Learn About Medicare Options For Seniors

Understanding Medicare: The Basics

Medicare is a federal health insurance program that began in 1965. Today, more than 66 million Americans receive coverage through Medicare. The program was created to help older adults pay for medical care, and it has grown to include younger people with certain disabilities and some people with end-stage renal disease.

Medicare operates differently than private health insurance you might have received from an employer. Rather than one single plan, Medicare is divided into different parts, each covering different types of care. Some parts cover hospital stays, others cover doctor visits and medical equipment, and additional parts focus on prescription drugs and preventive services. Understanding these different parts is the first step in learning about your coverage options.

The program is administered by the Centers for Medicare & Medicaid Services (CMS), a division of the U.S. Department of Health and Human Services. While Medicare is a government program, you can receive it through different types of plans, including traditional Medicare (also called Original Medicare) or through private insurance companies that contract with Medicare to provide coverage.

Medicare funding comes from payroll taxes collected during your working years, general revenue from taxes, and monthly payments from beneficiaries. When you turn 65, you become eligible for Medicare based on age. Some younger people may become eligible if they receive Social Security Disability Insurance (SSDI) for 24 months or have end-stage renal disease or ALS (also called Lou Gehrig's disease).

A key thing to understand about Medicare is that it does not cover all healthcare costs. Many beneficiaries find it helpful to learn about additional coverage options, such as Medigap policies or Medicare Advantage plans, which may help cover costs that Original Medicare does not pay for.

Practical Takeaway: Medicare has several different parts serving different purposes. Before making any decisions, take time to learn what each part covers and how the different parts work together to form your overall coverage picture.

Original Medicare: Parts A and B Explained

Original Medicare is made up of two main parts: Part A and Part B. Together, they form what many people refer to as traditional Medicare. Under Original Medicare, you receive care from any doctor, hospital, or healthcare provider that accepts Medicare, which includes the vast majority of providers in the United States.

Part A covers inpatient hospital care. This includes hospital stays when you are admitted as an inpatient, skilled nursing facility care (care you receive after a hospital stay when you need ongoing medical care but not a full hospital stay), hospice care, and some home health services. Most people do not pay a monthly premium for Part A because they paid Medicare taxes while working. However, Part A does have a deductible and copayments. In 2024, the Part A deductible for a hospital stay is $1,632 for the first 60 days.

Part B covers outpatient services. This includes doctor visits, preventive care, lab tests, imaging services like X-rays, and medical equipment like wheelchairs or oxygen. Part B has a monthly premium, which varies based on your income. In 2024, the standard monthly premium for Part B is $164.90 for those with modified adjusted gross income up to $97,000. Part B also has an annual deductible of $240 and requires you to pay 20% of the cost of most services after you meet the deductible.

When you receive care under Original Medicare, you can go to any hospital or doctor that accepts Medicare. This gives you flexibility in choosing your healthcare providers. However, Original Medicare does not cover all costs. For example, it does not include prescription drug coverage (though you can get this through a separate Part D plan), and it does not typically cover dental care, hearing aids, or vision care beyond one eye exam per year.

Original Medicare also requires you to pay a portion of most costs. After you meet your deductible, you typically pay 20% of what Medicare pays the provider. For a surgery or extended hospital stay, costs can add up quickly. This is why many people look into additional coverage options like Medigap or Part D plans.

Practical Takeaway: Original Medicare Part A and Part B cover hospital and outpatient care but do not cover everything. Understanding what you pay for (deductibles and coinsurance) helps you plan for healthcare costs.

Medicare Advantage Plans: An Alternative Approach

Medicare Advantage plans, also called Part C, are an alternative way to receive your Medicare benefits. Instead of using Original Medicare, you can choose to receive your Part A and Part B benefits through a private insurance company that contracts with Medicare. As of 2024, about 28 million Medicare beneficiaries, or roughly 42% of all beneficiaries, are enrolled in Medicare Advantage plans.

Medicare Advantage plans must cover at least what Original Medicare covers. However, they often include additional benefits that Original Medicare does not offer. Many Medicare Advantage plans include prescription drug coverage (Part D) built in, dental coverage, vision coverage, hearing coverage, and fitness benefits. Some plans even offer meal programs or transportation services. These extra benefits are designed to make healthcare more affordable and convenient.

The tradeoff is that Medicare Advantage plans typically have smaller networks of doctors and hospitals compared to Original Medicare. You generally must use doctors and hospitals within the plan's network, except in emergencies. Some plans may require you to see a primary care doctor first before seeing a specialist. Additionally, instead of paying 20% coinsurance, you may pay copayments for specific services, which can vary by plan.

Medicare Advantage plans have monthly premiums, which vary depending on the plan and your location. Some plans have $0 monthly premiums, though you will still pay the Part B premium to Medicare. Plans also have out-of-pocket maximums, which limit how much you pay in a given year. Once you reach your out-of-pocket maximum, the plan pays 100% of covered services for the rest of the year. In 2024, the out-of-pocket maximum cannot exceed $8,300.

Different types of Medicare Advantage plans exist. Health Maintenance Organizations (HMOs) typically have lower premiums but require using network providers. Preferred Provider Organizations (PPOs) offer more flexibility to see providers outside the network but usually charge higher premiums. Private Fee-for-Service plans allow you to see any provider that accepts the plan's payment terms.

Practical Takeaway: Medicare Advantage plans may offer additional coverage and lower out-of-pocket costs if you use network providers, but they limit your choice of doctors and hospitals compared to Original Medicare.

Prescription Drug Coverage: Medicare Part D

Medicare Part D covers prescription medications at pharmacies. If you choose Original Medicare, you need to enroll in a separate Part D plan through a private insurance company. If you choose a Medicare Advantage plan, many include Part D coverage already, though some do not. According to CMS data, approximately 48 million beneficiaries have some form of prescription drug coverage through Medicare.

Part D plans vary significantly in which medications they cover and how much you pay. Each plan has a formulary, which is the list of medications the plan covers. When choosing a Part D plan, it is important to review the formulary to see if your current medications are covered. If your medication is not on the formulary, you may need to switch to a different medication or pay out of pocket.

Part D has a unique cost structure called the coverage gap, or "donut hole." In 2024, you pay full price for medications until your total out-of-pocket spending reaches $7,050. Once you reach this amount, you enter the coverage gap. In the gap, you pay 25% of the cost of brand-name drugs and 25% of generic drugs. After your total out-of-pocket spending reaches $10,550, you enter catastrophic coverage and pay only a small copayment per prescription for the rest of the year. These numbers change each year.

Part D plans have monthly premiums that vary by plan, typically ranging from $5 to $100+ per month depending on the plan and your location. Many people qualify for additional financial support with Part D costs through programs like the Low-Income Subsidy program, which may reduce or eliminate premiums and copayments for those with limited income and resources.

Part D coverage is optional, but there is a penalty for delaying enrollment without other creditable coverage. If you do not enroll in Part D when you first become eligible and do not have other prescription drug coverage, your monthly premium may increase by about 1% for each month