare Supplement Plans (Medigap)
Medigap, or Medicare supplement, plans are extra insurance to pay for all or part of the deductibles, coinsurance, and copayments you have with Original Medicare. You buy them from private insurance companies.
There are 10 Medigap plans, which vary in what and how much they cover. Each is identified by a letter: A, B, C, D, F, G, K, L, M, and N. They're standardized, which means a Plan A offered by one company has the same benefits as a Plan A sold by another one. Your premiums may differ, though. To find out what benefits are offered under each plan, go to the Medicare website.
Each insurance company decides which Medigap plans it wants to sell, although some states’ laws require them to offer certain plans there.
A few things to know about Medigap plans:
- You'll still pay your Part B premiums, along with your Medigap premiums.
- Each policy covers just one person. Your spouse will need a separate one if you both want coverage.
- Those sold to people who are newly eligible for Medicare don't cover Part B deductibles. New enrollees haven't been allowed to buy C or F Medigap plans since Jan. 1, 2020.
- The best time to buy one is when you're first eligible. You'll likely face fewer choices and higher prices if you try to get one later on.
Where you live affects how easy it is to decide on a Medigap plan, says Casey Schwarz, JD, senior counsel for education & federal policy at the Medicare Rights Center.
“States like New York and Connecticut have pretty open Medigap rates. It’s easier to decide whether you need to keep money on hand for deductibles and copays,” she says. “But if you live in New Hampshire or Virginia, you have very limited opportunities to buy Medigap if you don’t buy when you are first eligible.”