How Does Medicare Work?

What Is Medicare?

Medicare is a federal government program that provides health insurance for people over 65. People under 65 with disabilities or people with end-stage renal disease may also qualify.

Original Medicare includes Part A (hospital coverage) and Part B (medical coverage). You can also purchase a separate Medicare drug plan (Part D) to cover prescription medications and a Medicare Supplement Insurance plan (Medigap) to help pay out-of-pocket costs, such as coinsurance and copays.

An alternative to original Medicare is Medicare Advantage (Part C). These private insurance plans are approved by Medicare. Medicare Advantage plans typically include Part A, B and D, and may cover services that original Medicare doesn't, such as dental and vision care.

How Medicare Works

Here's a closer look at what the different parts of Medicare cover and how the program works.

Medicare Part A

Medicare Part A covers hospital care, including inpatient hospital stays, skilled nursing home care and hospice care. It also covers some home health care services.

Part A is generally free if you worked and paid Medicare taxes for at least 10 years. If you're not eligible for premium-free Part A, you can purchase it. Premiums for 2023 are either $278 or $506 monthly, depending on the Medicare taxes you or your spouse paid while you were working.

Medicare Part B

Medicare Part B covers doctors' services, outpatient medical care, medical supplies, ambulance services and durable medical equipment (such as wheelchairs or walkers). Covered services must be medically necessary. Part B also covers preventive services, such as flu shots or annual wellness visits, and mental health care.

You pay a monthly premium for Part B, even if you don't use your coverage that month. For 2023, monthly premiums are generally $164.90, but may be more based on your income level.

Medicare Part C

Unlike original Medicare, Medicare Part C, or Medicare Advantage, is offered by private insurance companies and must comply with Medicare's standards. Part C plans typically bundle Part A, Part B and Part D together. They often have lower out-of-pocket costs than original Medicare and may provide additional benefits, such as dental care, vision care and hearing services. You'll pay a monthly premium for Part C, which varies depending on the plan you choose.

Medicare Part D

Medicare Part D covers prescription drug costs, including many vaccines. There is a monthly premium for Part D, which can vary depending on several factors including your income. If you don't opt for a drug plan when you first get Medicare and buy Part D later, you'll also pay a monthly penalty for as long as you have Part D.

Medigap

If you opt for original Medicare, getting a supplemental insurance policy (or "Medigap" policy) can help cover some of your out-of-pocket costs. Medigap plans are sold by private insurance carriers, are standardized based on Medicare rules and are usually named with letters, like Plan K.

Although each lettered Medigap plan offers the same benefits no matter which carrier sells it, prices for the same plan can vary widely from one insurance company to another. You have six months from the time your Part B coverage begins to choose a Medigap policy.

Who Qualifies for Medicare?

To be eligible for Medicare, you must be 65 or older and be a U.S. citizen or otherwise lawfully present in the U.S. People under 65 may also qualify for Medicare if they have disabilities, end-stage renal disease or ALS (Lou Gehrig's Disease).

How to Apply for Medicare

If you already receive Social Security or benefits from the Railroad Retirement Board (RRB), you will automatically be signed up for Medicare Part A and Part B the first day of the month when you turn 65.

If you won't be getting Social Security or RRB benefits by the time you turn 65, you will need to apply for Medicare. You'll have a seven-month window to sign up for Medicare, starting three months before the month when you turn 65. This is known as your initial enrollment period.

To apply for Medicare, call Social Security at 1-800-772-1213 or visit ssa.gov/benefits/medicare. The Social Security Administration checks to see whether you qualify for premium-free Part A.

In addition to your initial enrollment period, you may qualify for a special enrollment period in certain situations, such as losing Medicaid eligibility or losing group health insurance.

There's also a general enrollment period from January 1 to March 31 of each year. If you sign up for Part A (if you have to pay for it) and Part B during your initial enrollment period, you can do so at this time. However, this is considered late enrollment, so your premiums for Part A and Part B may be higher than if you had signed up when you were first eligible.

To ensure timely Medicare coverage, pay attention to deadlines. Medicare recommends you start investigating your options three months before your birthday month.

Need help figuring out what Medicare plans are best for you?

• Contact your State Health Insurance Assistance Program (SHIP) for free, one-on-one assistance.
• Call 1-800-MEDICARE.
• Use Medicare's live chat tool.

Making Healthy Choices

Choosing the right Medicare plans for both your health and your budget can maximize your benefits from the program. A couple aged 65 in 2022 can expect to spend $315,000 on health care during their retirement, according to Fidelity Investments. Once you get Medicare, you can no longer contribute to a health savings account (HSA), which can be used for qualified medical expenses. If Medicare is a few years off, funding an HSA now can help you save for healthcare costs Medicare doesn't cover. You can deduct Medicare Part B and D premiums on your income taxes for additional savings; those who don't get Medicare through Social Security can deduct Part A premiums, too.

Incomes generally drop during retirement. Maintaining a good credit score can make it easier to access loans and credit should you need them. Paying bills on time and reducing debt can help improve your credit score. You can also set up free credit monitoring so you can spend less time keeping an eye on your credit and more time enjoying retirement.