Maybe you’re getting close to the age of 65 or simply want to understand how Medicare works so you can help a family member or friend. While some people who sign up for Medicare are retired, others are still working. Whatever your situation, you become eligible for Medicare when you reach 65 and, in most cases, must enroll.

In fact, if you are already receiving Social Security, you'll be enrolled automatically the month you turn 65. The card will arrive in the mail.

Currently, more than 60 million people are enrolled in Medicare.

Key Takeaways

  • Medicare is the national health insurance program for citizens of the United States.
  • Everyone qualifies for Medicare at age 65, and some disabled citizens also are eligible.
  • There are four parts to Medicare: A, B, C, and D.
  • Part A is automatic and includes payments for treatment in a medical facility.
  • Part B is automatic if you do not have other healthcare coverage, such as through an employer or spouse.
  • Part C, called Medicare Advantage, is a private-sector alternative to traditional Medicare.
  • Part D covers prescription drug benefits.

Medicare Background

Medicare is the national health insurance program for U.S. citizens and some permanent legal residents. Generally, you qualify for Medicare when you turn 65, based on your employment record or that of your spouse. People under 65 with qualifying disabilities are also covered by Medicare.

“Anyone who has been approved and has received Social Security disability income benefits for two years qualifies for Medicare Parts A and B,” says Chris Cooper, CFP®, ChFC, EA, MSFS, president, Chris Cooper & Company, San Diego, Calif.

If you have a child with serious health issues who is about to turn 18, it is important to check whether he or she should register for Medicare. (Under the Affordable Care Act, you also can cover your child under your own policy up to age 26.)

Meanwhile, Medicare has evolved over the years and now has four parts. While some are mandatory, others are optional.

Part A: Hospital Insurance

Part A covers the costs of hospitalization. When you enroll in Medicare, you receive Part A automatically. For most people, there is no monthly cost but there is a $1,408 deductible.

Services covered under part A include tests, surgeries, doctor visits, inpatient care in hospitals, skilled nursing facilities, in-home hospice care, home healthcare services, and inpatient care in a religious non-medical healthcare institution.

This sounds straightforward, but it's not. For example, Part A covers in-home hospice care but does not cover a stay in a hospice facility.

Additionally, if you’re hospitalized, a deductible applies, and if you stay for more than 60 days, you have to pay a portion of each day’s expenses. If you’re admitted to the hospital multiple times during the year, you may need to pay a deductible each time.

Part B: Doctors and Tests

Medicare Part B covers a long list of medical services including doctor’s visits, medical equipment, outpatient care, outpatient procedures, the purchase of blood, mammograms, cardiac rehabilitation, and cancer treatment.

You’re required to enroll in Part B if you don’t have “creditable coverage” from another source, such as an employer or spouse's employer.

You pay a monthly premium for Part B. In 2020, the cost was $144.60, up from $135.50 in 2019. If you're on Social Security, this will be deducted from your monthly payment.

If you don’t enroll and you don’t have creditable coverage from another source, you may have to pay a penalty.

The deductible for Part B is $198. Once you meet the deductible, you pay 20% of the Medicare-approved cost of the service, provided your healthcare provider accepts Medicare assignment. But beware: There is no cap on your 20% out-of-pocket expense.

For example, if your medical bills for a certain year were $100,000, you could be responsible for up to $20,000 of those charges, plus the charges incurred under Part A and D umbrellas. There is no lifetime maximum.

Kathryn B. Hauer, MBA, CFP®, EA, a financial advisor with Wilson David Investment Advisors in Aiken, S.C., and author of Financial Advice for Blue Collar America, explains:

“Chilling, and potentially devastating for chronic illnesses like cancer—the American Medical Association estimates that Medicare users without Medigap can spend 25% to 64% of their income on medical expenses."

On the other hand, you pay nothing for most preventive services, such as diabetes screenings and flu shots, if you receive those services from a provider who accepts Medicare payments.

What Parts A and B Don't Cover

The largest and most important item that traditional Medicare doesn’t cover is long-term care. If you are diagnosed with a chronic condition that requires ongoing personal care assistance, the kind that requires an assisted-living facility, Medicare will cover none of the cost. This includes help with everyday activities, such as bathing and dressing.

70%

The percentage of people over the age of 65 who will need longer-term care at some point.

According to Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.,

“Medicare was never meant to pay for long-term care. To take care of these expenses, look into long-term care insurance, a life insurance policy with a long-term care rider (add-on), a specifically designed long-term care annuity (versus an annuity with a chronic care rider) or even a life settlement, which will convert an old life insurance policy into a set amount of funds.”

Other expenses that are not covered include routine dental or eye care, dentures, and hearing aids.

Part C: Medicare Advantage

Also known as Medicare Advantage, Part C is an alternative to traditional Medicare coverage. Coverage normally includes all of Parts A and B, a prescription drug plan (Part D), and, depending on your choice of a provider, other benefits.

Part C is administered by private insurance companies, which collect your Medicare payment from the federal government.

Depending on the plan, you may or may not need to pay an additional premium for Part C. You don’t have to enroll in an advantage plan but for many people, these plans can be a better deal than paying separately for Parts A, B, and D.

If you've been pleased by the coverage of a Health Maintenance Organization (HMO), you might find similar services using Medicare Advantage.

Part D: Prescription Drugs

Prescription drug coverage, known as Part D, is also administered by private insurance companies. Part D is required unless you have a prescription drug plan from another source, including any Medicare Advantage plan. Depending on your plan, you may have to meet a yearly deductible before your plan begins covering your eligible drug costs.

Medicare plans have a coverage gap—a temporary limit on what the drug plan will cover. Often called the doughnut hole, this gap kicks in after you have spent a certain amount in combined costs. Once you have reached the level of "catastrophic coverage," you pay a co-payment for your prescription drugs. 

Each state has insurance options that will close the coverage gap, but these require paying an additional premium.

Medigap vs. Medicare Advantage

People who only have traditional Medicare—Parts A, B, and D—may incur sizable bills not covered by Medicare. To close these gaps, recipients can enroll in some form of Medigap insurance or in a Medicare Advantage plan (see Part C, above).

One important thing to know about Medigap: It only supplements Medicare and is not a stand-alone policy. If your doctor doesn't take Medicare, Medigap insurance will not pay for the procedure.

Insurance agents are not allowed to sell Medigap to participants of Part C, Medicare Advantage.

Medigap coverage is standardized by Medicare but offered by private insurance companies. According to, Patrick Traverse, founder of MoneyCoach, Mt. Pleasant, S.C.,

“I recommend that my clients purchase Medigap policies to cover their needs. Even though the premiums are higher, it is much easier to plan for them than what could be a large out-of-pocket outlay they might have to face if they had lesser coverage."