Medicare Basics

Contents

1. The four parts and the letters
2. The windows around sixty five
3. What it leaves out and what it costs
4. What changed and what did not

Brent O’Mara has sat with clients through other transitions, but the one this entry describes arrives for nearly everyone in the months around a sixty fifth birthday. Picture a man in Omaha whose birthday falls in June. He still works, his spouse retired two years earlier, and a letter has reminded him that his enrollment window opened in March. He has a card for Part A, a question about whether he needs Part B while his employer’s plan continues, a stack of mailings from drug plans, and an evening to sort out which letters apply to him. The program he is entering is federal health insurance for people 65 and older, for some younger people with disabilities and for people of any age with permanent kidney failure, and it consists of four programs: Hospital Insurance, called Part A; Supplementary Medical Insurance, Part B; Medicare Advantage, Part C; and the prescription drug benefit, Part D.⁴

The four parts and the letters

Medicare.gov describes what each part pays for. Part A helps cover inpatient hospital care, skilled nursing facility care, hospice and home health care. Part B helps cover doctors’ services, outpatient care, home health care, durable medical equipment such as wheelchairs and hospital beds, and many preventive services including screenings, vaccines and yearly wellness visits. Part D helps cover prescription drugs, through a stand alone drug plan added to Original Medicare or through an Advantage plan that includes drug coverage; the plans are run by private insurers under rules Medicare sets.¹ Most people pay no premium for Part A, because they or a spouse paid for it through payroll taxes while working, while most people pay a monthly premium for Part B and another for Part D.³ The Centers for Medicare and Medicaid Services describes Medicare as a defined benefit program, covering only items that fall within the benefit categories defined in section 1861 of the Social Security Act and that are reasonable and necessary.⁴

Then come the other letters. Medigap is extra insurance bought from a private company to pay a share of the costs Original Medicare leaves to the patient; the policies are standardized and in most states named by letter, such as Plan G or Plan K, and the benefits of a lettered plan are the same whichever company sells it.¹ Medicare is also distinct from Medicaid, the joint federal and state program for people with low incomes, which can pay Medicare premiums and nursing facility costs for those who qualify for both.¹ The two paths through the program are Original Medicare, which allows any doctor or hospital in the country that takes Medicare and can be paired with Part D and a Medigap policy, and Medicare Advantage, which bundles Parts A, B and usually D into one plan from a private company, generally within a network, sometimes with extras such as vision, hearing and dental care, and never with Medigap.²

Figure

Original Medicare beside Medicare Advantage

	Original Medicare	Medicare Advantage
Which doctors	any doctor or hospital in the country that takes Medicare	doctors in the plan's network and service area, outside emergencies
Drug coverage	a separate Part D plan	usually included
A Medigap policy	can be bought to lower the share of costs	cannot be used
Yearly out of pocket limit	none without supplemental coverage	set by the plan
Premiums	the Part B premium	the Part B premium plus any plan premium, which some plans set at zero

The windows around sixty five

The decisions happen in stages. First a person signs up for Part A, Part B or both; then, with both in place, chooses between Original Medicare and Advantage; then, under Original Medicare, decides on drug coverage and a supplement.² Purdue Extension’s checklist for the sixties puts the initial enrollment period at the three months before and the three months after the sixty fifth birthday and lists comparing Part D options and considering Medigap or Advantage as the tasks of that window.⁵ The man in the opening scene has a genuine choice about Part B: someone still working at 65, or whose spouse is, may delay Part B and keep Part A only, under rules that decide which insurance pays first.² The Social Security Administration adds the warning for people who delay their retirement benefits that Medicare should still be taken at 65, since in some circumstances coverage taken later is delayed and costs more.⁵ After the first choices comes a yearly one. Each year during open enrollment, from October 15 to December 7, a person may change how health and drug coverage is received, and a Wall Street Journal reporter’s video guide for the 2026 window set out the pitfalls to examine before switching plans.²⁶ Medicare, unlike private insurance, has no plans for couples or families; the man and his spouse choose separately.²

Figure

The decisions in order

1. 01
   Sign upEnroll in Part A, Part B or both during an allowed period; a person still working at 65 may delay Part B.
2. 02
   Choose a pathWith both parts in place, pick Original Medicare or a Medicare Advantage plan.
3. 03
   Add coverageUnder Original Medicare, decide on a Part D drug plan and whether to buy a Medigap policy.
4. 04
   Revisit yearlyBetween October 15 and December 7 each year, change the way health and drug coverage is received.

What it leaves out and what it costs

Original Medicare covers most medically necessary services but not all of the cost. After the deductible a patient pays a share of each service, and there is no limit on what that share can total in a year unless the person has supplemental coverage from Medigap, Medicaid or an employer, retiree or union plan.² Kaiser Health News, writing for NPR in 2021, set out the gaps: traditional Medicare does not cover most dental, vision or hearing care; its basic hospital benefit runs out after 90 days; the 20 percent coinsurance on outpatient care runs without limit; and it does not cover custodial long term care, the help with bathing, dressing and eating that tends to cost 50,000 to 100,000 dollars a year and is needed by many people after 80.⁸ Drug coverage arrived only in 2003, as a separate purchase rather than part of the traditional package. When it took effect in 2006 an NPR guest described the confusion of choosing among 50 to 80 plans in a single area and matching each plan’s list of covered drugs to a person’s prescriptions, a burden that fell hardest on people eligible for both programs.⁷ The same guest noted that a budget proposal of that year would have reached premiums and copayments for beneficiaries with higher incomes.⁷ Because Part A is financed through payroll taxes and the other parts through premiums and general revenue, how the pieces fit a particular household will depend on each family’s circumstances, which is the sort of question qualified professionals exist to answer.

What changed and what did not

Medicare became law in 1965, with a benefit package built to resemble a Blue Cross plan of that year, and in the 56 years that followed only a few benefits were added: some preventive care in the 1980s and 1990s, such as pneumonia vaccines and mammograms, and the drug benefit of 2003.⁸ A 1988 law would have added drug coverage to the traditional program and capped what patients could be charged, but it was repealed a year later after beneficiaries rebelled against paying for it through a surtax.⁸ The managed care plans now called Medicare Advantage were first authorized in 1982 and grew popular in part because they offered what the traditional program did not.⁸ In 2021 lawmakers proposed adding dental, vision and hearing benefits, which the Congressional Budget Office had priced at 358 billion dollars over ten years for a 2019 version, the closest those benefits had come to enactment.⁸ What did not change is the structure the man in Omaha met at his kitchen table: four parts, a lettered supplement, a yearly window and a program that, by its own description, covers most but not all of what it approves.² How the years of work around that birthday are arranged is the subject of working longer and phased retirement, and the companion decision about when to claim Social Security has its own entry.

Figure

What traditional Medicare leaves out

coinsurance on outpatient care, with no yearly limit on what a patient can owe

20 percent

the point at which the basic hospital benefit runs out

90 days

typical yearly cost of the custodial long term care that Medicare does not cover

$50,000 to $100,000