Medicare is the health insurance plan for millions of American seniors and people with disabilities.
Medicare is the health insurance program that covers seniors and others who are eligible.
The federal government program is available as two main options: Original Medicare and Medicare Advantage. The option you choose helps determine the coverage, benefits and how much you will pay for premiums and out-of-pocket costs.
Read on to learn more about how Medicare works and which option might be right for you.
What is Medicare health insurance?
Medicare is the federal government health insurance program that primarily serves seniors, as well as a handful of other groups. The federal government’s Centers for Medicare and Medicaid Services administers Medicare and the program is financed by federal taxes and premiums paid by beneficiaries.
Beneficiaries pay premiums and out-of-pocket costs, including Medicare copays, deductibles and copayments.
There are two types of Medicare: Original Medicare and Medicare Advantage.
- Original Medicare includes Part A (hospital insurance) and Part B (outpatient insurance). You can also sign up for Part D (prescription drug insurance). People with Original Medicare can additionally get Medicare supplement insurance (Medigap), which helps with premiums and out-of-pocket costs and provides “an added layer of flexibility,” says Casey Schwarz, senior counsel, education and federal policy at the Medicare Rights Center.
- Medicare Advantage (Part C), which is provided by private health insurance companies, offers all of the benefits of Original Medicare, plus added benefits, such as dental and vision. However, Medicare Advantage companies’ plans have more restricted networks of providers.
- Seniors eligible for Medicare can choose between Original Medicare or Medicare Advantage.
- People with Original Medicare can also add Part D prescription drug benefits. Medicare Advantage usually includes prescription drug coverage as part of plan offerings.
- Medicare Advantage is offered by private health insurance companies and often includes supplemental benefits not found in Original Medicare.
- Original Medicare has a wider network of providers and hospitals than found in Medicare Advantage plans.
How does Medicare insurance work?
Medicare works largely like other forms of health insurance. Many – but not all – of your health care costs are covered under Medicare.
Medicare coverage is broken into four parts:
- Part A — Part A covers hospitalizations, skilled nursing facilities and hospice care. Free for most Americans. However, people who didn’t pay at least 40 quarters of Social Security taxes pay a monthly premium — as much as $458 monthly depending on how many quarters you paid taxes.
- Part B — Part B handles physician services, preventive care and outpatient care. Parts A and B are also called Original Medicare. Most Americans pay a Part B premium of $158.50 monthly. However, people who make more than $87,000 (or $144,000 for joint tax filers) pay higher premiums.
- Part C — Private insurance companies offer Part C plans, which are called Medicare Advantage. Medicare Advantage covers hospital and physician coverage with supplemental benefits. Most Medicare Advantage plans provide prescription drug benefits. They also offer vision, dental and fitness benefits. Medicare Advantage plans can also have other supplemental benefits not allowed in Original Medicare, such as home health care, adult daycare and transportation for non-medical needs. Medicare Advantage plan costs vary greatly by the plan. The average Medicare Advantage premium in 2022 is $19. However, many plans offer coverage with no premiums. Other plans charge higher premiums but with more benefits and lower out-of-pocket costs.
- Part D — Part D is prescription drug benefits for people with Original Medicare. Private companies offer these plans. Private companies charge different premiums for the drug plan. The average Medicare Part D premium is $33 in 2022, but plans can cost less and much more depending on the coverage and out-of-pocket costs.
Who is eligible for Medicare insurance?
People who are 65 and older are eligible for Medicare. Also, people under 65 with disabilities and those with end-stage renal disease are eligible.
As you approach your 65th birthday, Medicare will send information about how to enroll in Medicare and choose a plan. You have until three months after your birth month when you turn 65 to select a Medicare plan. If you don’t pick one, Medicare will automatically put you in Original Medicare.
Find out more about Medicare eligibility.
When to sign up for Medicare
Many people have enrolled in Medicare automatically. Enrollment is automatic if you’re not yet age 65, but you’re already receiving Social Security or Railroad Retirement benefits.
If you’re disabled, you’re automatically enrolled in both Part A and Part B of Medicare, beginning with your 25th month of disability.
However, if you don’t meet those criteria and are about to turn 65, you have an important choice to make.
“The first thing people need to decide is whether they want to enroll in Medicare when they are first eligible,” Schwarz says.
She notes that in some cases, people may not want to sign up for the full range of Medicare coverage when they become eligible.
For example, those who are still working at age 65 and have health insurance coverage through an employer may not need Medicare Part B – which covers doctor visits and outpatient care – until they retire and no longer have coverage through an employer.
If you didn’t sign up for Part B when you’re first eligible, Medicare may charge a 10% fine on your monthly premium for each 12-month period that you don’t sign up. So, that could mean paying 30% more for Part B if you don’t sign up for Part B after three years of eligibility.
Most people enroll in Medicare in one of two ways. You have an individual enrollment period, which begins three months before you turn age 65 (or right away if you require regular dialysis or a kidney transplant) and continues for seven months. Applying early can help you avoid a possible delay in the start of your Part B coverage.
If you miss your initial enrollment period, you need to wait until the annual Medicare open enrollment period, which runs from Oct. 15 to Dec. 7.
To apply for Medicare, contact any Social Security Administration office or fill out an application online on the Social Security website. (If you or your spouse worked for the railroad, contact the Railroad Retirement Board.)
You can call about Medicare options by contacting Social Security’s toll-free number, 1-800-772-1213, or visit the Social Security website.
You can’t enroll in Medicare through your state’s health insurance marketplaces, aka exchanges. The exchanges sell only individual and non-group health insurance policies.
What a Medicare health plan covers
Medicare benefits depend on the type of plan.
Original Medicare, which includes Parts A and B, covers hospital and physician care. You can also buy a separate Part D prescription drug benefit plan to help pay for prescription drugs.
Another option is selecting a Part C plan, which is also called Medicare Advantage.
“A Medicare Advantage plan has to cover all the same things that Original Medicare covers, but they can have different rules, restrictions, networks, and cost-sharing,” Schwarz says.
Medicare Advantage plans usually combine hospital and physician care with prescription drugs and telehealth coverage. Those plans also offer dental, vision, and other supplemental benefits not found in Original Medicare.
Find out more about what Medicare covers and what it doesn’t cover.
What are the parts of Medicare?
There are two main types of Medicare insurance plans, which also contain other parts of Medicare insurance:
- Original Medicare. This form of coverage comes in two parts. Part A is hospital insurance, and Part B is medical insurance. Other available coverages include Part D, which is Medicare prescription drug coverage, and Medicare Supplement Insurance, also known as a Medigap policy or “Medicare gap insurance.”
- Medicare Advantage. Also known as Part C, this type of coverage is often described as an “all in one” package that includes Parts A, B, and (in most cases) D.
Here’s more about each part of Medicare:
What Parts A and B cover
Parts A and B are often called Original Medicare or traditional Medicare. They cover hospitalizations and outpatient care.
Medicare Part A is the part of Medicare that covers inpatient care.
“For most people — for everyone who has sufficient Social Security work history — that is premium-free,” Schwarz says.
Examples of Part A coverages include:
- Inpatient care in a hospital
- Skilled nursing facility care
- Nursing home care, including inpatient care in a skilled nursing facility that’s not custodial or long-term care
- Hospice care
- Home health care
Even if you have insurance from another source, “it almost always makes sense for folks to enroll in Part A” as soon as you are eligible, Schwarz says.
Meanwhile, Part B covers both medically necessary services — such as services or supplies needed to diagnose or treat your medical condition — and preventive services, which cost you nothing as long as you get the services from a provider.
Part B covers:
- Doctor visits
- Clinical research
- Ambulance services
- Durable medical equipment (DME)
- Mental health
- Partial hospitalization
- Limited outpatient prescription drugs
Unlike Part A, Part B has a premium.
Should you sign up for Part B as soon as you are eligible? That depends on your situation, Schwarz says, including:
- Whether you will be eligible for a special enrollment period when you decide to enroll later. If not, you will have to wait until the general enrollment period.
- Whether you have other insurance that will serve as the primary payer.
What Part C (Medicare Advantage plan) covers
Private insurance companies offer Medicare Part C plans, which are called Medicare Advantage. Medicare Advantage includes the hospital and physician coverage with supplemental benefits.
Most Medicare Advantage plans provide prescription drug benefits. They also offer vision, dental and fitness benefits.
Medicare Advantage plans can also have other supplemental benefits not allowed in Original Medicare, such as adult daycare and transportation for non-medical needs. Benefits vary by insurance company and plan, so make sure to dig into the benefits information when choosing a Medicare Advantage plan.
What Part D covers
Medicare Part D is prescription drug benefits for people with Original Medicare. Private companies offer these plans.
Without Part D coverage, people with Original Medicare will have to pay all of the prescription drug costs.
Original Medicare vs. Medicare Advantage
The answer to which type of Medicare plan is better — Original Medicare or Medicare Advantage — depends on what you want from your coverage, what plans your providers accept, where you live and how many insurers offer Medicare Advantage plans in your area.
With Original Medicare, you can go to any doctor, hospital, or another healthcare provider who accepts Medicare. Medicare Advantage has more restricted provider networks.
Medicare Advantage offers multiple choices, so you can find the plan that’s right for you. Many Medicare Advantage plans have low or no premiums, but Original Medicare generally has lower deductibles.
“Some people are going to feel more comfortable with paying more in premiums to have more flexibility and fewer out-of-pocket costs,” Schwarz says.
By contrast, others prefer to pay less in premiums and to have more out-of-pocket costs if they need additional care because “if they don’t need additional care, then that’s money that they’ve saved,” Schwarz says.
People with Medicare have more Medicare Advantage options than a year ago. The average county has 47 Medicare Advantage plan options in 2021, though some rural counties may have few Medicare Advantage choices.
Here’s a side-by-side comparison of Original Medicare vs. Medicare Advantage:
|Original Medicare||Medicare Advantage|
|Premiums and deductibles||Standard for most Americans||Varies|
|Costs||Most beneficiaries pay a combined $158.50 monthly for Parts A and B; people with higher incomes and/or didn’t pay 10 years of Social Security taxes pay more||Vary by individual plan; the average premium is $19 in 2022, but many plans have zero premiums|
|Provider network||Any doctor who takes Medicare||Doctor must take the specific Medicare Advantage plan|
|Referral to see specialist||Rare||Likely — especially for an HMO plan|
|Prescription drug benefit||You must buy a separate Part D plan||Nearly all Medicare Advantage plans offer prescription drug benefits|
|Supplemental benefits like vision and dental||No||Yes|
|Care outside of your state||You can find a provider who takes Original Medicare||Medicare Advantage has smaller provider networks; you might not be able to find a provider out-of-state who accepts your plan|
|Care outside of the U.S.||Doesn’t cover, but some Medigap plans will help pay for care||Usually doesn’t cover care outside of the U.S.|
Find out more about the pros and cons of Medicare Advantage plans.
Which plan is more popular? Insure.com conducted a survey to find out. See the results.
What Medicare does not cover
Medicare has some limits in terms of what it covers. For example, Original Medicare does not cover any of the following:
- Long-term care
- Most dental care
- Eye exams related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
By law, Medicare Advantage Plans must cover all of the services that Original Medicare covers. These plans may also cover many things Original Medicare doesn’t cover, including:
- Wellness programs, such as gym memberships
Some Medicare Advantage plans also cover things like transportation to doctor visits, over-the-counter drugs, and adult day-care services. Plans also typically cover prescription drugs through Part D.
The type of coverage available varies from plan to plan, however, so shop around.
Frequently Asked Questions
What are the best Medicare plans?
Some Medicare plans shine more brightly than others. The Centers for Medicare and Medicaid Services rates plans on a five-star basis and posts the findings at the Medicare.gov website.
Rankings are based on information from:
- Member satisfaction survey
- Health care providers
Each fall, Medicare updates these ratings for the following year. When you search for Medicare Advantage plans, look for a star icon with a “5” inside it to find the best plans.
Do I have to sign up for Medicare if I have private insurance?
No, you aren’t required to sign up for Medicare if you have private insurance. Your individual circumstances – including the nature of your health coverage — will determine whether this is the right decision for you.
However, if you have coverage through an employer with fewer than 20 employees, you should sign up for Original Medicare when you’re first eligible. In this situation, Medicare pays before your other coverage. If you delay enrolling, you may have to pay a lifetime penalty if you enroll later.
If you have individual coverage through a health care marketplace or directly from an insurer, you should sign up for Part A and Part B when you’re first eligible. Once your Medicare coverage begins, you should drop your individual plan coverage.
Can I drop my employer health insurance for Medicare?
Once you’re eligible for Medicare, you can drop your employer’s health insurance coverage. However, this might not be the best decision. In many cases, employer health insurance is as good as – or better than – Medicare coverage.
The nature of your health insurance plan and your own health care needs likely will dictate whether or not it makes sense to leave your employer’s coverage and turn to Medicare.