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What Is Medicare and How Does It Work?

Medicare eligibility, enrollment, plans and costs simplified


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Photo Collage: AARP (Source: Getty Images)

Key takeaways

Since its inception in 1965, original Medicare has helped millions of people — regardless of income or health — pay for their medical care.

Today more than 67.4 million Americans are enrolled. More than 60 million are age 65 and older. Another 7 million are younger people with disabilities.

Medicare helps pay for doctor visits, hospital stays, hospice care, preventive care, some medical equipment and supplies, surgery and more. Setting aside time before your 65th birthday to review coverage options that meet your budget and health needs is important.

You have a lot to consider, but we’ll help.

What does Medicare pay for?

Medicare has several parts, each designed to cover a certain facet of your health care.

  • Part A helps pay for inpatient stays in hospitals and skilled nursing centers, some home health services and end-of-life hospice care.
  • Part B helps pay for doctor services, diagnostic tests, outpatient care, preventive care, some medical equipment and supplies, and some medications administered at a doctor’s office.
  • Part D prescription plans are policies you can buy because Medicare doesn’t cover most prescriptions.
  • Part C, better known as Medicare Advantage, is an alternative to original Medicare that private insurers offer. By law, MA plans must cover all Part A and Part B services, and most include Part D. Some plans also provide extra benefits that original Medicare doesn’t, such as dental, hearing and vision.
Video: What Are the Differences Among Medicare Parts A, B, C and D?

How much does Medicare cost?

Medicare may cover the bulk of your health care costs, but it’s not free. You’ll have to pay premiums, deductibles, and copayments or coinsurance for covered care.

Premiums

Cost sharing

  • Before coverage kicks in, you’ll have to pay a set amount of money yourself, called a deductible, for both Parts A and B. In 2024, Part A is $1,632 per benefit period, different from the annual deductions of workplace health insurance. Part B is $240 a year.
  • If you’re an inpatient in the hospital for more than 60 days per benefit period or at a skilled nursing center more than 20 days, you’ll pay daily coinsurance, a portion of the cost of services.
  • Excluding free preventive care, Part B has a 20 percent coinsurance for most doctor services and outpatient care.

Costs for other coverage

  • People with original Medicare often opt for a Medicare supplement policy, also known as Medigap, to help pay Medicare deductibles and copayments. Private insurers sell these policies.
  • Unless you have other drug coverage, you’ll want to buy a Part D prescription plan, which has its own premiums and cost sharing. Otherwise, you may face a lifetime late enrollment penalty.
  • If you choose Medicare Advantage, you’ll still pay Part B premiums and Part A if you aren’t eligible for premium-free coverage. Sometimes MA plans have additional premiums. They also have different deductibles and copayments than original Medicare.

The good news: Medicare has financial assistance programs to help people with limited incomes.

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How do I apply for Medicare?

If you are receiving Social Security or Railroad Retirement Board benefits at least four months before your 65th birthday, you’ll be enrolled automatically in Medicare Parts A and B. The rules are different for residents of Puerto Rico.

You can expect your Medicare card to arrive by mail three months before your coverage starts, which is the first of the month you turn 65 or the beginning of the previous month if your birthday falls on the first.

Otherwise, you’ll need to take steps to sign up. The timetable is specific and important.

  • If you or your spouse isn’t working at 65, sign up for Medicare during your initial enrollment period, which begins three months before the month you turn 65 and lasts three months after your birthday month, or shifted one month earlier if your birthday is on the first. If you miss that deadline, you may have to pay a late enrollment penalty for as long as you have Medicare.
  • If you or your spouse still work at 65 and have employer health insurance, you may be able to wait to enroll. The rules typically depend on the business’s size. You’ll have a special enrollment period to sign up for Medicare while you have employer coverage and up to eight months after.

What Medicare decisions do I have to make?

After you sign up for Medicare Part A and Part B, next you’ll decide if you want coverage from original Medicare or Medicare Advantage.

  • Original Medicare lets you use any provider who participates. Enrollees often buy a Medigap policy and Part D prescription coverage to supplement it. Our guide helps you use the Medicare Plan Finder to compare Medigap and Part D options.
  • Medicare Advantage plans have provider networks and often charge more or don’t pay for outside providers. They also have prior authorization and referral requirements. Our guide on using the Medicare Plan Finder helps compare options in your area.
  • Each year, you have an opportunity to switch Part D and Medicare Advantage plans during open enrollment , Oct. 15 to Dec. 7, for coverage starting Jan. 1. You also can reassess whether you want original Medicare or Medicare Advantage.

Just like your health, costs and coverage change, so look at all your options annually. This is especially true in 2025, when major changes to Medicare laws take effect.

This article, originally published July 1, 2020, was updated with new rules and out-of-pocket costs.

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