What Is Medicare and How Does it Work?

Medicare is a federal health insurance program for Americans 65 and older and some people who are disabled.

In all, Medicare covers some 65 million people, and it’s the second largest federal government program in the U.S. — adding up to more than a trillion dollars of government spending last fiscal year.

The program is administered by the Centers for Medicare & Medicaid Services. Open enrollment period, which is the opportunity to review coverage options for the upcoming year and make any changes, runs every year between Oct. 15 and Dec. 7.

Understanding how Medicare works is essential as there are different types of Medicare plans that fit a variety of financial needs. Note that the program is not to be confused with Medicaid, the medical coverage program for low-income Americans.

Here’s everything you need to know about Medicare, what it is and how it works:

Table of Contents

• What does Medicare Part A cover?
• What does Medicare Part B cover?
• What does Medicare Part D cover?
• What does Medicare Advantage (Part C) cover?
• How does Medicare work?
• Who is eligible for Medicare?
• Supplemental plans
• What isn’t covered by Medicare
• How do I apply for Medicare?
• Medicare FAQs

Types of Medicare coverage

There are two main types of Medicare coverage:

• Original Medicare: Consists of Parts A and B.

• Medicare Advantage: Obtained through private insurers and must include Medicare parts A, B and usually includes drug coverage, along with extra benefits.

What does Medicare Part A cover?

Medicare Part A is hospital insurance that covers inpatient care including hospital stays and medical services provided in a skilled nursing facility. While this kind of Medicare also covers hospice care and some parts of home health care, it does not cover long-term “custodial care,” which includes help with activities of daily living such as bathing and dressing.

Once you’ve paid your deductible, Part A covers up to the first 60 days of inpatient hospital care in a benefit period. After that, Medicare beneficiaries pay coinsurance for additional days.

How much does Medicare Part A cost in 2024?

• Part A is free if you or your spouse worked and paid taxes to Medicare for at least 40 quarters (10 years).

• If you don’t meet that criteria, there are costs for Part A coverage. If you paid between 30 and 39 quarters (7.5 to 9.75 years) of Medicare taxes, you’ll pay $278 per month for your Part A premium, the same as in 2023.

• If you paid less than 30 quarters (7.5 years) of Medicare taxes, you’ll pay $505 each month in premiums, a $1 decrease from 2023.

• You’ll have a $1,632 deductible for each benefit period (up from $1,600 in 2023).

• From days 61 to 90 of inpatient care, you'll pay $408 in coinsurance per day.

• From days 91 and onward of inpatient care, you'll pay $816 in coinsurance per day, up from $800.

What does Medicare Part B cover?

Medicare Part B covers outpatient services like doctor visits, screening, ambulance services, durable medical equipment and some preventive services. Mental health coverage and some prescription drugs (the kind you don’t administer yourself) are also included.

How much does Medicare Part B cost in 2024?

• The standard monthly premium for Medicare Part B is $174.70, an increase of $9.80 from in 2023.

• If your income exceeds $97,000 a year ($194,000 for couples) you will pay more.

• The annual deductible for Medicare Part B is $240, up from $226 in 2023.

• After reaching your deductible, you’ll pay 20% of the amount approved by Medicare for doctor services, outpatient therapy and durable medical equipment.

What does Medicare Part D cover?

Those on Original Medicare must buy a stand-alone Medicare prescription drug plan (called Part D) if they want coverage for their medications. Keep in mind that there may be late enrollment penalties for Medicare Part D.

Medicare Part D plans help cover the costs of prescription drugs. If you’re enrolled in Medicare Part A or Part B, you may want to enroll in Part D to supplement your coverage. These plans will help you pay for prescription medications not covered by Medicare Part A or Part B.

How much does Medicare Part D cost in 2023?

• The national base premium for Medicare Part D coverage is $34.70 per month for 2024, up from $32.74 in 2023.

• This amount may increase or decrease, depending on your income.

What does Medicare Advantage (Part C) cover?

Medicare Advantage, also known as Medicare Part C, is another way of getting Medicare benefits. In addition to the basics, most Medicare Advantage plans cover some services that Original Medicare doesn’t pay for, such as:

• Dental
• Vision
• Hearing benefits
• Fitness benefits
• Prescription drug coverage

Medicare Advantage plans cap your total health care spending at $7,550 a year for in-network coverage, whereas Original Medicare has no spending limit protections.

These health plans can be through an HMO (Health Maintenance Organization) or a PPO (Preferred Provider Organization). HMOs have a limited network of doctors, so make sure your health care providers participate in whatever plan you’re considering before you enroll.

How much does Medicare Advantage cost in 2024?

• It varies by plan, but the average monthly Medicare Advantage premium is about $18.50 for 2024, according to the Centers for Medicare & Medicaid Services.

How does Medicare work?

Medicare functions as a healthcare entitlement program funded by Medicare payroll taxes and other federal tax revenue, as well as premiums paid by beneficiaries. It’s designed to make health coverage more affordable for seniors and eligible Americans with disabilities and certain conditions.

Medicare premiums are generally lower than private insurance. Like other forms of insurance, paying for health care services with Medicare involves deductibles and coinsurance.

If you’re already receiving Social Security benefits at age 65, you’ll be automatically˛enrolled in Medicare Parts A and B.

Parts of Medicare can be free, but enrollment usually means committing to a premium. The standard Part B premium is about $174.70 per month for 2024, and the vast majority of Medicare beneficiaries pay at least this much for the coverage.

Who is eligible for Medicare?

Most Medicare beneficiaries are seniors above the eligibility age of 65. According to a KFF report in August, 57 million of Medicare’s 65 million beneficiaries are older adults.

About 8 million younger Americans with specific disabilities or medical conditions are eligible for Medicare.

Most people 65 and older

In general, Americans become eligible for Medicare at age 65. Seniors are eligible for Part A for free at this age if they meet certain criteria.

Work requirements

Americans are eligible for free Part A at 65 if they’ve worked in a Medicare-covered job for at least 10 years and at some point lived in the U.S. for five continuous years. Social Security beneficiaries are automatically enrolled in Medicare at the eligibility age.

If you haven’t worked in the U.S. for 10 years, there may be higher costs for Medicare coverage.

Social Security Disability Insurance

You can automatically qualify for Medicare Part A if you are entitled to Social Security Disability Insurance due to disability and have received those benefits for 24 months.

ALS

Americans with amyotrophic lateral sclerosis (ALS), a motor neuron disease with no cure, are eligible for Medicare Part A immediately if they receive Social Security disability benefits.

End-stage Renal Disease (ESRD)

This condition, also known as end-stage kidney disease, requires dialysis or a kidney transplant. People with end-stage renal disease may be eligible for premium-free Part A if they meet eligibility criteria.

What isn’t covered by Medicare?

The main service that Medicare does not cover is long-term care, including assisted living, home health aides and nursing homes (outside of short, rehabilitative stays).

The following are not covered by Original Medicare (some may be covered by Medicare Advantage):

• Dental care
• Eye exams/ eyeglasses
• Hearing aids
• Medical care while overseas (with few exceptions)
• Most chiropractic services
• Cosmetic surgery
• Routine podiatry (feet care)

Supplemental plans

If you decide to enroll in Original Medicare, consider buying a Medigap plan also known as Medicare Supplement Insurance. Private insurers offer these insurance plans and they are designed to cover costs that Medicare does not, such as copayments and deductibles.

Medigap Sign-Up Period

The best time to buy a Medigap policy is during your initial sign-up period around your 65th birthday. If you enroll then, you are guaranteed coverage regardless of your health status.

If you wait until after this window to enroll, then you have to pass medical underwriting first. That means the insurer will ask you questions about your current and past health and medications. Outside of certain exemptions, the insurer can charge you more or even deny you coverage based on your history.

How do I apply for Medicare?

Your seven-month initial Medicare enrollment window starts three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday.

If you’re already receiving Social Security benefits at age 65, in most cases you will be automatically enrolled into Medicare Part A and Part B. If you aren’t taking Social Security, you need to enroll in both and can do so online through the Social Security website.

Around the time of your enrollment, Medicare will send you a “Welcome to Medicare” packet along with your Medicare card.

Medicare’s annual open enrollment period is from Oct. 15 to Dec. 7. During this time, beneficiaries can pick a new Medicare Part D drug plan, a new Medicare Advantage plan or switch from Original Medicare into a Medicare Advantage plan and vice versa. Keep in mind that Medigap supplement plans are not part of open enrollment. Your best time to enroll in a Medigap plan is during your initial enrollment window around your 65th birthday.

Keep up with changes to policies to better suit your needs

Every fall, plans send out an annual “notice of change” alerting you to anything that might be different for the coming year.

It pays to shop around, even if you like your existing coverage. For Medicare Advantage plans, you can compare not just the premiums but also the out-of-pocket maximums and the plans’ ratings.

Reevaluate your coverage in light of any changes that you might have experienced during the year. If you received a new diagnosis that will require new medications or access to specialists, make sure the plans you have fit your particular situation. Medicare’s online Plan Finder can help you research plans in your area.

What happens if you miss your enrollment window

If you miss your initial Medicare Part B sign-up period, you might have to pay late penalties for life.

Your monthly Part B premium may go up 10% for each 12-month period you are eligible to enroll but don't sign up for it. In some cases, you’ll have to pay this penalty each time you pay your premiums, for as long as you have Part B.

Enrollment exceptions

If you are over 65 and have qualifying health insurance through your job, you might have a bigger enrollment window. Talk to your employer’s benefits administrator to make sure you understand how your job coverage interacts with Medicare.

Generally speaking, if your employer has 20 or more employees, you may be able to delay your Medicare Part B enrollment to avoid paying a premium for it when you already have insurance coverage through work. In that case, you can consider only enrolling in part A when you turn 65.

If your employer has fewer than 20 employees, you should sign up for Medicare Parts A and B when you first meet the age eligibility requirement. In this scenario, Medicare usually provides primary coverage and your work plan will provide secondary coverage.

Enrollment for young people with disabilities

Medicare is available for people younger than 65 who are disabled. If you qualify to receive Social Security Disability, you may be automatically enrolled in Medicare.

That said, each case is different and sometimes there is a waiting period that must elapse before you receive your Medicare card. You can always contact your local Social Security office for more information.