What Medicare Actually Is
Medicare is a federal health insurance program. It covers Americans who are 65 or older, as well as younger people with certain disabilities or end-stage renal disease. Unlike private insurance you buy through an employer or the ACA marketplace, Medicare is administered by the federal government — though you can choose to receive your benefits through a private insurer (that's what Part C is).
The word "Medicare" describes the whole program. Within it, there are four distinct "parts" — each covering a different category of healthcare. Understanding what each part does is the first step to making smart decisions about your coverage.
Original Medicare refers to Part A and Part B — the government-run program. Medicare Advantage (Part C) is an alternative way to get your Part A and B benefits bundled through a private insurer approved by Medicare. They're different delivery systems for similar (but not identical) coverage. Parts A and B are often called "Original Medicare." Part C replaces Parts A and B if you enroll in it. Part D is add-on prescription coverage available under either path.
Part A — Hospital Insurance
Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. "Inpatient" means you've been formally admitted to a hospital — not just in the emergency room or under observation status, which is a critical distinction.
Deductible per benefit period: $1,676
Coinsurance (days 1–60): $0/day
Coinsurance (days 61–90): $419/day
Coinsurance (days 91–150, "lifetime reserve"): $838/day
What "Benefit Period" Means
Part A uses "benefit periods" rather than calendar years. A benefit period starts the day you're admitted as an inpatient and ends when you've been out of a hospital or skilled nursing facility for 60 consecutive days. If you're readmitted after 60 days, a new benefit period begins — and a new deductible applies. There's no annual limit on how many benefit periods you can have.
If you're in the hospital but classified as "under observation" rather than formally admitted as an inpatient, Part A does not cover your stay the same way. You may be billed under Part B instead, which can mean significantly different cost-sharing — and crucially, observation stays don't count toward the 3-day inpatient requirement that must be met before Part A covers skilled nursing facility care. Always ask your care team whether you are admitted or under observation.
Skilled Nursing Facility Coverage
Part A covers skilled nursing facility (SNF) care — but only after a qualifying 3-day inpatient hospital stay (observation days don't count). Coverage is up to 100 days per benefit period: fully covered for days 1–20, coinsurance for days 21–100 ($209.50/day in 2025), and nothing after day 100.
Part B — Medical Insurance
Part B covers outpatient medical services — doctor visits, preventive care, lab tests, X-rays, durable medical equipment, mental health services, outpatient surgeries, and some home health visits. Think of it as everything that happens outside a hospital admission.
Annual deductible: $257
Coinsurance after deductible: 20% of Medicare-approved amount
IRMAA surcharge: Higher-income beneficiaries pay more (see below)
The 20% Coinsurance Issue
After you meet the Part B deductible, you pay 20% of the Medicare-approved amount for most services — with no out-of-pocket maximum. If you have a major outpatient procedure that costs $50,000, your 20% share is $10,000. This is one of the primary reasons people buy Medigap supplemental coverage (covered later in this guide).
What Part B Covers for Free (Preventive Care)
Part B covers many preventive services at no cost-sharing when provided by a Medicare-participating provider — meaning you pay nothing if you stay in-network for these services. This includes annual wellness visits, flu shots, colonoscopies (diagnostic, not screening, may have cost-sharing), mammograms, diabetes screenings, and more.
In your first 12 months on Part B, you're entitled to a one-time "Welcome to Medicare" preventive visit at no cost. After that, you're covered for an annual wellness visit each year. These are not the same as a traditional physical exam — they're focused on prevention planning and health risk assessment. Knowing the difference helps you avoid unexpected bills.
IRMAA: Income-Related Adjustments
If your income was above $106,000 (individual) or $212,000 (joint) in 2023, you'll pay higher Part B premiums in 2025 through the Income-Related Monthly Adjustment Amount (IRMAA). These surcharges are based on your tax return from two years prior and are applied automatically by Social Security.
Part C — Medicare Advantage
Medicare Advantage is an alternative to Original Medicare, offered by private insurers approved by Medicare. It must cover everything Parts A and B cover, and most plans also include Part D prescription coverage, plus extras like dental, vision, hearing, and fitness benefits that Original Medicare doesn't cover. You still pay the Part B premium, plus any plan-specific premium.
Part B premium: Still owed ($185/mo)
Out-of-pocket maximum: Required cap (up to $9,350 in-network in 2025)
Network type: Usually HMO or PPO — requires using in-network providers
Key Differences from Original Medicare
- Network restrictions: Most MA plans require you to use a network of providers. Seeing an out-of-network doctor can mean higher costs or no coverage at all (HMO plans).
- Prior authorization: MA plans can require prior approval before covering certain procedures, specialist referrals, or hospital stays. Original Medicare generally does not.
- Out-of-pocket cap: Original Medicare has no annual limit. MA plans are required to have one — providing a ceiling on your costs that doesn't exist under Original Medicare alone.
- Extra benefits: Many MA plans include dental, vision, hearing, and even gym memberships that Original Medicare doesn't cover.
Medicare Advantage plan quality, network size, and costs vary dramatically by ZIP code. A great MA plan in Miami may not have an equivalent in rural Iowa. Before enrolling, confirm that your current doctors and preferred hospitals are in the plan's network — and understand that networks can change year to year.
Part D — Prescription Drug Coverage
Part D adds prescription drug coverage to Original Medicare (Parts A and B). It's offered through private insurers approved by Medicare. Each plan has its own formulary (list of covered drugs), its own cost tiers, and its own premium. If you have a Medicare Advantage plan that includes drug coverage, you don't separately enroll in Part D.
Annual deductible: Up to $590 (varies by plan)
Out-of-pocket cap: $2,000 in 2025 (new cap under Inflation Reduction Act)
IRMAA surcharge: Higher earners pay additional amount
Understanding Drug Tiers
Part D plans categorize drugs into tiers, with different cost-sharing at each level. Tier 1 (generic preferred) typically has the lowest copay. Tier 5 (specialty drugs) can have significant coinsurance. If your medication is on a high tier, ask your doctor about therapeutically equivalent alternatives on a lower tier — it can save you hundreds of dollars a year.
Starting in 2025, Part D has a $2,000 annual out-of-pocket maximum for covered drugs — a significant change from prior years when costs could escalate much higher. Once you've paid $2,000 in out-of-pocket drug costs in a calendar year, you enter "catastrophic coverage" and pay $0 for the rest of the year. This is a major benefit for people on expensive medications.
Late Enrollment Penalty for Part D
If you don't sign up for Part D when you're first eligible and go more than 63 consecutive days without creditable prescription drug coverage, you'll pay a permanent late enrollment penalty added to your premium every month for as long as you have Part D. The penalty is 1% of the national base premium per month you went without coverage.
2025 Cost Summary at a Glance
| Part | Monthly Premium | Annual Deductible | Your Share After Deductible |
|---|---|---|---|
| Part A | $0 (most people) | $1,676 per benefit period | $0 (days 1–60), then daily coinsurance |
| Part B | $185.00 | $257/year | 20% of approved amount (no cap) |
| Part C | Varies ($0–$100+) | Varies by plan | Varies; OOP max required by law |
| Part D | ~$46 avg. | Up to $590 | Copays/coinsurance; $2,000 annual OOP cap |
Enrollment Windows and Late Penalties
Medicare enrollment has strict timing rules, and missing them can cost you money permanently. Here are the key windows:
For every 12-month period you were eligible for Part B but didn't enroll (without a qualifying delay), your premium goes up 10% — permanently. If you waited 3 years past your eligibility date, your premium is 30% higher for life. This penalty cannot be appealed except in specific circumstances and stacks year after year.
Original Medicare vs. Medicare Advantage: How to Choose
Neither option is universally better. Here's how to think about the decision:
Original Medicare May Be Better If:
- You see specialists frequently and want maximum provider flexibility
- You travel often or split time between states (MA plans often have limited out-of-network coverage)
- You have complex health needs and want to avoid prior authorization requirements
- You're willing to buy Medigap to handle the 20% coinsurance gap
Medicare Advantage May Be Better If:
- You want an annual out-of-pocket maximum (Original Medicare has none)
- You want bundled coverage including dental, vision, and drug coverage in one plan
- Your doctors are in the plan network and you rarely need out-of-network care
- You prefer a lower-premium option and are comfortable with managed care
Are your current doctors in the Medicare Advantage plan's network — and are you comfortable using only that network? If yes, MA is worth serious consideration. If you have long-standing specialist relationships or frequently need care across state lines, Original Medicare with Medigap often provides more flexibility at a predictable total cost.
Medigap: Filling the Gaps in Original Medicare
Original Medicare (Parts A and B) covers a lot — but the 20% coinsurance on Part B with no annual cap can expose you to significant costs. Medigap (also called Medicare Supplement Insurance) fills those gaps.
Medigap plans are sold by private insurers and are standardized by federal law — meaning a "Plan G" from one insurer covers exactly the same benefits as Plan G from another insurer. The only real difference between carriers is price and customer service.
During the 6-month window that starts when you're 65 and enrolled in Part B, insurers must sell you any Medigap policy they offer — without medical underwriting, health questions, or exclusions for pre-existing conditions. Outside this window, they can deny you or charge more based on health. Timing your Medigap purchase to coincide with this window is one of the most important moves in Medicare enrollment.
Your Next Steps
Medicare decisions are time-sensitive and permanent in some ways. Here's how to move forward:
- Know your enrollment date: Mark your 65th birthday and work backward to your Initial Enrollment Period start — three months before your birthday month.
- Determine if you have employer coverage: If you're still working and covered by a qualifying group health plan, you can delay Medicare without penalty. Confirm this in writing with your employer's HR before assuming you're covered.
- Compare plans in your ZIP code: Use Medicare.gov's plan finder tool to compare Advantage and Part D plans available in your area, filtered by your specific medications and preferred doctors.
- Contact your State Health Insurance Assistance Program (SHIP): SHIP counselors are available in every state at no cost. They're trained Medicare specialists — not salespeople — and can walk you through your specific situation.
- Don't rely solely on an insurance agent's recommendation: Agents are compensated for selling plans. Their guidance can be helpful, but balance it with independent resources like SHIP, Medicare.gov, and the Medicare & You handbook.