What is Medicare?
A Primer for a Complicated System
Medicare is the federal government’s health insurance program that primarily covers people 65 and older. Original Medicare plans do not cover all medical costs, but you can buy other plans that help offset those expenses, including Medicare Advantage plans and Medicare Supplement Insurance (Medigap).
The United States created Medicare in 1966 as a national health insurance primarily for the nation’s older population. Today, it is administered by the Centers for Medicare and Medicaid Services (CMS). It is the second largest social insurance program in the country, behind Social Security.
Medicare covered 59.9 million Americans and spent $741 billion on their health care in 2018, according to CMS. But people on Medicare still faced out-of-pocket expenses because Parts A and B — known collectively as Original Medicare — don’t cover all medical costs.
Private companies contract with CMS to sell Medicare Advantage plans, also known as Medicare Part C. These can cover many medical expenses that original Medicare doesn’t cover, including vision and dental.
Medicare Supplement Insurance, or Medigap, helps offset coverage gaps of Original Medicare. These policies are sold by private companies.
Understanding Medicare Coverage Plans
Medicare is divided into four parts, named alphabetically from Part A through Part D. Parts A and B are sometimes referred to as Original Medicare. Parts C and D are newer options. Generally, you can get coverage through Original Medicare or through Medicare Advantage plans if you qualify.
Medicare Part A
Medicare Part A is hospital insurance. It covers the costs of a hospital or nursing facility stay, but does not cover long-term care.
What does Medicare Part A cover?
- Inpatient care in a hospital
- Inpatient care in a skilled nursing facility
- Home health care
- Hospice care
Part A does not cover the costs of treatments you receive while in the hospital. That falls under Part B.
Medicare Part B
Medicare Part B is medical insurance that covers doctor visits. It also covers the costs of what CMS calls medically necessary services and preventative services.
- Medically necessary services include those supplies, tests or other services to diagnose and treat your medical condition.
- Preventative services include health care required to detect and treat a condition early on.
Medicare Part C
Medicare Part C is also called Medicare Advantage, a form of private insurance. Enrollment in Part C is voluntary. These plans are sold through insurance firms that have contracted with the federal government. All Medicare Advantage plans must provide the same coverage as Medicare Part A and Part B, but other benefits vary from plan to plan. Most Medicare Advantage plans also offer prescription drug coverage. Medicare Advantage plans may also bundle coverage beyond what original Medicare plans cover and may include vision, hearing and dental coverage.
Medicare Part D
Medicare Part D covers the cost of prescription drugs and is provided through private insurers. People who enroll in Part D pay a monthly premium. It covers the prescription drugs you buy at your local or mail-order pharmacy. Most states have more than two dozen private insurers to choose from for Part D coverage.
Who Is Eligible for Medicare?
Not everyone qualifies for Medicare Parts A and B. Still, others may be able to get it if they pay premiums.
Requirements to qualify for full Medicare benefits at age 65 or older:
- Must be a United States citizen or a permanent legal resident who has lived in the U.S. for at least five years.
- You or your spouse has worked long enough (usually 10 years) to qualify for Social Security or railroad benefits.
- You or your spouse is a government employee or retiree who never paid into Social Security but did pay Medicare payroll taxes.
If you or your spouse didn’t pay Medicare taxes while working but are a U.S. citizen or legal permanent resident and 65 or older, you may be eligible to buy Medicare Part A coverage. You can also qualify for Medicare if you are under 65 and require dialysis or are a kidney transplant patient. People younger than 65 diagnosed with Lou Gehrig’s disease (ALS) also qualify the first month after they receive disability benefits.
Find out if you are eligible for Medicare and how much your expected premium would cost with the Medicare.gov Eligibility Tool.
How to Apply for Medicare
If you are already receiving Social Security benefits when you turn 65, you’ll automatically be enrolled in Medicare Part A and B, if you are eligible.
Three Ways to Enroll in Medicare
Online at the Social Security website. It takes less than 10 minutes, according to the Social Security Administration.
- Online at the Social Security website. It takes less than 10 minutes, according to the Social Security Administration.
- Call toll free to 1-800-772-1213 from 7 a.m. to 7 p.m., Monday through Friday. Deaf and partially deaf people can call TTY 1-800-325-0778.
- In person at your local Social Security office, but you are required to call first to make an appointment.
TIP: You should sign up during your 65th birthday month or sometime in the three months before or after your birthday month. If you miss this window, you may face permanent financial penalties.
Source: U.S. Centers for Medicare & Medicaid Services
Medicare Costs and Fees
There are costs and fees associated with Medicare. These include premiums, deductibles and coinsurance. You may also pay penalties for waiting to enroll in Medicare Part B. Most people don’t have to pay a premium for Medicare Part A because they paid for it through years of payroll taxes while they worked.
Definitions to know include:
Premium: Your monthly payment in exchange for coverage.
Deductible: The amount you have to pay for medical care or prescriptions before Medicare Part A, Part B, Part D or your Medicare Advantage plan starts to pay.
Coinsurance: A cost you may be required to pay for your share of medical services after paying any deductibles. It’s usually measured as a percentage of the bill.
Lifetime Reserve Day: Additional days Medicare pays for when you are in a hospital for more than 90 days. You have 60 of these for your entire lifetime. Medicare pays all covered costs, except coinsurance, for each of these days you use.
Out-of-Pocket Medicare Costs in 2020:
Part A Premium
- Most people pay no premium
- $458/month (in 2020) if you buy Part A coverage
- $458/month if you worked and paid Medicare taxes for fewer than 30 quarters (7.5 years)
- $252/month if you worked and paid Medicare taxes for 30 to 39 quarters (7.5 to 9.75 years)
Part A Hospital Inpatient Deductible and Coinsurance
- $1,408 deductible per year
- $0 coinsurance for first 60 days you’re hospitalized
- $352 coinsurance for days 61 to 90 of your hospitalization
- $704/day coinsurance per each lifetime-reserve day after day 90 in the hospital
- All costs for anything beyond all remaining lifetime-reserve days (you have 60)
Part B Premium
- $144.60 – It may be higher if you have a higher income
Part B Deductible and Coinsurance
- $198 deductible
- 20 percent of all costs after your deductible is met
Part C Premium
- Monthly premiums vary by plan
Part D Premium
- Monthly premiums vary by plan
- People with higher incomes pay higher premiums
What Medicare Does Not Cover
Medicare Parts A and B do not cover everything, but some Medicare Advantage plans may fill in the gaps. If there are specific services you want covered, you should consider that when purchasing a Part C plan.
Services and Items Not Covered by Medicare Parts A and B
- Long-term (custodial) care
- Most Dental Care
- Routine eye exams for prescription lenses
- Cosmetic surgery
- Hearing aids and hearing aid exams
- Routine foot care
The most expensive thing Medicare Parts A and B does not cover is long-term care. Medicaid, another federal health insurance, will sometimes cover these costs, but generally only for low-income Americans with little or no savings.
Frequently Asked Questions About Medicare
Some of the most frequently asked questions about Medicare are about basic services and costs. Here are the most frequently asked questions and some answers.
How do I get a Medicare card?
If you are automatically enrolled because you are already drawing Social Security benefits, you will receive your card three months before your 65th birthday or your 25th month of drawing disability benefits. If you enroll online, by phone or at your local Social Security office, you’ll receive your card in the mail.
Does Medicare cover dental and vision?
Original Medicare, Parts A and B, do not cover dental and vision. But a Medicare Advantage plan (Part C) may cover them. You should ask about the coverage your Part C plan offers before you purchase it.
What is the difference between Medicare and Medicaid?
Both Medicare and Medicaid are administered by the same federal agency, the Centers for Medicare and Medicaid Services. Medicare is a federal health insurance program for people 65 and older, or younger than 65 if they have a disability. Medicaid is a joint state and federal program that provides health insurance coverage to people with very low incomes.