Medicare is the federal health insurance program in the United States that provides coverage for millions of Americans. It functions as a defined-benefit system for medical care, primarily targeting individuals aged 65 or older. The program also extends coverage to younger people with specific disabilities or permanent medical conditions. Medicare is administered by the Centers for Medicare and Medicaid Services (CMS) and is funded through payroll taxes, premiums, and general revenue. It helps cover the costs of hospital stays, doctor visits, preventive services, and prescription drugs, though it does not cover all medical expenses, such as most long-term care.
Who Qualifies and How to Sign Up
Eligibility for Medicare is generally determined by age or specific medical status, regardless of income level. The most common qualification is reaching age 65, provided the individual is a U.S. citizen or a permanent legal resident who has lived in the country for at least five continuous years. Younger individuals can also qualify if they have received Social Security Disability Insurance (SSDI) benefits for 24 months. Certain permanent medical conditions grant immediate eligibility, including End-Stage Renal Disease (ESRD) and Amyotrophic Lateral Sclerosis (ALS).
For most people, the Initial Enrollment Period (IEP) is the primary window for signing up for Medicare. It begins three months before the month of their 65th birthday, includes the birthday month, and extends three months after. This seven-month period allows enrollment without facing potential late enrollment penalties. If an individual is already receiving Social Security or Railroad Retirement Board benefits when they turn 65, enrollment in Parts A and B is automatic.
Individuals who are not collecting retirement benefits must actively sign up through the Social Security Administration. Missing the IEP can result in permanent increases to the monthly Part B premium, unless the person qualifies for a Special Enrollment Period (SEP). A common SEP is available for those who remain covered by an employer group health plan based on their or a spouse’s current employment after age 65.
The Four Pillars of Coverage (Parts A, B, C, and D)
Medicare is structured into four distinct parts, each covering specific types of healthcare services. The first two parts, Part A and Part B, together form what is known as Original Medicare, which is managed directly by the federal government.
Part A (Hospital Insurance)
Part A primarily covers services related to inpatient care in a hospital setting, including the costs associated with an overnight stay. It also provides coverage for limited stays in a skilled nursing facility, hospice care, and some home health services. Most beneficiaries do not pay a monthly premium for Part A if they or their spouse worked and paid Medicare taxes for at least 10 years.
Part B (Medical Insurance)
Part B covers medically necessary services generally provided on an outpatient basis. This includes doctor visits, preventive services like flu shots and certain screenings, outpatient therapy, durable medical equipment, and ambulance services. Unlike Part A, Part B requires beneficiaries to pay a monthly premium.
Part C (Medicare Advantage)
Medicare Part C, or Medicare Advantage, is an alternative way to receive Medicare benefits through private insurance companies approved by Medicare. These plans must cover all the services included in Original Medicare (Parts A and B), but they often include additional benefits. These commonly include routine dental, vision, and hearing coverage, and often prescription drug coverage (Part D) is bundled into the plan.
Part D (Prescription Drug Coverage)
Part D is the component that provides outpatient prescription drug coverage. This coverage is offered through private insurance companies as either a stand-alone plan to supplement Original Medicare or as part of a Medicare Advantage plan. Enrollment in a Part D plan is optional, but delaying enrollment without having other creditable drug coverage can result in a permanent late enrollment penalty.
Financial Structure and Out-of-Pocket Expenses
Medicare is not a subsidized program, and beneficiaries are responsible for various costs, including premiums, deductibles, copayments, and coinsurance. While Part A is premium-free for approximately 99% of beneficiaries due to sufficient work history, Part B requires a standard monthly premium deducted from Social Security payments. Individuals with higher incomes pay an additional amount known as the Income-Related Monthly Adjustment Amount (IRMAA), which increases the Part B and Part D premiums.
After the annual deductible is met for Part B, beneficiaries typically pay a coinsurance amount, generally 20% of the Medicare-approved cost for most services. Original Medicare does not have an annual limit on out-of-pocket spending. This lack of an out-of-pocket maximum often leads beneficiaries to purchase supplemental insurance, such as Medigap policies, to help cover these cost-sharing gaps.
Medicare Versus Medicaid
Medicare and Medicaid are frequently confused because both are government-sponsored health programs, but they serve distinct populations with different eligibility rules. Medicare is fundamentally an entitlement program based on age or disability, with no income requirements for qualification. It is a federal program, meaning its standards for coverage and cost-sharing are uniform across the United States.
Medicaid is a social assistance program that provides health coverage for people with limited income and resources. It is jointly funded by the federal and state governments, and while the federal government sets minimum standards, eligibility rules and benefits can vary significantly from state to state. Medicaid can cover benefits that Medicare typically does not, such as long-term nursing home care. Some individuals, referred to as “dual eligibles,” qualify for both programs. In these cases, Medicare typically acts as the primary payer, and Medicaid helps pay for Medicare premiums, deductibles, and coinsurance, substantially reducing the beneficiary’s out-of-pocket costs.