A Plain-English Guide to Medicare: Parts A, B, C, and D

Medicare is the federal health insurance program for Americans 65 and older, as well as certain younger individuals with disabilities. It is one of the most important — and most confusing — benefits you will encounter as you approach retirement. Making the wrong decisions at enrollment can cost you thousands of dollars in unnecessary premiums, penalties, and out-of-pocket costs.

Medicare is divided into four parts, each covering different aspects of healthcare.

Medicare Part A covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health services. Most people do not pay a premium for Part A if they or their spouse worked and paid Medicare taxes for at least 10 years. However, Part A has a significant deductible ($1,632 per benefit period in 2024) and does not cover long-term custodial care.

Medicare Part B covers outpatient medical services, including doctor visits, preventive care, lab tests, and durable medical equipment. Part B has a monthly premium ($174.70 in 2024 for most beneficiaries, higher for higher-income individuals) and an annual deductible. After the deductible, Part B generally covers 80% of approved costs, leaving you responsible for the remaining 20% — with no out-of-pocket maximum.

Medicare Part C, also known as Medicare Advantage, is an alternative to Original Medicare (Parts A and B) offered by private insurance companies. Medicare Advantage plans must cover everything Original Medicare covers, and most include prescription drug coverage (Part D) as well. Many plans also offer additional benefits such as dental, vision, and hearing coverage. Medicare Advantage plans typically have lower premiums than Medigap plans but may have network restrictions and higher out-of-pocket costs for major illnesses.

Medicare Part D covers prescription drugs. If you choose Original Medicare, you will need to enroll in a standalone Part D plan to have prescription drug coverage. Part D plans vary significantly in terms of which drugs they cover (the formulary), premiums, deductibles, and copays. It is important to compare plans each year during the Annual Enrollment Period (October 15 – December 7) to ensure your plan still covers your medications at a reasonable cost.

Medigap (Medicare Supplement) insurance fills the gaps in Original Medicare — covering the 20% coinsurance, deductibles, and other out-of-pocket costs that Original Medicare does not pay. Medigap plans are standardized (Plans A through N) and sold by private insurers. The most comprehensive plans (Plan G and Plan N) can significantly reduce your out-of-pocket exposure, but come with higher monthly premiums.

The most important enrollment decision is timing. You have a 7-month Initial Enrollment Period (IEP) around your 65th birthday to sign up for Medicare. If you miss this window and don't have qualifying employer coverage, you may face permanent late enrollment penalties — 10% added to your Part B premium for each 12-month period you were eligible but didn't enroll, for as long as you have Medicare.

If you are still working at 65 and covered by employer insurance, you may be able to delay Medicare enrollment without penalty. However, the rules are complex and depend on the size of your employer. It is important to understand your options before your 65th birthday.