Turning 65 is a milestone. You may be on the doorstep to retirement (or already there), accepting senior discounts at select businesses (because why not), and qualifying for benefits now that you’re at the minimum age. One such benefit is Medicare.
Medicare functions as a cornerstone of healthcare security for people who are eligible. It provides essential coverage for inpatient hospital stays, outpatient doctor visits, and prescription drugs, giving you confidence you’ll have help through coverage at a time in your life when you may need more out of your healthcare.
This federal health insurance program can feel like a labyrinth of letters, with plans literally titled A, B, C, and D. While it might seem daunting, our comprehensive guide will educate you on the differences between these plans and other important information regarding Medicare.
Important note: This article is not intended to make recommendations on your Medicare coverage.
Medicare is a health insurance program for people 65 and older and includes four parts: Part A, Part B, Part C, and Part D. It covers various medical expenses like hospital stays, doctor visits, and prescriptions depending on the Part you enroll in.
Eligibility is based on your age, disability, and work history, and enrollment varies depending on the Part. Costs, including premiums, deductibles, and copays, also vary depending on your program (more on this later). Understanding the expense of healthcare is important for your overall retirement strategy so you can avoid financial mistakes when planning retirement.
In short, Original Medicare is Parts A and B, and Medicare Advantage is Part C. Let’s break down the details:
Original Medicare—Parts A and B—is a fee-for-service health insurance program. Part A covers what is called Hospital Insurance (more on this later) and has no monthly premium. Part B covers what’s called Medical Insurance (also more on this later) and does have a monthly premium. Both parts have deductibles and copays for their covered services. One important benefit of Original Medicare is the freedom for you to choose any doctor or hospital that accepts Medicare.
Medicare Advantage (Part C) is a managed care alternative to Original Medicare, meaning these plans are offered by private insurance companies as opposed to the government. Part C typically requires a monthly premium and may come with deductibles and copays for covered services.
As mentioned above, you can choose any doctor or facility that accepts Medicare with Original Medicare. But Medicare Advantage plans often have a network of providers you must use for non-emergency care so it’s important to know which providers accept your plan. One advantage of Medicare Advantage that differs from Original Medicare is that it may cover additional benefits including vision, dental, hearing, or wellness programs.
Medicare Part A is also known as Hospital Insurance and covers you financially for hospital stays and other inpatient care. This includes room and board, doctor visits during your stay, some medications, and even short-term rehabilitation in a skilled nursing facility. Part A also covers hospice care.
There are typically no monthly premiums for Part A if you’ve worked and paid Medicare taxes for at least 10 years. But there may be deductibles and copays for certain services. Enrollment usually happens automatically at 65 if you receive Social Security benefits. If you don’t receive Social Security benefits, you can still enroll but may have a monthly premium.
Part A does have limitations and doesn't cover outpatient care, long-term care, or prescription drugs.
Medicare Part B is also called Medical Insurance and complements the coverage of Part A, offering a range of outpatient medical services. These services include visits to your primary care physician and specialists, along with important preventive screenings and tests. Part B also covers services like diagnostic tests, physical therapy, and some medical equipment for home use.
You can enroll in Part B during a specific period, which typically occurs seven months before you turn 65. There's a monthly premium, an annual deductible, and potential co-pays to consider, along with the fact that Part B does not cover long-term care, dental, vision, hearing, or prescription drug benefits.
As mentioned above, Part C is also called Medicare Advantage Plus. It simplifies your Medicare experience by bundling Parts A and B (and sometimes D) into a single plan offered by private insurance providers. Unlike Medicare's Part A and B fee-for-service approach, Part C uses a managed care system with a network of doctors and hospitals. This offers convenience with one monthly bill and potentially lowers your out-of-pocket costs. Some plans include extra benefits like vision or dental coverage.
The trade-off with Part C is you’ll typically need to use doctors within the plan’s network that cover your services because out of network care can get expensive. Some Part C plans also require authorization from the plan before you can get a specific treatment.
If you choose to enroll in Medicare Part C, you can enroll during the Medicare Open Enrollment period which falls between October 15 to December 7 each year.
Part C operates under a managed care system which means you’ll need to choose doctors and specialists within the plan’s network to receive coverage. Out of network costs can get expensive. Part C offers convenience and may offer additional benefits, but it’s important to consider potential treatment authorizations and network limitations before signing up.
Medicare Part D offers prescription drug coverage. It is designed specifically to cover prescriptions since Parts A and B typically do not. While Part D isn’t mandatory, if you regularly take prescription drugs, it may be a suitable option for you, so asking your advisor about it is a great next step.
Part D covers specific medications depending on the Part D plan you choose. Plans typically have a list of drugs they cover and how much they’ll pay towards them.
There are different tiers within this list with lower copays for generic drugs compared to brand-name drugs.
Part D plans are offered by private insurance companies so your monthly premiums will vary. Some plans have deductibles and copays as well.
Now, Part D has what is called the “donut hole,” a coverage gap that is best explained in simple terms like this: Part D helps pay for your prescriptions, but a gap occurs where you will pay more for medications after spending a certain amount. Once your out-of-pocket costs reach another threshold, Medicare kicks back in to significantly reduce your drug expenses. This occurs because Medicare aims to share prescription drug costs, not eliminate them entirely.
The enrollment period for Part D occurs during the Medicare Open Enrollment Period of October 15 to December 7 each year.
Medicare Part D fills the gap in Original Medicare by offering prescription drug coverage. Plans vary in what medications they cover and how much they contribute. There's a coverage gap that occurs where you pay more for prescriptions, but after a certain point, Medicare steps in and significantly helps cover costs once they reach a higher threshold.
Not all providers accept Medicare. The best and easiest step you can take is to contact your doctor directly and ask what Medicare plans they participate in. You can also go to Medicare's Care Compare tool on their website, or visit your plan’s provider website if you have Part C.
Even if a doctor generally accepts Medicare, they might not accept all Medicare plans. The best thing you can do is double-check with both your doctor's office and your specific Medicare plan to make sure you’re covered.
Retirement Design Lab does not make recommendations on Medicare plans. If you have questions about Medicare, visit their website or consult a Medicare advisor.
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