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Planning for retirement includes obtaining appropriate and affordable healthcare coverage. In that respect, for Americans 65 and older, any conversation about health care must include Medicare. Eligibility at age 65 means that health insurance becomes more affordable.
When you retire, it’s important to understand how Medicare works and how you can get the best and most cost-effective coverage. Many retirees wonder how to determine whether they need all four parts of Medicare. Questions about Medicare costs, supplemental insurances, and enrollment periods often arise as well.
- For Americans 65 and older, conversations about health insurance should include Medicare.
- There are four parts to Medicare—A, B, C, and D—that cover different healthcare needs.
- Medigap insurance is provided by private insurance companies and can help pay for expenses not covered under Medicare.
- When you're first eligible for Medicare, the open enrollment period lasts roughly seven months and begins three months prior to the month of your 65th birthday.
Part A (Hospital)
Medicare Part A, hospital coverage, pays for your care in a hospital, skilled nursing facility, nursing home (as long as it’s not just for custodial care), hospice, and certain types of home health services.
Part B (Medical)
Medicare Part B coverage includes medically necessary services or supplies needed to diagnose and treat a medical condition. It also covers preventive services for illnesses such as the flu. Finally, Part B includes inpatient and outpatient physician services and, in some cases, limited outpatient prescription drugs.
In contrast to Part A, which is available to many people at no cost, those who sign up for Part B pay monthly premiums. Part B also requires a deductible and coinsurance.
Part C (Medicare Advantage)
Part C, Medicare Advantage, is sold by private insurance companies approved by Medicare. These plans come in four varieties—health maintenance organization (HMO), preferred provider organization (PPO), private fee for service (PFFS), and special needs (SNP) plans—and take the place of Medicare Part A, Part B, and, often, Part D coverage. HMOs and PPOs are the most common Medicare Advantage plans, and many of them offer extras such as vision, dental, hearing aids, and wellness services.
Part D (Prescription Drugs)
Prescription drug coverage is based on a medication list (called a formulary) that is included with Medicare Part D. Each Medicare prescription drug plan has its own list. Most plans place drugs into different “tiers,” with each tier having a different cost.
The Medigap Option
It’s hard to predict Medicare costs. Because of that, many retirees who don’t choose a Medicare Advantage (Part C) plan purchase a Medigap plan instead. Such plans come in 10 standardized policies (named A, B, C, and so on) providing a variety of supplemental coverage options and covering many out-of-pocket costs associated with traditional Medicare. Some even provide additional services not covered by traditional Medicare. Medigap plans, however, do not provide prescription drug coverage. So if you have a Medigap policy, you may still need Medicare Part D.
A one-time Medigap open-enrollment period lasts six months and begins the month you turn 65 (and are enrolled in Part B). During this period, you can buy any Medigap policy sold in your state regardless of your health. If you wait until after the enrollment period to buy a Medigap policy, you could be denied or forced to pay a higher premium.
Since 2020, Medigap plans C and F have not been available to new Medicare participants.
Medicare Advantage can be an alternative to a Medigap policy and Part D coverage. It's important to look at your own circumstances and determine which type of plan is better for you.
If you already have a Medicare Advantage plan, Medigap is not an option—in fact, it is illegal for someone to try to sell you Medigap coverage.
If you qualify for Medicare and are ready to look at plans, eHealth Medicare, an independent insurance broker and partner of Investopedia, has licensed insurance agents at 888-407-7044 (TTY 711) who can help connect you with Medicare Advantage, Medicare Supplement Insurance, and Prescription Drug Part D plans.
Initial Enrollment Period
Your initial enrollment period for Medicare (all four parts) begins three months prior to the month you turn 65 and lasts until the end of the third month after your birthday month—a total of seven months. If you don’t sign up during the initial window, you can sign up between Jan. 1 and March 31 each year for coverage that begins July 1. Failure to sign up during the initial enrollment period, however, could result in permanently higher premiums—unless you qualify for a special enrollment period.
Special Enrollment Period (SEP)
If you are still covered by a group health plan provided by your or your spouse's employer when you turn 65, you may qualify for a special enrollment period. In general, the SEP requires that you enroll in Medicare no later than eight months after your group health plan or the employment on which it is based ends (whichever comes first). One important exception to SEP rules: If your group health plan or employment on which it is based ends during your initial enrollment period, you do not qualify for a SEP.
Other Enrollment Periods
There is an open enrollment period for Medicare Advantage and prescription drug coverage each year, from Oct. 15 to Dec. 7. There is also a new annual Medicare Advantage open enrollment period, from Jan. 1 to March 31, during which you can switch to traditional Medicare from an MA plan and join a Medicare prescription drug plan to add drug coverage.
Most people pay enough into the Medicare system during their working lives that they do not have to pay for their Medicare Part A coverage.
The 2023 standard monthly premium for Medicare Part B coverage is $164.90 (down from $170.10 in 2022). Most people pay the standard monthly premium, but some individuals pay more if their annual income—which determines what someone pays—exceeds a certain amount. Single filers with more than $500,000 in modified adjusted gross income for 2021 will pay the highest monthly Part B premiums in 2023 at $560.50, down from $578.30 in 2022.
The Centers for Medicare & Medicaid Services project an average Part C (Medicare Advantage) monthly premium at $18 for 2023, down from the $19.52 in 2022. Some Part C plans do not charge a premium at all. Other costs can include copayments for doctor visits and other services.
Part D coverage includes a monthly premium that will vary depending on the plan you choose and the drugs you use. Although the dreaded “donut hole” went away in 2020, there is still a coverage gap once you spend $4,660 on covered drugs in 2023 (up from $4,430 in 2022). After reaching that limit, you will pay 25% of the cost of the prescriptions filled during the remainder of the year. Once you spend $7,400 out of pocket on covered prescriptions in 2023 (up from $7,050 in 2022) you will qualify for “catastrophic coverage” providing covered medications with a small copay for the rest of the year.
The average monthly premium for Part D coverage is projected at $31.50 for 2023, down from $32.08 in 2022.
Sorting Out Your Options
All of this can lead to confusion about which Medicare coverage options are best for you. Most people sign up for parts A, B, and D, with many adding Medigap coverage as well. Others choose Medicare Advantage instead of A, B, and D. If you choose a Medicare Advantage plan and want prescription drug coverage, make sure it is provided by your MA plan. If not, you may need to add Part D coverage.
Because Medicare normally pays first (before other coverage), chances are that any available retiree policy will require you to have, at minimum, Medicare parts A and B. Check out costs and coverage before signing up for Medicare.
If you decide to go back to work after retirement and are eligible for group health plan coverage, it will likely work differently with Medicare. Check with the human resources department of your new employer to avoid overlaps or lapses in coverage. If you have retiree health insurance from a former employer, find out what happens if you cancel that coverage but want it back at a later date.
Costs for Medigap coverage depend on the type of policy you have and where you live; they can range from $50 per month to several hundred dollars. Learning about drug pricing tiers and Part D can help you decide on an optimal plan.
The Bottom Line
Visit the Medicare.gov website and use it to review topics discussed in this article before deciding on the best Medicare coverage for you. Shop around using Medicare’s Medicare Plan Finder. This helpful tool will let you specify your health situation, including up to 25 drugs you take. Then it will display plans, with costs, available to you in your area.
When online, you may come across many non-Medicare information websites. Be aware that they could be biased in favor of a sponsoring healthcare provider. Finally, don’t forget to review your full complement of Medicare coverage every year to make sure the plan is still the most suitable for you.
Can I get Medicare if I am 65, but do not qualify for Social Security?
Yes, but you'll have to pay monthly premiums for Part A and Part B. In order to enroll and find out premium costs, call Social Security at 1-800-772-1213.
Are there penalties if I do not sign up for Medicare by a certain time?
It depends. The enrollment period for Medicare (all four parts) lasts seven months. It begins three months prior to your 65th birthday and lasts for three months after your 65th birthday. There are opportunities to sign up after this window, but you risk being charged permanently higher premiums, unless you qualify for a special enrollment period. If you are still covered by a group health plan provided by your or your spouse's employer when you turn 65, you may qualify for a special enrollment period.
Do I have to sign up for Medicare if I have private insurance?
It depends on the type of insurance you have and your place of employment. If you are self-employed or work at a small business with less than 20 employees, double check that you will still be covered past 65. If you have COBRA coverage, make sure to sign up for Medicare. If these do not apply to you, and you're still covered by your (or your spouse's) health insurance, you can put off signing up for Medicare.