Medicare is the United States federal health insurance program providing health coverage to specific populations. It functions as a social insurance program, ensuring access to medical services for millions of Americans. Funding is primarily derived from payroll taxes paid by current workers and employers, which helps manage the costs of healthcare for its beneficiaries.
Defining Medicare and Eligibility
The purpose of Medicare is to provide health coverage, primarily to older adults, though certain disabled individuals also qualify. Eligibility requires individuals to be 65 or older and a United States citizen or permanent legal resident who has lived in the country for at least five continuous years. Most people qualify for premium-free hospital insurance if they, or their spouse, have worked and paid Medicare taxes for a minimum of 40 quarters (approximately 10 years).
Individuals under 65 may qualify if they meet specific disability criteria. Those who have received Social Security Disability Insurance (SSDI) benefits become eligible after 24 months. People diagnosed with End-Stage Renal Disease (ESRD) requiring dialysis or a kidney transplant qualify, often after a three-month waiting period. A diagnosis of Amyotrophic Lateral Sclerosis (ALS) grants immediate eligibility upon the start of Social Security disability benefits, bypassing the 24-month waiting period.
The Components of Original Medicare (Parts A and B)
Original Medicare is the traditional, fee-for-service plan administered directly by the federal government, consisting of Part A and Part B. These two components define the foundational coverage and how services are reimbursed.
Medicare Part A, or Hospital Insurance, covers inpatient services provided by facilities like hospitals, skilled nursing facilities, and hospice care. Most eligible individuals do not pay a monthly premium for Part A because they or their spouse contributed Medicare taxes for at least 40 quarters. Beneficiaries must pay an inpatient hospital deductible (e.g., \\(1,736 per benefit period in 2026) and daily coinsurance amounts for extended stays.
Medicare Part B, or Medical Insurance, covers outpatient services, including doctor visits, preventive services, durable medical equipment, and laboratory tests. Part B requires beneficiaries to pay a standard monthly premium (e.g., \\)202.90 in 2026). After the annual deductible (e.g., \$283 in 2026) is met, the beneficiary typically pays a 20% coinsurance for most covered services. This cost-sharing structure means Original Medicare provides broad coverage but lacks an out-of-pocket maximum.
Understanding Medicare Advantage and Supplemental Plans
Beneficiaries can receive benefits through Medicare Advantage (Part C) or by adding a supplemental plan. Medicare Advantage is an alternative delivery method where private insurance companies, approved by Medicare, administer Part A and Part B benefits. These plans must cover the same services as Original Medicare but often include additional benefits like dental, vision, and hearing coverage, which Parts A and B do not cover.
Part C plans frequently bundle prescription drug coverage (Part D) into a single plan. They operate using networks, such as Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs), which may restrict the choice of doctors and hospitals. Although some Medicare Advantage plans have low or zero monthly premiums, beneficiaries must continue to pay their Part B premium.
For those who remain with Original Medicare, a Medigap policy (Medicare Supplement Insurance) can be purchased from a private insurer to cover cost-sharing gaps. Medigap plans are standardized and designed to pay for out-of-pocket costs like deductibles, copayments, and coinsurance. A beneficiary cannot have both a Medicare Advantage plan and a Medigap policy simultaneously.
Enrollment and Prescription Drug Coverage (Part D)
Enrollment in Medicare is governed by specific timeframes to ensure proper coverage and avoid potential financial penalties. The Initial Enrollment Period (IEP) is the primary window for signing up, spanning seven months around an individual’s 65th birthday: three months before, the birthday month, and three months after. Missing the IEP without having other creditable coverage may result in a late enrollment penalty, which permanently increases the Part B premium.
If a person does not enroll during their IEP and does not qualify for a Special Enrollment Period, they must wait for the General Enrollment Period (GEP), which runs from January 1 to March 31 each year, with coverage starting the following month. This delayed enrollment can trigger a penalty and a gap in coverage. The Annual Election Period (AEP), running from October 15 to December 7, allows beneficiaries to make changes to their current plan, such as switching between Original Medicare and Medicare Advantage.
Prescription drug coverage is provided through Part D, a benefit delivered by private insurance companies contracted with Medicare. Part D can be obtained either as a stand-alone plan if the person has Original Medicare, or it can be included as part of a Medicare Advantage plan. These plans use formularies, which are lists of covered medications organized into different tiers that determine the cost-sharing amount for each drug. Failure to enroll in a Part D plan when first eligible, without having other creditable drug coverage, can result in a permanent late enrollment penalty added to the monthly Part D premium.