Medicare from A to D

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Medicare is a cornerstone of healthcare in the United States, providing vital coverage for millions of Americans. Primarily designed for individuals aged 65 and older, Medicare also extends its benefits to those with certain disabilities, End-Stage Renal Disease (ESRD), and ALS (Lou Gehrig’s disease). Despite its importance, the program’s complexity often leaves beneficiaries and their families confused about how it works and what it covers.

This guide breaks down Medicare’s four main components—Parts A, B, C, and D—and explores the role of Medigap policies in filling gaps in coverage. Whether you’re navigating Medicare for yourself, assisting clients as an insurance professional, or simply preparing for the future, understanding these foundational elements is essential.


Medicare Part A: Hospital Coverage

What Is Medicare Part A?

Medicare Part A is often referred to as hospital insurance. It provides coverage for inpatient care in hospitals, skilled nursing facilities (under certain conditions), hospice care, and limited home healthcare services. While it covers essential medical needs, it does not pay for long-term custodial care, such as extended stays in nursing homes for assistance with daily living.

Who Qualifies for Medicare Part A?

Eligibility for Medicare Part A is generally straightforward:

  1. Automatic Enrollment: If you’re already receiving Social Security benefits when you turn 65, you’ll automatically be enrolled in Medicare Part A.
  2. Manual Enrollment: If you’re not receiving Social Security benefits at 65, you’ll need to sign up manually through the Social Security Administration (SSA) by calling 800-772-1213 or visiting ssa.gov.
  3. ESRD and ALS: Individuals diagnosed with End-Stage Renal Disease (ESRD) or ALS are also eligible for Medicare Part A, regardless of age.

What Does Premium-Free Part A Mean?

For most people, Medicare Part A is premium-free because they or their spouse paid Medicare taxes during at least 40 quarters (10 years) of employment. If you have not met this requirement, you’ll need to pay a monthly premium:

  • $518/month in 2025 for those with less than 30 quarters of work credits.
  • $285/month in 2025 for those with 30-39 quarters of work credits.

If you delay enrollment in Medicare Part A and are not eligible for premium-free coverage, you will face a 10% penalty on your monthly premium for twice the number of years you delayed enrollment. For example, delaying enrollment for three years would result in a penalty lasting six years.

What Does Part A Cover?

Medicare Part A covers:

  • Inpatient hospital care: Includes semi-private rooms, meals, and general nursing for up to 90 days per benefit period, with an additional 60 lifetime reserve days available.
  • Skilled nursing facility care: Coverage applies after a qualifying hospital stay of three consecutive days and is limited to 100 days per benefit period.
  • Hospice care: Available for terminally ill patients with less than six months to live, focusing on comfort and quality of life.
  • Home health care: Limited skilled nursing or therapy services following a hospital stay.

What Are the Costs of Part A?

While Medicare Part A is premium-free for most people, it is not entirely cost-free. Beneficiaries are responsible for the following in 2025:

  • Inpatient hospital deductible: $1,676 per benefit period.
  • Coinsurance:
    • $0 for the first 60 days of a hospital stay.
    • $419 per day for days 61-90.
    • $838 per day for lifetime reserve days.
  • Skilled nursing facility coinsurance:
    • $0 for the first 20 days.
    • $209.50 per day for days 21-100.
    • All costs beyond day 100.

Special Notes on Enrollment Timing

If you enroll in Medicare after age 65, Part A coverage will be backdated up to six months but not earlier than the first month you were eligible. This backdating can have financial implications for individuals contributing to Health Savings Accounts (HSAs), as HSA contributions are not allowed once Medicare coverage begins. Beneficiaries should prorate their contributions accordingly to avoid penalties.


Medicare Part B: Medical Insurance

Medicare Part B serves as the medical insurance component of Medicare, covering outpatient services, doctor visits, and a variety of preventive care measures. It complements Medicare Part A by focusing on the services you’re likely to use outside of a hospital or facility.

Eligibility and Enrollment

Eligibility for Part B includes the same groups as Part A: individuals aged 65 or older, those on Social Security Disability Insurance (SSDI) for at least 24 months, and those diagnosed with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS). Enrollment is not always automatic—especially if you’re not already receiving Social Security benefits when you turn 65. In such cases, you’ll need to actively apply for Part B through Social Security.

The initial enrollment period spans seven months: the three months before the month you turn 65, your birthday month, and the three months afterward. Signing up during this window ensures you avoid delays in coverage or costly penalties.

Costs: Premiums and IRMAA Adjustments

Medicare Part B requires a monthly premium, which most beneficiaries must pay out of pocket. In 2025, the standard premium is $185 per month. However, higher-income beneficiaries are subject to an additional charge known as the Income-Related Monthly Adjustment Amount (IRMAA). This additional amount varies based on your income from two years prior:

  • Individuals earning $106,000 or less (or married couples earning $212,000 or less): $185/month.
  • Higher-income brackets: Premiums range from $259 to $628.90 per month, depending on income level.

Beneficiaries who experience a significant drop in income due to retirement or other reasons can request a reassessment of their premiums.

What Does Part B Cover?

Part B provides coverage for two main categories of services:

  1. Medically Necessary Services: These include outpatient care, doctor visits, laboratory tests, imaging, chemotherapy, durable medical equipment (e.g., wheelchairs, oxygen tanks), and more.
  2. Preventive Services: Thanks to the Affordable Care Act, a wide range of screenings, immunizations, and wellness visits are fully covered under Part B.

Examples of Part B-covered services include:

  • Outpatient surgery
  • Diagnostic imaging (e.g., MRIs, CT scans)
  • Dialysis and kidney-related care
  • Physical therapy
  • Flu and pneumonia vaccines

Cost Sharing: Deductibles and Coinsurance

Medicare Part B has a calendar-year deductible, which is $257 in 2025. After meeting this deductible, beneficiaries are responsible for 20% coinsurance of Medicare-approved costs.

Unlike many private insurance plans, Medicare Part B has no out-of-pocket maximum. This lack of financial protection for high medical expenses is a major reason many beneficiaries choose to purchase supplemental coverage or Medicare Advantage plans.

Enrollment Timing and Late Penalties

While many people enroll in Part B during their initial enrollment period, some delay enrollment—typically because they are covered under a group health plan through active employment.

For those who delay enrollment without qualifying coverage, a lifetime late enrollment penalty applies. This penalty is equal to 10% of the Part B premium for each full 12-month period that enrollment was delayed.

For example, if someone delays enrolling in Part B for three years, they will pay a 30% penalty on top of their standard premium for the rest of their life.

Beneficiaries who miss their initial enrollment period can sign up during the general enrollment period, which runs from January 1 to March 31 each year. Coverage will begin on the first of the month after enrollment is approved.

Special Considerations for HSAs

Medicare’s rules about Health Savings Accounts (HSAs) are important to note. Enrolling in Medicare, even just Part A, disqualifies you from making further HSA contributions. If you sign up for Part A after age 65, coverage is backdated by up to six months (but not earlier than your 65th birthday). Part B, however, is not backdated and begins the first of the month after it’s approved.

To avoid tax penalties, beneficiaries should prorate or adjust their HSA contributions accordingly. Over-contributions must be corrected by the tax deadline to avoid penalties.


Medicare Part C: Medicare Advantage Plans

Medicare Part C, commonly known as Medicare Advantage, offers beneficiaries an alternative way to receive their Medicare benefits. These plans are provided by private insurance companies and bundle Medicare Parts A and B, often with additional benefits.

What is a Medicare Advantage Plan?

A Medicare Advantage plan essentially replaces Original Medicare (Parts A and B) while still adhering to Medicare rules. Beneficiaries use the insurance company’s card instead of their Medicare card and receive coverage through the private insurer.

These plans often operate like traditional health insurance plans with provider networks (HMOs or PPOs), cost-sharing through copayments, and sometimes deductibles. They also include an annual out-of-pocket maximum, offering a layer of financial protection not found in Original Medicare.

Why Choose a Medicare Advantage Plan?

The appeal of Medicare Advantage plans lies in the added benefits and potential cost savings. These plans cover everything Medicare does and typically offer extras like:

  • Dental, vision, and hearing benefits
  • Gym memberships or fitness programs
  • Prescription drug coverage (Part D included in many plans, referred to as MAPD plans)
  • Additional perks like transportation to medical appointments or meal delivery services

For many beneficiaries, the inclusion of an out-of-pocket cap is a significant draw. Unlike Original Medicare, which has no upper limit on expenses, Medicare Advantage plans set a yearly maximum on the amount beneficiaries will spend on covered services.

Eligibility and Enrollment

To qualify for a Medicare Advantage plan, beneficiaries must:

  • Be enrolled in both Medicare Parts A and B
  • Reside in the plan’s service area (usually determined by county)
  • Continue paying the Part B premium, even if the Advantage plan itself has no additional premium

There are no medical underwriting requirements or health-related questions, so beneficiaries cannot be denied due to pre-existing conditions. However, it’s important to note that Advantage plans are network-based, meaning beneficiaries must choose healthcare providers within the plan’s network.

Costs and Considerations

Medicare Advantage plans often have lower upfront costs compared to Medicare Supplement (Medigap) plans, with some plans offering $0 monthly premiums. However, beneficiaries may face copayments for services like doctor visits, specialist consultations, and hospital stays.

The trade-offs include:

  • Cost sharing: Beneficiaries may pay more out-of-pocket for certain services compared to Medigap plans.
  • Provider restrictions: Access to care is limited to network providers, and out-of-network services may incur higher costs or be unavailable.
  • Plan variability: Benefits and costs can vary widely between plans and regions, so it’s essential to compare options carefully.

Enrollment Opportunities

Beneficiaries can enroll in or switch Medicare Advantage plans during these periods:

  1. Initial Coverage Election Period (ICEP): When first eligible for Medicare.
  2. Annual Election Period (AEP): October 15 to December 7 each year, for coverage starting January 1.
  3. Medicare Advantage Open Enrollment Period (OEP): January 1 to March 31, allowing a one-time plan switch or return to Original Medicare.

Special Enrollment Periods (SEPs) are available for those who experience qualifying events, such as moving out of a plan’s service area or losing employer coverage.

Key Advantages and Drawbacks

Medicare Advantage plans are often promoted for their additional benefits and cost efficiency, but they’re not for everyone. Here’s a summary:

Advantages:

  • Lower upfront costs than Medigap plans
  • Caps on annual out-of-pocket expenses
  • Convenient all-in-one coverage, often including drug benefits

Drawbacks:

  • Limited provider networks
  • Cost-sharing obligations
  • Potential for higher costs with frequent or extensive healthcare needs

Understanding these trade-offs is crucial for beneficiaries deciding between an Advantage plan and Original Medicare with supplemental coverage.


Medicare Part D: Prescription Drug Coverage

Medicare Part D is the prescription drug coverage component of Medicare, designed to help beneficiaries manage the costs of medications. It is offered through private insurance companies and can be added to Original Medicare or included in Medicare Advantage plans with prescription drug coverage (MAPD plans).

Who is Eligible for Part D?

To qualify for Medicare Part D, a beneficiary must be:

  • Enrolled in Medicare Part A, Part B, or both
  • Residing in the plan’s service area

Unlike some other parts of Medicare, eligibility for Part D does not require enrollment in both Part A and B—having either is sufficient.

How Part D Works

Medicare Part D plans are highly individualized, and costs can vary based on the chosen plan, the medications required, and the pharmacy used. Here’s how the coverage typically works:

  1. Monthly Premiums:
    • Beneficiaries pay a monthly premium for their chosen plan, which averaged around $30 in 2024. Premiums for 2025 may vary, especially due to new changes in the program.
    • High-income earners are subject to an Income-Related Monthly Adjustment Amount (IRMAA), which increases the monthly premium based on income from two years prior.
  2. Deductibles:
    • Many Part D plans have an upfront deductible (up to $590 in 2025), which beneficiaries must pay before their plan begins to cover prescription costs.
  3. Formularies:
    • Plans use formularies (lists of covered drugs), categorized into tiers. Lower-tier drugs (like generics) typically have lower copayments, while higher-tier drugs (like specialty medications) may involve higher costs or coinsurance.
  4. Coverage Gap and Catastrophic Coverage:
    • Historically, beneficiaries entered a “donut hole” or coverage gap after reaching a certain spending threshold. During this phase, they paid a higher percentage of drug costs. However, this gap has been largely filled, and starting in 2025, a $2,000 cap on out-of-pocket spending will apply to covered drugs under the Inflation Reduction Act.
    • After reaching the cap, beneficiaries enter catastrophic coverage, where most costs are covered.

Enrollment Periods for Part D

Beneficiaries can enroll in Part D during these times:

  • Initial Enrollment Period (IEP): The seven-month window around their 65th birthday or when they first become eligible for Medicare.
  • Annual Election Period (AEP): October 15 to December 7, for coverage starting January 1.
  • Special Enrollment Periods (SEPs): Triggered by qualifying events like moving or losing other creditable drug coverage.

Penalties for Late Enrollment

If a beneficiary delays Part D enrollment and lacks creditable drug coverage (coverage as good or better than a standard Part D plan), they will incur a lifetime penalty. The penalty is calculated as 1% of the national base premium for each month of delay and is added to their monthly premium indefinitely.

Recent Changes Under the Inflation Reduction Act

Starting in 2025, several significant changes will improve affordability and accessibility for Medicare Part D beneficiaries:

  1. $2,000 Out-of-Pocket Cap:
    • Beneficiaries will no longer face unlimited out-of-pocket costs for covered drugs.
    • This cap has already influenced premiums and formularies, with some plans increasing costs or excluding certain medications to adjust for their financial exposure.
  2. Price Negotiations:
    • Beginning in 2026, the government will negotiate drug prices with manufacturers for medications that account for high Medicare spending, potentially reducing costs further.
  3. Premium Increase Limitations:
    • Plans cannot raise premiums by more than $35 per year, ensuring some cost predictability for enrollees.

Is Part D Worth It?

For most beneficiaries, enrolling in Part D or having other creditable drug coverage is essential to avoid penalties and ensure access to affordable medications. Even for those who don’t currently take prescription drugs, enrolling in a low-cost plan can prevent future penalties and provide peace of mind.


Medicare Supplements (Medigap Plans)

Medicare Supplement plans, often referred to as Medigap plans, are private insurance policies designed to fill the gaps in Original Medicare coverage. These plans are ideal for beneficiaries seeking more predictable out-of-pocket costs and greater freedom in accessing healthcare providers.

How Medigap Works

Unlike Medicare Advantage plans, which replace Original Medicare, Medigap plans work alongside it. Beneficiaries use their Original Medicare card for services and their Medigap card to cover the costs not paid by Medicare, such as deductibles, copayments, and coinsurance.

Medigap plans are standardized in most states, meaning that Plan G from one insurance company will provide the same benefits as Plan G from another. However, premiums can vary by insurer, so shopping around is essential.

Who is Eligible for Medigap?

To purchase a Medigap policy, a beneficiary must:

  • Be enrolled in both Medicare Part A and Part B
  • Live in a state where the Medigap plan is offered

Medigap plans do not work with Medicare Advantage plans. If a beneficiary has an Advantage plan, they would need to switch back to Original Medicare to purchase a Medigap policy.

What Do Medigap Plans Cover?

Medigap plans help cover costs that Original Medicare does not, such as:

  • Part A coinsurance and hospital costs
  • Part B coinsurance or copayments
  • The first three pints of blood used in a medical procedure
  • Part A hospice care coinsurance or copayments
  • Skilled nursing facility coinsurance
  • Foreign travel emergency coverage (in some plans)

Plan G, now the most comprehensive option for new Medicare enrollees, covers nearly all gaps except for the Part B deductible.

Standardized Plans and Benefits

There are 10 standardized Medigap plans labeled A through N. Each plan offers a different level of coverage. For example:

  • Plan G: Covers all gaps except the Part B deductible.
  • Plan N: Offers slightly lower premiums but requires copayments for some services, such as office visits and emergency room care.

Plans C and F, which cover the Part B deductible, are no longer available to beneficiaries who became eligible for Medicare after January 1, 2020.

Medigap Costs

The cost of a Medigap policy depends on several factors:

  • Age: Some plans use attained-age rating, meaning premiums increase as the beneficiary ages.
  • Location: Premiums can vary significantly by state or region.
  • Insurance Provider: Although benefits are standardized, premiums are not, so it’s essential to compare insurers.
  • Underwriting: Outside of specific enrollment periods, insurers can charge higher premiums or deny coverage based on medical history.

Enrollment in Medigap

The best time to enroll in a Medigap plan is during the six-month Medigap Open Enrollment Period, which begins when a beneficiary is both 65 or older and enrolled in Part B. During this period:

  • Guaranteed Issue Rights Apply: Insurers cannot deny coverage or charge higher premiums based on health conditions.
  • After this period, applying for a Medigap policy may require medical underwriting, and coverage is not guaranteed.

Beneficiaries switching from an Advantage plan back to Original Medicare may also qualify for a guaranteed issue period if they are doing so within the first 12 months of enrolling in the Advantage plan.

Is Medigap Right for Everyone?

While Medigap plans provide robust coverage and greater flexibility, they may not be suitable for everyone:

  • Pros:
    • No networks: Beneficiaries can see any provider that accepts Medicare.
    • Predictable costs: Fills in most of the gaps left by Original Medicare.
    • Peace of mind: Protects against high out-of-pocket costs.
  • Cons:
    • Higher premiums: Medigap policies often cost more than Advantage plans, especially for plans like G or N.
    • No additional benefits: Unlike Advantage plans, Medigap does not include extras like dental or vision coverage.

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