What Is Medicare & How Does It Work?

Medicare is a federal health insurance program that provides health coverage for U.S. citizens 65 years old and older and those with certain conditions, like End Stage Renal Disease or Amyotrophic Lateral Sclerosis. People under 65 who have been receiving Social Security Disability benefits for at least 24 months may also qualify for Medicare.

There are three types of Medicare coverage. Medicare Part A (hospital care) has no monthly premium if you've paid Medicare taxes for at least 10 years but you will need to pay additional for Part B (doctor service) and Part D (prescription drug coverage). Part B costs $170.10 per month in 2022 and prices vary for Part D.

While Medicare is a federal program, you can purchase Medicare Advantage (Part C), which is health insurance that follows Medicare guidelines but is sold through private insurers and may offer additional benefits.

Keep reading to learn how Medicare works, what it covers and when you can enroll.

On This Page

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  How Does Medicare Work?

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  Medicare Costs and Coverage

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  What Isn't Covered by Medicare?

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  How To Enroll in Medicare

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  How Medicare Works With Other Insurance

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  Medicare vs. Medicaid

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  Medicare FAQs

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  Shop for a Medigap or Medicare Advantage Plan

How Does Medicare Work?

You can start receiving Medicare coverage when you turn 65 but younger people can start receiving Medicare benefits if they have a certain condition, like End-Stage Renal Disease (ESRD) or they have been receiving Social Security Disability benefits for at least 24 months. The initial enrollment period for Medicare lasts seven months — from three months before you turn 65 to three months after.

There are four parts to Medicare:

• Part A covers hospital care services.

• Part B covers doctor services.

• Part C is a coverage called Medicare Advantage. It is sold by private insurers that bundle parts A, B and sometimes D.

• Part D covers prescription drugs (sold as a separate Medigap plan but is sometimes included in some Medicare Advantage plans).

Based on what coverage you want, you can either opt for Original Medicare or a Medicare Advantage Plan that includes vision, hearing and dental coverage, possibly even prescription drugs.

What Is Original Medicare?

Original Medicare is a government insurance program that covers most approved necessary health care services and supplies and some preventive services (e.g., shots and vaccines). Not all services are included. For instance, you will need to pay a deductible and copayment for hospital and doctor services. Prescription drugs will also be an additional cost if you purchase Part D coverage. You can visit any healthcare provider that accepts Medicare.

Medicare Part A (hospital care) has no monthly premium if you’ve paid Medicare taxes for at least 10 years.

Original Medicare includes Part A (hospital insurance) and typically Part B (medical/doctor insurance). There is no monthly premium for Part A if you've paid Medicare taxes for at least 10 years. Part B has a $170.10 monthly premium in 2022. You can forgo Part B coverage during initial enrollment to avoid the premium — however, you will pay a penalty for the duration of your coverage if you decide to buy it at a later date. You also have the option to purchase Part D for prescription drug coverage.

What Is a Medicare Advantage Plan?

Often called "Part C" or "MA Plan," a Medicare Advantage Plan is a privately sold health plan that bundles Part A, Part B and sometimes Part D of Medicare and is sold by private insurance companies. Getting an MA Plan typically includes vision, hearing and dental. Unlike Original Medicare, you can only visit healthcare providers within your plan's network and you will need a referral before you see a specialist.

There are several types of Medicare Advantage Plans with the common ones being:

• Health Maintenance Organization (HMO) Plans

• Preferred Provider Organization (PPO) Plans

• Private Fee-for-Service (PFFS) Plans

• Special Needs Plans (SNPs)

Original Medicare vs. Medicare Advantage at a Glance

Part B (doctor services) costs $170.10 per month in 2022 and prices vary for Part D (prescription drugs).

Medicare Costs and Coverage

*Prices vary per plan. Our sample in Orange County, California showed that the part C premium can range from $170.10 to $567.10 per month. Part D premium can range from $7.50 to $160.20.

What does Part A cover?

Also called hospital insurance, Medicare Part A pays for several hospital services, including:

• Inpatient hospital care: Covers general nursing, drugs, meals and semi-private rooms.

• Skilled nursing facility care: Covers nursing and therapy services, meals, semi-private rooms and medically necessary services and supplies.

• Hospice care: Includes durable medical equipment, drugs and services for pain relief and symptom management and homemaker services.

• Some home health care: Covers nursing care, physical therapy and occupational therapy services.

• Blood: Free if the hospital gets blood from a blood bank.

What does Part B cover?

Also called medical insurance, Medicare Part B covers several types of medical services:

• Alcohol misuse screenings and counseling: Includes up to four face-to-face counseling sessions each year.

• Ambulance services: Covers ground ambulance transportation to a hospital or other healthcare facility.

• Bariatric surgery: Covers some procedure costs related to morbid obesity, such as gastric bypass surgery or laparoscopic banding surgery.

• Preventative services: Covers services to prevent illness or detect it at an early stage, such as flu shots, glaucoma tests and screenings for HIV and Hepatitis B and C.

• Acupuncture: Covers up to 12 acupuncture visits for eligible chronic low back pain.

• Other healthcare services: Covers some of the costs of chemotherapy, chiropractic and chronic care management services and more.

Part B late enrollment penalty: Medicare Part B has a $170.10 monthly premium but there is a penalty if you did not sign up when you were first eligible. For each 12-month period you did not sign up for Part B, your premium increases 10%. The penalty increases the longer you forgo Part B coverage.

For example, say your initial enrollment period ended in Dec. 2019 and you waited until March 2022 during the general enrollment period to sign up for Part B coverage. Since two 12-month periods have elapsed, your premium penalty will be 20%. You will pay the 20% penalty for however long you maintain Part B coverage.

What does Part D cover?

Also called drug coverage, Medicare Part D can cover both generic and brand-name drugs. Part D can be added on at an additional cost for original Medicare plans and is often bundled into the cost of a Medicare Advantage (Part C) plan.

Medigap may help cover the difference

Medigap, also called Medicare Supplement Insurance, is Medicare insurance that pays for "gaps" in Original Medicare coverage that would otherwise be paid out-of-pocket, including copayments, coinsurance and deductibles. Medigap may also cover medical care services or supplies while traveling outside the U.S. Medigap is only available for Original Medicare Plans and cannot be applied to an Medicare Advantage plan.

Medigap, also sold by private insurers, has a separate monthly premium. Medigap coverage is for only one person — your spouse must buy it separately if they want the additional coverage.

Explore Your Medicare Options

What Isn't Covered by Medicare?

Although Medicare covers most necessary health care services and equipment, there are some exceptions including (but not limited to):

• Long-Term Care (also called custodial care)

• Most dental care

• Eye exams related to prescribing glasses

• Dentures

• Cosmetic surgery

• Acupuncture

• Hearing aids and exams for fitting them

• Routine foot care

The Medicare online tool allows you to confirm if a test, item or service is covered by Medicare. If it is not listed online, ask your doctor.

How To Enroll in Medicare

Your first opportunity to sign up for Original Medicare or a Medicare Advantage Plan is during your initial enrollment period. It starts three months before you turn 65 and ends three months after you turn 65. The Medicare website has an online tool to estimate when you are eligible to receive Medicare benefits.

When you apply for Social Security benefits, it will also serve as your application for Medicare. Once you're approved for Social Security benefits, you'll automatically receive Medicare Part A coverage at no monthly premium if you've paid Medicare taxes for at least 10 years.

If you're applying for Medicare only, you can apply online through the Social Security Administration website or by calling 1-800-772-1213.

Medicare coverage begins depending on when you sign up:

Making changes to your plan

You can sign up or make changes to your Original Medicare plan or Medicare Advantage (MA) Plan during the following enrollment periods:

• Initial enrollment period: Your first opportunity to sign up for Original Medicare or an MA Plan is three months before you turn 65 to three months after you turn 65.

• Open enrollment (Oct. 15 to Dec. 7): Join or switch from an Original Medicare to an MA Plan and vice versa.

• Medicare Advantage Open Enrollment (Jan. 1 to Mar. 31): MA plan customers can switch to another MA Plan (with or without drug coverage) or switch from an MA Plan to Original Medicare. You cannot switch from Original Medicare to an MA Plan during this time.

How Medicare Works With Other Insurance

When you have more than one form of health coverage, "coordination of benefits" rules determine who pays first. The "primary payer" is who pays first up to the plan's coverage limits. Once the coverage is exhausted, the "secondary payer" covers the difference, if any.

Below are some examples of when Medicare would pay before or after another healthcare plan.

For more questions about who pays first, you can call the Benefits Coordination & Recovery Center toll-free at 1-855-798-2627.

Medicare vs. Medicaid

Medicare provides health benefits for people ages 65 and up as well as the disabled or those with certain end-stage renal disease, while Medicaid provides health insurance benefits for low-income families. An individual can be enrolled in both Medicare and Medicaid at the same time and receive benefits for each.

Below, we highlight some key differences between Medicare and Medicaid:

You can buy Original Medicare or a Medicare Advantage Plan that includes vision, hearing and dental coverage, possibly even prescription drugs.

Shop for a Medigap or Medicare Advantage Plan

If you have an Original Medicare plan, you're not covered for all your healthcare costs, including prescription drugs, deductibles and coinsurance payments. A Medigap Plan can help offset some of those out-of-pocket costs when you receive services. Alternatively, a Medicare Advantage Plan is a separate health insurance plan that follows Medicare guidelines but may offer additional coverage, like vision, hearing and dental.

Whether you're shopping for a Medicare Advantage or Medigap Plan, SmartFinancial can help you explore different rates and coverages. Just answer a few questions and enter your zip code below to receive your free quotes within minutes.