Seniors can experience a lot of changes as they approach their 65th birthday. One of these is becoming eligible for Medicare.
Medicare can be confusing for many older Americans — especially those used to receiving private health insurance through their employer. Moving to Medicare, including knowing when to sign up and which plan to sign up for, might seem like a challenge.
If you’re new to Medicare, there’s no need to stress! There are many resources available to help you navigate this transition and find the health coverage that fits your needs. Here’s an overview of the basics of Medicare to get you started.
What is Medicare?
Medicare is a federally regulated and federally run program that’s designed to offer affordable healthcare coverage to seniors and younger people who have certain disabilities. Most people become eligible for Medicare when they turn 65.
A portion of Medicare is funded by Social Security and Medicare taxes paid by individuals. If you worked in the United States for multiple years and paid taxes on your income, you may be eligible to receive Medicare Part A without paying a monthly premium. Other parts of Medicare typically include monthly premiums.
Medicare is for people over the age of 65 — if you don’t enroll in Medicare when you’re first eligible, you may be subject to late enrollment penalties. These penalties can increase the cost of your monthly premiums and may be permanent. Failing to enroll in Medicare right away could also leave you with gaps in your healthcare coverage. That’s why it’s important to start preparing for Medicare before your 65th birthday, so you can have the coverage you need when you need it.
What are the parts of Medicare?
Medicare is not one-size-fits-all health insurance. There are multiple parts to the Medicare program, each of which allows you to find and select the coverage to meet your needs.
The four main parts of Medicare are Parts A, B, C and D. You may have also heard of something called Medigap. While this type of insurance does not provide healthcare coverage on its own, it does supplement your Medicare coverage to help pay the costs for covered services.
Here’s what you need to know about the individual parts of Medicare.
Part A Medicare Part A — Hospital Coverage
Medicare Part A is hospital insurance. It includes coverage for inpatient hospital stays, skilled nursing care and some in-home or hospice care.
Medicare Part A is one half of what’s considered “Original Medicare” — the other half being Medicare Part B. Both Parts A and B are available after you turn 65 and are required for you to purchase Medigap insurance or enroll in a Medicare Advantage plan. Together, Medicare Part A and Medicare Part B are known as Original Medicare.
Part A provides coverage for:
- Inpatient care
- Skilled nursing facility care
- Hospice care
- Some home health care
Most people qualify for premium-free Part A because they’ve paid into Medicare throughout their working years. However, you are responsible for a Part A deductible, coinsurance and copayments for hospital services. If you don’t qualify for premium-free Part A, you can also buy Part A coverage — a licensed insurance agent can help guide you through that process.
Part B Medicare Part B — Medical Coverage
Medicare Part B is medical insurance. It covers outpatient healthcare services like doctor visits, outpatient medical procedures, surgeries, diagnostic lab tests and some durable medical equipment. Together, Medicare Part A and Medicare Part B are known as Original Medicare.
Part B is medical insurance for medically necessary services and preventive services. It provides coverage for:
- Doctor’s services
- Outpatient care
- Ambulance services
- Clinical research
- Durable medical equipment
- Limited prescription drugs
- Mental health
- Early-stage preventive services
Medicare Part B requires you to pay a monthly premium. This premium is set at a standard rate each year by the federal government for most enrollees and may increase based on your gross income as reported to the IRS. On top of this premium, you are responsible for a standardized Part B deductible as well as copayments or coinsurance for services. There is no annual limit on what you pay out of pocket for covered services with Part B alone.
If you receive benefits from Social Security, the Railroad Retirement Board or the Office of Personnel Management, your Part B premium is typically deducted from that benefit payment. Otherwise, you will receive a bill.
You’re not required to enroll in Medicare Part B during your Initial Enrollment Period. However, in many cases delaying enrollment means you’ll pay a late enrollment penalty for as long as you have Part B coverage.
Part C Medicare Part C — Medicare Advantage
Medicare Part C, also called Medicare Advantage, is not a separate form of coverage like Part A and Part B. Instead, Medicare Advantage plans are used in place of Original Medicare — they combine Part A and Part B benefits into one plan.
Medicare Advantage plans are offered by private insurance companies that contract with the federal government. They include all Medicare Part A and Part B benefits, and many plans offer additional benefits, which vary by plan and carrier. Some Medicare Advantage plans also include prescription drug coverage.
In general, Medicare Advantage plans:
- Provide all the benefits of Original Medicare (Parts A and B).
- May offer additional benefits — availability and details vary by plan and location.
- Include an annual out-of-pocket maximum for covered services, the amount of which varies by plan.
- May require you to use providers within the plan’s network and may charge you more for out-of-network providers.
- Must notify you of any changes to the plan before the next enrollment year.
- Are only available if you’re enrolled in both Medicare Part A and Medicare Part B.
With Medicare Advantage, you must continue to pay your Medicare Part B premium. You may also pay a monthly premium to the insurance company that provides your coverage.
Part D Medicare Part D — Prescription Drugs
Medicare Part D is prescription drug coverage. Part D plans are offered by private insurers and can be purchased in addition to Original Medicare or a Medigap plan. Part D coverage can also be included in a Medicare Advantage plan.
There are many different plans available under Medicare Part D. Each plan has a different formulary that includes different prescription drugs at varying costs, and Part D plans require a monthly premium paid to the insurance company.
There are two basic ways to get Part D coverage:
- Add a standalone Part D plan to Original Medicare (or a Medigap plan).
- Choose a Medicare Advantage plan that includes prescription drug coverage — those benefits are included in your plan.
All Part D plans — including Medicare Advantage plans with Part D benefits — cover a wide range of prescription drugs. However, coverage and cost vary from plan to plan:
- Each plan has a formulary — a list of the specific prescription drugs the plan covers.
- Many plan formularies have tiers that place covered drugs into different cost levels.
- Prescription drugs in a lower tier will generally cost you less than those in a higher tier.
Supplement Medicare Supplement (Medigap)
Medigap is not a part of Medicare like the other parts are. Instead, it’s supplemental insurance that helps fill the cost-sharing gaps left by Medicare Parts A and B.
Medigap policies are sold by private insurance companies and require a monthly premium. Depending on the plan you choose, your Medigap policy helps cover costs associated with Original Medicare, such as copayments, coinsurance and deductibles. To purchase a Medigap policy, you must be enrolled in Original Medicare. You cannot use a Medigap policy alongside a Medicare Advantage plan.
Here are some important things to know about Medigap policies:
- You must have Original Medicare (Parts A and B) to buy one.
- They have a monthly premium that you pay to the insurance company.
- You must also continue to pay your Medicare Part B premium.
- They don’t include prescription drug coverage — you must purchase a Part D plan separately.
- They generally don’t cover things like long-term care, vision, dental, hearing or private-duty nursing.
- They only cover one person — if you and your spouse both want Medigap coverage, you’ll each need a separate policy.
When can you enroll in Original Medicare and Medicare Advantage?
One mistake people who are new to Medicare often make is assuming they can enroll at any time. In reality, there are specific time periods during which you’re eligible to enroll in Original Medicare and Medicare Advantage plans.
Fortunately, Medicare gives you the ability to join a plan or change your coverage during certain times of the year.
Initial Enrollment Period
Most people who are new to Medicare will enroll during what’s called the Initial Enrollment Period. This is a seven-month window beginning three months before the month of your 65th birthday and ending three months after your birthday month.
During this time, you can enroll in Medicare Parts A and B as well as Medicare Part D. If you decide a Medicare Advantage plan would meet your needs better than Original Medicare, you can also enroll in Part C during this time.
Annual Enrollment Period (AEP) — October 15 to December 7
The Medicare Annual Enrollment Period runs from October 15 to December 7 each year. This period allows existing Medicare members to change their plans for the upcoming year.
You can switch from Original Medicare to a Medicare Advantage plan, move to a different Medicare Advantage plan, or switch from Medicare Advantage back to Original Medicare. You can also join or switch a Part D prescription drug plan.
General Enrollment Period — January 1 to March 31
If you missed your opportunity to enroll in Medicare for the first time during your Initial Enrollment Period, you have another chance to enroll during the General Enrollment Period, which runs from January 1 to March 31 each year.
During this time, you can enroll in Medicare Part B if you’ve already enrolled in Part A.
Medicare Advantage Open Enrollment — January 1 to March 31
There’s also a Medicare Advantage Open Enrollment Period that begins January 1 and ends March 31. During this time, if you’re in a Medicare Advantage plan and want to change your coverage, you can switch to a different Medicare Advantage plan.
You can also go back to Original Medicare and, if needed, join a Part D prescription drug plan.
Special Enrollment Periods
Special Enrollment Periods are triggered by specific life events like losing healthcare coverage from employer, experiencing a change in income or moving to a new location. During a Special Enrollment Period, you may be eligible to enroll in or change your Medicare plan.
Each Special Enrollment Period can have different rules depending on the circumstances, so check with a licensed agent to determine whether you’re eligible due to a major life event.