Understanding Medicare: The Basics for Seniors
Medicare is a federal health insurance program primarily for people age 65 and older. Created in 1965, it covers roughly 67 million Americans as of 2024. The program works by helping pay for hospital stays, doctor visits, prescription medications, and other medical services. However, Medicare does not cover everything, and understanding what it does cover is the first step in planning your healthcare.
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The program has different parts, each covering different services. Medicare Part A covers inpatient hospital care, including hospital stays, skilled nursing facility care, hospice care, and some home health services. Medicare Part B covers outpatient services like doctor visits, preventive care, and medical equipment. Medicare Part D covers prescription drug costs. Medicare Part C, also called Medicare Advantage, is an alternative way to receive Parts A and B through private insurance companies.
When you turn 65, you enter what Medicare calls your "Initial Enrollment Period." This period lasts seven months and begins three months before the month you turn 65. During this time, you can sign up for Medicare coverage. If you delay signing up without a valid reason, you may face penalties that increase your monthly premiums permanently. For example, if you do not sign up for Part B when first eligible, your premium may increase by 10% for each year you were not enrolled.
It is important to know that Original Medicare—which includes Part A and Part B—requires you to pay certain out-of-pocket costs. These include deductibles (the amount you pay before Medicare starts paying), coinsurance (a percentage of costs you pay), and copayments (a set amount you pay for specific services). In 2024, the Part B deductible is $240 per year. Understanding these costs helps you plan your healthcare budget.
Practical Takeaway: Start learning about Medicare at least three months before you turn 65. Knowing the difference between Part A, Part B, Part C, and Part D will help you make informed decisions about your coverage. Visit Medicare.gov or call 1-800-MEDICARE to request educational materials about how each part works.
Medicare Part A and Part B: What They Cover and What They Don't
Medicare Part A covers hospital insurance and is typically provided automatically to people age 65 and older who paid Medicare taxes during their working years. Most seniors do not pay a monthly premium for Part A. However, Part A does have out-of-pocket costs. In 2024, if you are admitted to the hospital, you pay an inpatient hospital deductible of $1,632 for each benefit period. A benefit period begins when you are admitted to the hospital and ends after you have not received inpatient care for 60 consecutive days.
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Part A covers the full cost of hospital stays for the first 60 days of each benefit period. Days 61 through 90 require you to pay coinsurance of $408 per day. If you stay longer than 90 days, you can use "lifetime reserve days"—60 additional days available throughout your lifetime—but you will pay $816 per day in coinsurance. After 90 days plus all lifetime reserve days, you pay 100% of hospital costs.
Skilled nursing facility care is covered by Part A only after a qualifying hospital stay of at least three consecutive days. Part A covers up to 100 days per benefit period. The first 20 days are covered in full. Days 21 through 100 require you to pay coinsurance of $204 per day in 2024. Part A also covers hospice care for people with terminal illness and some home health services, including part-time or intermittent nursing care, physical therapy, occupational therapy, and speech-language pathology services.
Medicare Part B is medical insurance that covers doctor services, outpatient hospital care, medical equipment, and preventive services. Most people pay a monthly premium for Part B, which in 2024 ranges from $174.70 to $610.50 per month depending on income level. Part B has an annual deductible of $240 in 2024, which you must pay before Medicare begins to pay for services. After you meet the deductible, you typically pay 20% of the Medicare-approved amount for most services, and Medicare pays 80%.
Important services Part B covers include annual wellness visits with your doctor, preventive screenings (like mammograms, colonoscopies, and cardiovascular screenings), doctor office visits for illness or injury, lab tests and X-rays, surgery and anesthesia, mental health services including therapy and psychiatric care, and physical therapy and occupational therapy. However, Part B does not cover dental care, vision care, hearing aids, or routine foot care.
Practical Takeaway: Track your out-of-pocket costs throughout the year, including your deductible and coinsurance payments. Consider the type of healthcare services you expect to need and calculate potential costs. For people who use frequent medical services, supplemental insurance (also called Medigap) can help cover costs that Original Medicare does not pay. Request the "Medicare & You" handbook from Medicare to see detailed charts of what is and is not covered.
Prescription Drug Coverage: Medicare Part D
Medicare Part D is prescription drug coverage offered through private insurance companies approved by Medicare. This coverage is optional, but if you do not sign up when first eligible and later decide you want it, you may face a permanent penalty. The penalty is 1% of the national average premium for each month you were not covered. In 2024, this amounts to approximately $4.15 per month in additional premium costs for each month you delayed enrollment.
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Part D has its own enrollment period. Your Initial Enrollment Period for Part D runs concurrent with your Medicare Part B enrollment period—seven months centered on your 65th birthday. If you miss this window, you can enroll during the Annual Enrollment Period (October 15 through December 7 each year), but penalties may apply if there was a gap in coverage.
Part D plans work in stages throughout the calendar year. First, you pay your monthly premium. Next, you pay out-of-pocket costs until you reach your plan's deductible, which can range from $0 to $545 in 2024 depending on the plan. After meeting the deductible, you typically pay 25% of prescription drug costs during what is called the "initial coverage period." Once you and your plan have spent a combined $5,850 in 2024, you enter the "coverage gap," sometimes called the "donut hole." In the coverage gap, you pay a higher percentage of drug costs—25% for most brand-name drugs and generic drugs—until your out-of-pocket costs reach $8,550. After you spend $8,of-pocket, you pay the lower "catastrophic coverage" amount for the remainder of the year.
Different Part D plans cover different medications. Each plan has a formulary, which is a list of covered drugs. When comparing plans, review whether your current medications are covered. Some medications may require prior authorization, meaning your doctor must request permission from the insurance company before the drug will be covered. Others may have quantity limits or step therapy, meaning you must try a less expensive medication first.
The cost of Part D premiums and coverage varies significantly by plan and location. In 2024, average Part D premiums range from about $35 to over $100 per month. Some people with limited income may receive subsidies that help pay Part D premiums and out-of-pocket costs. These subsidies are called Low-Income Subsidies or "Extra Help."
Practical Takeaway: Before your 65th birthday, list all medications you currently take, including the name, dosage, and frequency. Review multiple Part D plans during the Annual Enrollment Period using the Medicare Plan Finder tool at Medicare.gov. Compare the total estimated cost of your medications under each plan, including premiums, deductibles, and coinsurance. If your medications are expensive or your income is limited, investigate whether you qualify for Extra Help with Part D costs.
Medicare Advantage Plans (Part C): An Alternative to Original Medicare
Medicare Advantage, also called Part C, is an alternative way to receive your Medicare Part A and Part B coverage. Instead of going through Original Medicare directly, you join a private insurance plan approved by Medicare. These plans must cover everything that Original Medicare covers, but they may offer additional benefits and different cost structures. Approximately 28 million people, or about 42% of Medicare beneficiaries, were enrolled in Medicare Advantage plans as of 2024.