Medicare: What It Covers, How It Works, and How to Enroll

Medicare is a federal health insurance program for people 65 and older and certain younger individuals with disabilities. It includes several parts-A, B, C, and D-each offering different types of coverage. Understanding how Medicare works, the enrollment process, and what it does and doesn’t cover can help you make informed decisions about your health care and avoid penalties.

What Is Medicare and Who Is Eligible?

Medicare is a U.S. government-run health insurance program designed primarily for people age 65 or older. It also covers younger people with certain disabilities or those with End-Stage Renal Disease (ESRD). Administered by the Centers for Medicare & Medicaid Services (CMS), Medicare helps millions afford medical services that might otherwise be out of reach.
To qualify for Medicare, you generally need to be a U.S. citizen or legal resident who has lived in the country for at least five continuous years. Most people are automatically enrolled at 65 if they’re receiving Social Security benefits. If not, you must apply during your Initial Enrollment Period, which begins three months before your 65th birthday.

The Four Parts of Medicare Explained

Medicare is divided into four parts, each with a specific role in covering your healthcare needs:
Part A – Hospital Insurance
Part A helps pay for inpatient care in hospitals, skilled nursing facility care, hospice, and some home health care. Most people don’t pay a premium for Part A because they paid Medicare taxes during their working years.
Part B – Medical Insurance
Part B covers doctor visits, outpatient care, medical supplies, and preventive services. Unlike Part A, Part B requires a monthly premium. The cost may be higher for those with higher incomes.
Part C – Medicare Advantage Plans
Part C is an alternative to Original Medicare offered by private insurance companies approved by Medicare. These plans often include coverage for services not found in Parts A and B, such as vision, dental, and prescription drugs.
Part D – Prescription Drug Coverage
Part D adds prescription drug coverage and is available through private insurers. Like Part B, Part D has a monthly premium and may include deductibles and copayments.

What Medicare Covers (And What It Doesn’t)

Medicare covers a wide range of medical services but doesn’t pay for everything. Understanding what’s included-and what isn’t-is crucial for avoiding surprises.
What Medicare Covers:

• Hospital stays
• Doctor visits and outpatient care
• Preventive services like screenings and vaccines
• Lab tests and X-rays
• Durable medical equipment (like wheelchairs)

What Medicare Doesn’t Cover:

• Long-term custodial care
• Routine dental, vision, and hearing care
• Cosmetic surgery
• Most prescription drugs (unless you have Part D)
• Care outside the U.S. (except in very limited cases)

For items not covered, many people purchase supplemental insurance, also known as Medigap, to fill in the gaps.

How to Enroll in Medicare

The enrollment process varies depending on your situation. If you're already receiving Social Security or Railroad Retirement Board benefits at 65, you’ll be enrolled in Parts A and B automatically. Otherwise, you’ll need to sign up during one of these periods:
Initial Enrollment Period (IEP):
Begins three months before the month you turn 65 and ends three months after. This is the best time to sign up to avoid penalties.
General Enrollment Period:
Runs from January 1 to March 31 each year for those who missed their IEP. Coverage starts July 1, and late enrollment penalties may apply.
Special Enrollment Periods (SEPs):
These are available if you lose employer coverage or have other specific life events. You can enroll without penalties during an SEP.

What Is a Medicare Advantage Plan?

Medicare Advantage (Part C) plans combine Parts A and B and often Part D into one plan. These are offered by private insurance companies and may include additional benefits like gym memberships or over-the-counter allowances.
These plans typically use provider networks, which means you may need to choose doctors and hospitals within the plan’s network. Medicare Advantage plans often have lower out-of-pocket costs than Original Medicare, but they may require referrals or limit your coverage outside the plan’s network.

Costs Associated With Medicare

Medicare isn’t free. Understanding the different costs can help you budget for care more effectively.
Premiums:

• Part A: Usually free if you worked 10+ years
• Part B: $174.70 per month (in 2024), higher if your income exceeds thresholds
• Part D: Varies by plan and income

Deductibles and Copayments:
You’ll also pay deductibles and coinsurance. For example, in 2024, the Part A hospital deductible is $1,632 per benefit period, and Part B has a $240 annual deductible.
Out-of-Pocket Maximums:
Original Medicare doesn’t have an out-of-pocket max, but Medicare Advantage plans are required to set a yearly limit on your costs, offering financial protection.

Medigap: What It Is and Why It Matters

Medigap is supplemental insurance designed to cover the costs not paid by Original Medicare, such as coinsurance, copayments, and deductibles. These plans are offered by private insurers and standardized into plans labeled A through N.
You must have both Part A and Part B to buy a Medigap policy. Unlike Medicare Advantage, Medigap works with Original Medicare and doesn’t include drug coverage-you’ll need a separate Part D plan.

Prescription Drug Coverage: Part D Plans

Part D is essential if you take medications regularly. Plans are offered by private companies and vary in terms of premiums, formularies, and pharmacies. It’s important to review your plan every year during open enrollment, as drug coverage can change.
Failure to enroll in Part D when first eligible may result in a lifetime penalty, unless you have other creditable drug coverage.

Medicare vs. Medicaid: Know the Difference

Medicare is not the same as Medicaid. Medicare is a federal program primarily for people 65 and older or those with disabilities. Medicaid, by contrast, is a state-run program that helps people with limited income and resources of any age. Some individuals qualify for both programs, known as "dual eligibles."

Common Medicare Myths

Myth 1: Medicare covers everything.
False. Many services, such as long-term care, dental, and vision, are not covered.
Myth 2: You’re automatically enrolled.
Only true if you’re already receiving Social Security benefits when you turn 65. Otherwise, you must apply.
Myth 3: Medicare is free.
Parts B and D have premiums, and most people pay out-of-pocket for uncovered services.

How to Avoid Late Enrollment Penalties

The best way to avoid late enrollment penalties is to enroll during your Initial Enrollment Period. Missing it without other creditable coverage can lead to lifelong penalties for Part B and Part D.
You may delay Part B without penalty if you're still working and have employer coverage. Once that ends, you get an 8-month Special Enrollment Period.

Choosing the Right Medicare Plan for You

Start by assessing your health needs, budget, and doctor preferences. Decide whether you prefer Original Medicare with a Medigap plan and Part D, or a bundled Medicare Advantage plan.
Use the official Medicare Plan Finder at medicare.gov to compare options based on your ZIP code, medications, and doctors.

Annual Open Enrollment: Make Changes If Needed

Each year, from October 15 to December 7, you can review and switch your Medicare coverage. This period is critical for updating your plan if your health needs or provider networks have changed.
There’s also a Medicare Advantage Open Enrollment Period from January 1 to March 31 for those already in a Medicare Advantage plan.

Take Charge of Your Medicare Coverage

Medicare is a vital safety net for millions of Americans, but it’s also a complex system with many moving parts. By understanding how Medicare works-what it covers, what it doesn’t, and how to enroll-you can make choices that fit your health and financial needs. Whether you’re nearing 65 or helping a loved one navigate their options, a little preparation goes a long way.