Medicare has multiple parts, coverage, rules and choices. What Medicare covers and what it doesn’t can be confusing.

This guide can help you better understand Medicare Parts A, B, C, and D and make a more informed decision about your options. Here’s what Medicare covers -- and what it doesn’t.

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What does Medicare cover?

Funded by the federal government, Medicare is our nation's health insurance program for seniors, certain younger people with disabilities and people with end-stage renal disease.

Medicare is broken up into four distinct parts:

  • Part A (hospital insurance) -- Covers inpatient hospital stays, care in a skilled nursing facility, hospice care and some home health care.
  • Part B (medical insurance) -- Covers doctors' services, outpatient care, medical supplies and preventive services. Together, Parts A and B are regarded as "Original Medicare."
  • Part D (prescription drug coverage) -- Administered by private insurance companies, these drug plans are only for people with Original Medicare.
  • Part C (Medicare Advantage) -- An alternative to Original Medicare, private insurers provide Medicare Advantage plans, which cover everything available in Parts A and B and can include prescription drugs and other benefits not found in Original Medicare like vision, dental and home health care.

How does Medicare work?

You become eligible for Medicare when you turn 65. You’re initially enrolled in Original Medicare unless you choose Medicare Advantage.

Medicare is funded through payroll taxes. If you've worked for at least 10 years and paid sufficient Medicare taxes, Part A coverage is free. Most people are charged a premium for Part B, but you can decline or delay this coverage.

Recipients receive a red, white, and blue Medicare card in the mail that shows whether you have Part A, Part B or both. You present this card to health care providers you visit. It also displays the date your coverage starts.

Most people with Part D are also charged a premium. You aren't automatically enrolled in Part D, but you can pair a Part D plan with Original Medicare. Parts A and B don’t have prescription drug benefits. You can shop for Part D plans on the Medicare.gov site.

Instead of going with Original Medicare, you can enroll in a Medicare Advantage plan through a private insurer. Medicare Advantage plans vary by coverage and costs, so you’ll want to get that information for specific plans.

You’re able to shop for Medicare Advantage plans on the Medicare.gov site.

How has Medicare changed over the years?

Original Medicare started in 1965. There have been numerous changes to offerings, benefits and costs over the years.

Andrew Vasta, a Medicare insurance broker with New Jersey Medicare Brokers, explains that Medicare is always changing, at least in small ways.

"For example, the out-of-pocket costs for individuals on Medicare have continued to go up in recent years," he says.

Shelley Grandidge, owner of the Medicare insurance agency Southwest Health Options, says that while Medicare is more expensive, it also covers more people today than years ago.

"Prescription drugs were not originally included in Medicare. Part D was only signed into law in 2003," she says. "Also, the Affordable Care Act added free preventive care."

What does Medicare Part A cover and not cover?

Part A covers inpatient hospital, hospice and home health care. And it helps pay a stay in a skilled nursing facility like a nursing home for up to 100 days.

"As long as someone or their spouse has worked and paid taxes for 40 quarters, or 10 years, they will receive Medicare Part A at no charge," Vasta says.

Otherwise, you could pay a premium as high as $458 a month, says Colleen Corrigan, life and health agent with Wallace & Turner, Inc.

If you’re admitted to a hospital:

  • Part A coverage kicks in after you pay a deductible of $1,408 per stay.
  • Days 1-60 in the hospital are free to you.
  • But days 61-90 cost $352 per day; 90 or more days cost $704 per day.
  • Time in the hospital after day 90 is considered "lifetime reserve days"; after exhausting 60 lifetime reserve days, you’re responsible for paying the full hospital costs.

"Part A doesn't cover everything," Grandidge adds. "For example, it won't pay for private-duty nursing, a TV or phone in your room if they carry a separate charge or personal care items like razors. It doesn't include a private room unless medically necessary. And inpatient psychiatric care in a freestanding psychiatric hospital is limited to 190 days in a lifetime."

Fortunately, you can choose to purchase a Medicare supplement plan called Medigap to help pay for many Part A out-of-pocket costs.

What does Medicare Part B cover and not cover?

Part B pays for doctor visits, lab tests, diagnostic screening, mental health, outpatient care at hospitals and clinics, emergency care, durable medical equipment and associated expenses. But first, you have to pay a $198 annual deductible before Medicare starts paying for care.

"After the deductible is met, you typically pay 20% of the Medicare-approved amount," Corrigan says.

Part B also carries a monthly premium.

"In 2020, that premium is $144.60 for most Americans. But this amount will depend on your income," explains Vasta. "If you earn $87,000 individually or over $174,000 with your partner, you'll fall into one of five higher monthly fee brackets for the monthly premium."

As with Part A, a Medigap plan can help pay for these and other out-of-pocket Part B costs.

Note that if you decide not to enroll in Part B but choose to do so later, your coverage could be delayed and you’ll pay a penalty. Your monthly premium will rise 10% for each 12-month period that you were eligible for Part B, but didn't sign up for it unless you qualify for a special enrollment period. The higher monthly premium will last as long as you have Part B.

If you decline to enroll in Part B during your initial enrollment period, you can enroll during open enrollment.

Be forewarned: Part B, like Part A, doesn't provide coverage for all services. Common services excluded include:

  • Long-term (custodial) care
  • Most dental care
  • Dentures
  • Acupuncture
  • Eye exams involving prescribing glasses
  • Cosmetic surgery
  • Routine foot care
  • Hearing aids and exams for fitting hearing aids

What does Medicare Part C (Medicare Advantage) cover and not cover?

Not everyone chooses to get their Medicare through Original Medicare. Vasta says one in every three people eligible for Medicare enrolls instead in Medicare Advantage plans, offered through private insurance carriers.

Vasta says Medicare Advantage plans must provide at least the same benefits as Original Medicare. They can also offer supplemental benefits not found in Parts A and B.

Medicare Advantage plans are typically structured as either a health maintenance organization (HMO) or preferred provider organization (PPO) plan.

"HMO plans only allow their members to see doctors and hospitals in-network, except in an emergency. PPOs allow you to see out-of-network doctors, but there may be a higher out-of-pocket cost to do so,” Vasta says.

Medicare Advantage plans have a maximum out-of-pocket cost of $6,700 for in-network services, but this amount doesn’t include prescription drug costs.

Most Medicare Advantage plans include prescription drug coverage.

What does Medicare Part D cover and not cover?

Part D, a prescription drug plan, is available separately if you're enrolled in Parts A and/or B. Part D plans are provided via private companies.

Your deductible can range from $0 to $435; once that amount is reached, you pay a copay or coinsurance for each medication. If what you've paid out of pocket for drugs plus what your Part D plan has paid totals $4,020, your out-of-pocket amount equates to 25% of the prescription cost. This period is called the coverage gap "donut hole," when brand-name prescriptions can get pricey.

"The cost per medication can vary from plan to plan and pharmacy to pharmacy," Vasta cautions. "That's why it's important to shop the market or use a Medicare insurance broker to help find a plan that makes the most sense for the prescriptions and pharmacy that are being used."

Part D doesn’t cover:

  • Over-the-counter drugs
  • Drugs sold outside of the United States
  • Drugs not approved by the Food and Drug Administration
  • Drugs not used for a medically accepted reason

If you choose to initially not enroll in Part D, you'll be charged a late enrollment penalty if you sign up later. This penalty fee will be tacked onto your Part D monthly premium once you enroll. And you'll have to pay this penalty for the rest of your life. So be sure you have credible insurance coverage when you first become eligible.

Medigap plans can help Original Medicare beneficiaries

If you have Original Medicare, you may want to look into a Medigap plan to help pay for your care.

"Medigap fills in the gaps that Original Medicare does not pay for," says Corrigan. "For instance, when you visit the doctor, Parts A and B will only pay for its part of the covered costs. But a Medigap plan will pick up at least some of the remaining medical cost."

Grandidge points out that Medigap plans currently cap each patient's maximum out-of-pocket costs at $2,340 per year.

Deciding between Original Medicare and Medicare Advantage

When choosing between Original Medicare or a Medicare Advantage plan, "look closely at your finances and health care needs. Determine what you can afford versus the cost of using the health care," suggests Vasta. "Be sure your insurance accepts the doctors you prefer and the prescriptions you take, as well."

Grandidge advises doing your homework before committing to a Part C plan.

"A Medicare Advantage plan will come with a tight network," she says. "Also, Plan C is not recommended if you frequently travel or have more than one home. Copays can be high if you need to see specialists. And your max out-of-pocket can be up to three times higher than for a Medigap plan that supplements Parts A and B."