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Medicare Coverage Basics

Medicare Coverage Basics: An Introduction to Medicare

Medicare is a federal health insurance program designed for America’s seniors, those aged 65 and older. It was created in 1965 and signed into law on July 30th of that year by President Lyndon B. Johnson. Nearly half of the country’s older adults did not have health insurance at the time, and the majority of the elderly could not find affordable healthcare. And those who did have health insurance may not have had great coverage, either.

Today, Medicare provides health insurance for more than 63 million people, a number that includes older adults and younger enrollees with disabilities. Of those, about 42% now choose Medicare Advantage over Original Medicare. But regardless of how Medicare beneficiaries get their coverage, the program is widely popular.

Coverage in Four Parts

Medicare covers medical and hospital care under Original Medicare. But there are two additional parts of Medicare that aren’t included in the traditional lineup created in 1965. Altogether, Medicare offers coverage in four distinct parts:

Medicare Part A

Medicare Part A covers hospital care. This includes traditional hospitals and psychiatric ones as well as skilled nursing facility care. Most people don’t pay a premium for Part A coverage. That’s because Part A is funded through work taxes. If you’ve earned 40 work credits by the time you’re eligible for Medicare, you won’t have a premium for Part A. That translates to about 10 years of work over the course of your working life.

While most people don’t pay a premium, everyone has a deductible and coinsurance rate for the coverage under Part A. These amounts change each year.

Medicare Part B

Medicare Part B covers medically necessary outpatient care. This includes preventive care, routine vaccines, annual checkups, ambulance rides and other care, services and equipment that your doctor and Medicare deem “medically necessary.” It does not include prescription drugs, though Part B will cover a limited set of drugs that you don’t typically administer yourself (like chemotherapy treatments).

Everyone pays a premium for Part B, which changes each year. And people with higher incomes pay a higher premium. You’ll also have a 20% coinsurance rate on all covered Part B services.

Medicare Part C

Medicare Part C is also called Medicare Advantage. This is the private portion of Medicare. These plans are regulated by the federal government but sold by individual companies on the private market. By law, Medicare Advantage plans have to cover at least the same benefits as Part A and Part B together (collectively, Parts A and B are called Original Medicare).

Beyond the legally required minimum coverage, Medicare Advantage plans can cover a broader set of benefits. These might include things that Original Medicare doesn’t cover, such as:

  • Prescription drugs
  • Dental and vision care
  • Hearing aids and the exams to fit them
  • Routine foot care
  • Acupuncture
  • Post-hospital meal delivery
  • Transportation to doctor’s appointments
  • Gym memberships
  • Pest control & more

Medicare Advantage plans vary in what they cover and in what they cost. You’ll always pay any premiums you have with Original Medicare — usually just Part B for most people — but you may or may not have an added premium for your Medicare Advantage plan.

In fact, over 99% of people with Medicare have access to at least one Medicare Advantage plan with a $0 monthly premium in 2022, and that will remain true for 2023. The average cost of an MA plan in 2022 is just under $23 a month. In 2023, the average price drops to about $18 a month. Where you live and who’s selling the plan impact how much you’ll pay for this coverage.

Medicare Part D

Medicare Part D is prescription drug coverage. As we mentioned above, Original Medicare doesn’t cover prescription drugs outside of a very limited set of medications administered in a clinical setting. For regular prescriptions that you pick up at a pharmacy and take yourself, you’ll need to add drug coverage in the form of Medicare Part D. That includes medications like blood pressure pills and insulin.

If you have Original Medicare, you can buy a standalone Part D policy. If you prefer a private Medicare Advantage plan, look for one that covers prescriptions. Most (but not all) do.

Part D plans are sold by private companies but also regulated by the government, just like Medicare Advantage. In 2022, the national average for the lowest-priced standalone Part D plan is just over $7 a month. That goes down to just under $6 a month in 2023. Drug coverage varies by plan, and availability depends on where you live.

Medicare Supplemental Benefits

Along with Original Medicare, Medicare Advantage and Part D prescription drug benefits, you have another option for boosting your Medicare coverage. This is called Medicare supplemental coverage, or Medigap. These are private plans sold to people with Original Medicare that help offset your costs under Parts A and B.

Medigap doesn’t add any extra coverage in the form of medical services or treatments. It instead covers some or nearly all of your out-of-pocket costs under Original Medicare. That might include the Part A hospital deductible, for example, or Part B coinsurance of 20%. These plans come with a separate premium, but they can help some people save money on what they pay out of pocket for care.

Unlike Medicare Advantage, which has a cap in place on out-of-pocket expenses, Original Medicare does not cap what you spend out of pocket for care in a year. And for some, this lack of cap can really add up.

Original Medicare offers good coverage, but it doesn’t cover everything. Make sure you review your options carefully before signing up, and take advantage of Medicare Open Enrollment each year (October 15th through December 7th) to reassess your needs and get the coverage that’s right for you.