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Medicare is a federal health insurance program for people ages 65 and older that helps participants pay for services such as hospitalizations, physician visits, preventive screenings, skilled nursing facilities and hospice care. It also covers some younger people with disabilities.
How Does Medicare Work?
There are two primary ways to get Medicare coverage — Original Medicare (Part A and Part B) or a Medicare Advantage plan (Part C). You may also need other coverage, including Medicare prescription Part D or supplement insurance.
In 2019, 64 million people nationwide were enrolled in some form of Medicare. A majority received Original Medicare, but about 34 percent — or 23 million — were enrolled in Medicare Advantage plans. Original Medicare is administered by the U.S. Centers for Medicare & Medicaid Services, while Medicare Advantage is fulfilled through private insurance companies that have been pre-approved by the federal government.
- In 2019, 64 million people nationwide were enrolled in some form of Medicare.
- Medicare is a federal health insurance program for people aged 65 years and older as well as some people with disabilities.
- The program was created in 1965.
- People become eligible for Medicare around their 65th birthday.
- People can either enroll in Original Medicare (Part A and Part B) or Medicare Advantage (Part C).
- Resources exist for low-income recipients who may struggle to pay for Medicare.
- Medigap is supplement insurance that helps pay for medical services that Medicare does not cover.
Becoming Eligible for Medicare
Most Americans become eligible for Medicare as they approach retirement and their 65th birthday. Information from the U.S. Centers for Medicare & Medicaid Services begins arriving in the mail, and decisions need to be made within a certain time frame to avoid costly penalties.
If you are already receiving Social Security benefits when you turn 65, the government automatically enrolls you in both Medicare Part A and Part B. So, if you’re already claiming Social Security, enrollment might be as simple as opening your mail and placing your new Medicare card in your wallet. Your Medicare card should arrive three months prior to your 65th birthday.
Your Medicare coverage will begin on the first day of the month you were born. For example, if your birthday is August 12, your coverage begins Aug. 1.
If you aren’t collecting Social Security at age 65, you have a seven-month window to enroll in Medicare. This window opens three months before you turn 65 and closes three months after the last day of your birth month. It’s important to act quickly, or you could face delays and penalties, according to Medicare.gov.
Some people choose not to enroll in Part B coverage from Medicare when they turn 65 because they still receive insurance through their current employer or their spouse’s current employer. You can choose to remain on your current insurance for as long as you or your spouse receives employer sponsored benefits. When you eventually retire, you will have an eight-month enrollment period during which you may sign up for Part B without incurring a late penalty.
If you’re covered by your employer’s group health plan but will be aging into Medicare soon, speak with your Human Resources department about your transition to avoid mistakes and unnecessary costs.
People are also automatically enrolled in Medicare after receiving disability benefits for two years. Patients with end stage renal disease or amyotrophic lateral sclerosis (also known as ALS and Lou Gehrig’s disease) are eligible for Medicare without having collected disability for 24 months.
What Do Medicare Part A and B Cover?
Whether you opt for Original Medicare or Medicare is a personal decision, and some plans may better suit your health care cost needs than others, so it always pays to do your research.
Part A Coverage
Most people are automatically enrolled in Part A coverage around their 65th birthday.
Part A provides coverage for hospital stays and some skilled nursing care after a hospitalization.
Part A pays for a majority of your expenses in the first 60 days of hospitalization, but you must still pay your deductible. You are also responsible for a per-day coinsurance cost if you are in the hospital for more than 60 days.
- Inpatient hospital care
- Skilled nursing facility care
- Inpatient care in a skilled nursing facility (not custodial or long-term care)
- Hospice care
- Home health care
How Much Does Part A Cost?
You don’t pay a monthly fee, or premium, for Plan A coverage. That’s because you paid into Medicare during your entire working career via payroll deduction taxes.
However, there is a $1,364 deductible for each benefit period as of 2020. You must pay this amount from your own pocket before Medicare picks up the rest of the bill.
Costs for home health care services are covered under Medicare Part A for a limited time under certain conditions. All costs are covered for hospice care.
Certain Medicare supplement insurance policies can reduce your Plan A deductible.
Part B Coverage
Medicare Part B covers services such as your doctor visits and outpatient services.
- Doctor visits
- Lab tests
- Diagnostic screenings
- Medical equipment
- Ambulance transportation
- Mental health
- Partial hospitalization
You pay nothing for most preventative services, including yearly wellness visits and a variety of screenings for conditions such as cancer and heart disease. Review the Medicare Preventative Services page on the Medicare website for a full list of covered prevention services.
Some people automatically get Medicare Part B when they receive Part A, but you may not. If that’s the case, you will need to sign up when you first become eligible, or you may face a late enrollment penalty.
How Much Does Part B Cost?
Three major costs are associated with Part B coverage.
- Deductible. As of 2019, enrollees pay $185 out of their pocket each year before insurance covers costs.
- Coinsurance. After paying your $185 deductible, you will be responsible for 20 percent of most doctor services and outpatient therapy.
- Monthly premium. You will pay a premium of $135.50 each month if you make less than $85,000 annually. If you make more than $85,000, your monthly premium increases.
Even if you choose to enroll in a Medicare Advantage plan, you must still pay the Plan B premium in addition to the premium of your Advantage plan.
You can expect to pay about $300 a month for Medicare Part A and B, a supplement plan and a Part D drug plan. This can provide broad coverage and a low deductible with no copays or coinsurance.
What Medicare Doesn’t Cover
The biggest potential expense not covered by Medicare is long-term care, or custodial care. This includes help with everyday activities like bathing, dressing, using the toilet, eating and moving around. It can also include services like meals, adult day care and transportation.
If you think you may need long-term care, consider a separate long-term care insurance policy.
- Prescription drugs (You must purchase a separate Plan D policy for drug coverage.)
- Long-term care
- Deductibles and copayments
- Most dental care
- Routine vision care
- Hearing aids
- Medical care outside the United States
Supplemental Insurance for Medicare
Original Medicare at its best still suffers coverage gaps or deductibles the average recipient may struggle to afford. Some common services, such as dental care, glasses and hearing aids, aren’t covered at all.
The possibility of higher costs is why some people opt to purchase a supplemental plan called Medigap. There are 10 types of supplement insurance plans to choose from, and each is designated by a letter.
As of 2015, 25 percent of Original Medicare beneficiaries are enrolled in a Medigap supplement, according to the Kaiser Family Foundation, a nonprofit organization focused on health issues.
Supplement insurance is private insurance that bridges Medicare coverage gaps. It can help cover copays, coinsurance, deductibles and extended hospital visits. Some plans also cover health care costs outside the United States.
Medigap plans are standardized, and the basic benefit structure for each plan is the same, no matter which private insurance company provides the coverage.
You pay the private insurance company premium for your Medigap policy. You pay this in addition to the monthly Part B premium that you pay to Medicare.
You should pick a supplement insurance within six months of enrolling in Plan B coverage. This is when you’re eligible for Guaranteed Issue, or the best price for a Medigap policy. After that six-month window, you will need to undergo a medical exam to see if you qualify. At that time, there is no guarantee that you’ll be able to get coverage. Furthermore, your rates might be higher.
Big changes in Medigap coverage took place in 2019. Plan F, the most popular of the 10 supplement insurance options, will no longer be available for new Medicare enrollees after Jan. 1, 2020. Those who are already enrolled in Plan F will be grandfathered in and can continue to use that plan.
Plan G is likely to become the new most-popular supplement insurance option because it shares the same basic benefits as Plan F — except it does not cover Part B’s deductible.
Open Enrollment and How It Works
You don’t need to sign up for Medicare each year. However, each year you get the opportunity to review your coverage and change plans.
Open enrollment runs from Oct. 15 through Dec. 7. This time is also known as the annual election period.
During open enrollment, you can switch from Original Medicare to Medicare Advantage (and vice versa), switch to a new supplement insurance policy or a different Part D drug plan.
You can review your options on the Medicare website. Your new health plan decision becomes effective Jan. 1.
If you are thinking about switching plans, first be familiar with your current coverage. You can check your ID card if you are unsure of which plan you have.
What Does Medicare Advantage (Part C) Cover?
Medicare Advantage bundles aspects of Original Medicare Part A and B along with — usually — Part D drug coverage. Instead of managing all three plans, a private insurance company provides you with a single plan. Some offer other coverage, such as vision, hearing and dental. As of 2019, Advantage plans can also include a broader range of benefits, including home health aides, medical transportation and food delivery after hospital stays.
Since the 1990s, private plans have played an increasingly large role in the Medicare program. Advantage plans now account for over 30 percent of the entire Medicare market, or 22 million Americans. The Congressional Budget Office expects the number of beneficiaries enrolled in Medicare Advantage to rise to about 47 percent by 2029.
While Original Medicare is completely administered through the government, Medicare Advantage involves private insurance companies approved by Medicare. The private carrier receives payments from the Medicare program to cover your costs. This private option was formalized in 1997 as Medicare Plus Choice and was renamed Medicare Advantage in 2003.
Unlike Original Medicare, Medicare Advantage plans have an annual limit on out-of-pocket costs. In 2020, that limit is no more than $6,700 a year — not including prescription drug costs.
Supporters of the program claim that health maintenance organizations (HMOs) and other private insurance approaches can reduce government cost, increase choice and offer benefits beyond those provided by traditional Medicare.
But Medicare Advantage has its drawbacks.
First, you must use doctors and hospitals within your Medicare Advantage plan network. Seeing a physician or specialist who does not accept your specific Advantage plan will cost you.
Hundreds of different Advantage plans can exist within a single state. Florida, for example, has 474 such plans, according to The Tampa Bay Times.
Original Medicare does not have these networks. You can see a doctor anywhere in the country and still pay 20 percent of your visit through standard Part B coverage.
Medicare Advantage is not ideal or realistic for frequent travelers or retirees who split time between two states. However, according to journalist Philip Moeller of PBS News Hour, more Advantage insurers are offering dual market coverage and other “expanded geographic coverage options.”
Many things can change within Medicare Advantage plans from year to year. It’s important to review these changes and make sure your prescriptions are still covered and your current physician has remained in network.
Medicare Advantage can’t be combined with a Medigap supplement insurance plan. You must pick one or the other.
How Much Does Part C Cost?
Services and fees charged by private insurers for Medicare Advantage plans vary widely.
Many Advantage policies are advertised as “no premium” plans, but this isn’t exactly accurate. You must still pay your monthly Part B premium in addition to any monthly fees associated with an Advantage plan.
More than half of people enrolled in an Advantage plan that provides drug coverage don’t pay a premium other than their Medicare Part B premium. The average Medicare Advantage monthly premium is expected to be roughly $23 in 2020.
Pay attention to the benefits offered when selecting an Advantage plan. Just because it has a $0 or low-cost premium doesn’t mean it’s a good deal that provides you with the kind of coverage you need.
Medicare Part D Prescription Drug Coverage and Cost
Part D covers prescription drugs. Nearly 45 million Medicare beneficiaries are enrolled in Part D plans, according to the Kaiser Family Foundation.
If you’re enrolled in Original Medicare, you must purchase Part D coverage separately to cover prescription drug costs. Many Medicare Advantage plans include some Part D coverage.
Part D coverage is provided by select private insurance companies, which Medicare later reimburses.
Medicare Part D costs vary depending on your medications, your plan and your pharmacy. Average premiums among the 10 most popular Part D plans ranged from $28 a month to $76 a month. High-income households pay more for Part D coverage.
Your Plan D coverage may also include a deductible or copayment cost.
It’s important to maintain continuous drug coverage from the time you’re first eligible in order to avoid higher fees when you ultimately enroll or re-enroll.
Talk to your doctor if your drug costs are higher than they were last year. There may be a less expensive drug available, and knowing your options could save out-of-pocket expenses throughout the year.
Find Out if Medicare Covers Your Needs
Medicare’s Plan Finder tool has been modernized and redesigned for 2020. It’s the biggest update in a decade to the online resource, and it allows users to compare prices for Original Medicare, Medicare Advantage, Part D and supplemental plans side-by-side. You can also create a personal drug list and find Medicare Part D prescription plans that provide the best coverage.
Talk to your doctor about why you need specific tests, medications and treatments and whether Medicare will cover them.
If you need additional help navigating the open enrollment process, Medicare.gov offers an online chat feature and a 24-hour hotline at 800-MEDICARE (800-633-4227).
Additional Help and Resources
You can get unbiased Medicare advice from the State Health Insurance Assistance Program (SHIP). SHIP provides free help to Medicare beneficiaries who have questions or concerns. You can call a volunteer counselor or attend a presentation in your area.
SHIP may go by a different name depending on where you live. For example, in Florida it’s called SHINE, which stands for Serving Health Insurance Needs of Elders. The Seniors Resource Guide offers more information about the program in each state.
Medicare’s Extra Help program assists people with limited income and assets by reducing out-of-pocket costs for a Part D drug plan or a Medicare Advantage plan that covers medications.
To qualify, a single person must have combined savings, investments and real estate totaling less than $13,820. For married couples, the limit is $27,600.
To see if you qualify, contact the Social Security Administration at 800-772-1213 or apply online at socialsecurity.gov.
The federal government also offers Medicare Savings Programs — called QI, QMB and SLMB — for low-income people. The lower your income, the more you stand to gain. These programs may also pay Medicare Part A and Part B deductibles, coinsurance and copayments if you meet certain conditions. Visit the Medicare.gov website to see if you qualify.
Medicare may not cover things such as dental, vision and hearing care even if you have a supplemental Medigap policy. The National Council on Aging has created a guide to help people find low-cost or free health care resources for these expenses. These low-cost alternatives to medical care are offered by national and community nonprofits, professional associations and educational institutions.
16 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Boccuti, C. et al. (2018, July). Medigap Enrollment and Consumer Protections Vary Across States. Retrieved from http://files.kff.org/attachment/Issue-Brief-Medigap-Enrollment-and-Consumer-Protections-Vary-Across-States
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