What is Medicare, and How Does It Work?

If you’re approaching 65 or helping a loved one understand healthcare options, Medicare is likely at the top of your mind. Medicare is a federal health insurance program designed primarily for older adults, but it also helps certain younger people with disabilities and those with specific health conditions.

While Medicare may seem complex at first glance, understanding the basics can help you make informed choices about your healthcare coverage.

Medicare in a Nutshell

Medicare was created in 1965 to help ensure older Americans had access to affordable healthcare. Over the years, it’s expanded to cover millions of people who rely on it for everything from hospital care to prescription drugs. Here’s how it’s organized:

1. Part A (Hospital Insurance)
   Part A covers inpatient hospital care, skilled nursing facility care, hospice, and limited home health care. For most people, there’s no premium for Part A as long as you or your spouse paid Medicare taxes while working. However, deductibles and coinsurance costs vary based on the length of hospital stays or other factors.
2. Part B (Medical Insurance)
   Part B covers doctor visits, outpatient care, preventive services (flu shots and cancer screenings), mental health services, and medical equipment like wheelchairs. It requires a monthly premium, which can vary based on income. The plan also involves an annual deductible and typically a 20% coinsurance for most services.
3. Part C (Medicare Advantage)
   Medicare Advantage (Part C) plans are offered by private insurance companies that Medicare has approved. These plans combine Part A and Part B, often including additional benefits like vision, dental, or hearing coverage. Medicare Advantage plans may also include Part D, which covers prescription drugs (more on this in a moment). Advantage plans usually operate with network restrictions, meaning you’ll generally need to see in-network providers for full coverage.
4. Part D (Prescription Drug Coverage)
   Part D helps cover the cost of prescription drugs. It’s available to anyone with Medicare and is offered by private insurers. Part D plans vary in coverage, premiums, and medication costs, so choosing the right one requires researching which medications you regularly take.

Together, these parts create a comprehensive healthcare program that covers a wide range of medical needs, but each part functions differently, and that’s where a little guidance can help.

Who Qualifies for Medicare?

Medicare primarily serves people aged 65 and older. You’re generally eligible to enroll during the seven-month window around your 65th birthday, known as your Initial Enrollment Period. This period starts three months before the month you turn 65 and ends three months after.

However, Medicare also covers people under 65 with specific disabilities and those with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). If you qualify for Social Security Disability Insurance, you’re typically eligible for Medicare after a two-year waiting period.

How Do the Parts Work Together?

Think of Medicare as a series of building blocks that can be stacked to meet your specific healthcare needs. Many people start with Original Medicare, which includes Parts A and B. With Original Medicare, you can see any provider who accepts Medicare, giving you a lot of flexibility.

Some people purchase Medigap policies, also called Medicare Supplement Insurance, to fill the gaps not covered by Original Medicare. Medigap policies help pay for costs like coinsurance, copayments, and deductibles not covered by Original Medicare. However, Medigap policies do not cover prescription drugs, which is why many people on Original Medicare also sign up for Part D to cover their medication needs.

On the other hand, Medicare Advantage (Part C) is an alternative to Original Medicare. It bundles Parts A and B—and often Part D—into a single plan managed by a private insurer. Medicare Advantage plans usually operate with network restrictions (like an HMO or PPO), but they may offer added benefits that Original Medicare doesn’t, such as dental, vision, and fitness programs.

A Real-World Example

Let’s take an example to see how these parts come together.

Imagine Jane, a 68-year-old Medicare beneficiary. She’s healthy but has high blood pressure and takes a couple of daily medications. Here’s how Jane might use Medicare:

• Part A would cover any hospital stays if Jane ever needs inpatient care, and she wouldn’t need to pay a premium for Part A.
• Part B helps Jane cover doctor visits and lab work to monitor her blood pressure, with a monthly premium and coinsurance costs for her visits.
• Part D is her prescription drug coverage, so her blood pressure medications are covered through a Part D plan she chose based on its affordable drug costs.

Alternatively, Jane could opt for a Medicare Advantage plan, combining her Part A, Part B, and Part D needs into a single, streamlined plan that may include extra benefits.

Key Enrollment Periods

When and how you enroll in Medicare can affect your coverage options and costs. Here are some key times to keep in mind:

• Initial Enrollment Period (IEP): Your seven-month window around turning 65.
• Annual Enrollment Period (AEP): Each fall from October 15 to December 7, you can review and change your Medicare Advantage or Part D plans for the next year.
• General Enrollment Period (GEP): January 1 to March 31 each year for those who missed their Initial Enrollment.
• Special Enrollment Periods (SEPs): Qualifying life events, like retiring after age 65, can trigger additional enrollment opportunities.

Missing these periods can lead to late enrollment penalties, particularly for Parts B and D, so staying informed is crucial.

Final Thoughts

Medicare provides vital coverage for millions of Americans, but navigating the different parts can be tricky. Remember, you don’t have to go it alone. Whether you’re deciding between Original Medicare and Medicare Advantage, choosing a Part D plan, or considering a Medigap policy, resources are available to help you make the best choice for your healthcare needs.