Medicare is the federal program most seniors use, but it has gaps you need to understand

Medicare is the health insurance program run by the federal government for people 65 and older. It covers hospital stays, doctor visits, and some prescription drugs, but not everything — and you have to choose which parts to enroll in and when. Missing enrollment deadlines can cost you penalties for life, so the timing matters more than with other insurance.

Medicare has four parts. Part A covers hospital care, skilled nursing, hospice, and some home health. Part B covers doctor visits, outpatient care, and medical equipment. Part D covers prescription drugs. Part C, called Medicare Advantage, is an alternative to Parts A and B offered by private insurance companies — it bundles hospital and doctor coverage into one plan, usually with a lower monthly premium but higher out-of-pocket costs when you use care.

Most people do not pay a monthly premium for Part A if they or their spouse paid Medicare taxes while working. Part B has a monthly premium that changes each year. Part D premiums vary by plan. If your income is higher, you pay an additional amount on top of the standard premium for Parts B and D.

Key Takeaways

  • Medicare enrollment happens in the months around your 65th birthday; missing the deadline can add permanent penalties to your premiums.
  • Original Medicare (Parts A and B) lets you see any doctor, but you pay a deductible and coinsurance; Medicare Advantage (Part C) has lower premiums but limits which doctors you can see.
  • Part D prescription drug coverage must be chosen during open enrollment or when you first turn 65, and switching plans each year can save hundreds of dollars.
  • Medigap policies fill gaps in Original Medicare by covering deductibles and coinsurance, but they cost extra and are not available to Medicare Advantage members.
  • Your state may offer programs that help pay Medicare premiums and out-of-pocket costs if your income is low.

Original Medicare versus Medicare Advantage: the trade-off between choice and cost

If you choose Original Medicare (Parts A and B), you can see any doctor or hospital in the country that accepts Medicare. You pay a deductible when you use hospital care, and you pay coinsurance (a percentage of the cost) for doctor visits and other services. You are responsible for anything Medicare does not cover.

With Medicare Advantage (Part C), a private insurance company manages your coverage instead. The monthly premium is often lower or zero, but you usually have a network — you can only see doctors and hospitals in that network, except in emergencies. You also pay copays (a fixed amount per visit) instead of coinsurance. If you use a lot of care, your out-of-pocket costs can be higher than Original Medicare.

Original Medicare works well if you travel, see specialists often, or live in a rural area with few network doctors. Medicare Advantage works well if you want a lower monthly premium, do not mind staying in-network, and want prescription drug coverage bundled in. You can switch between them during the annual open enrollment period in the fall, but you cannot switch to Medicare Advantage after you turn 65 without penalties unless you meet specific conditions.

Medigap policies cover what Original Medicare leaves you paying

Medigap (also called Supplemental Insurance) is sold by private insurance companies and pays some or all of the deductibles, coinsurance, and copays that Original Medicare does not cover. It is only available to people with Original Medicare, not to Medicare Advantage members.

Medigap plans are labeled A through N, and each letter covers a different combination of costs. Plan G covers the most; Plan A covers the least. The same letter plan costs different amounts depending on which insurance company sells it, so comparing prices across companies for the same plan letter can save you hundreds per year. You can enroll in Medigap during a six-month window starting the month you turn 65 and enroll in Part B — after that window closes, insurance companies can charge you more or deny you based on your health history.

Medigap premiums are separate from Medicare premiums and are not subsidized by the government. If you have low income, your state may help pay them through a program like the may have access to Medicare Beneficiary (QMB) program or the Specified Low-Income Medicare Beneficiary (SLMB) program.

Part D prescription drug coverage requires active choice and annual review

Part D is prescription drug coverage you add to Original Medicare (it is included in Medicare Advantage plans). You enroll during the same window as Part B — the months around your 65th birthday — or during the annual open enrollment period in the fall. If you do not enroll when you are first may be able to access and you go without coverage, you pay a penalty for each month you were not enrolled, even if you enroll later.

Part D plans are offered by private insurance companies and vary widely in which drugs they cover, how much you pay, and which pharmacies you can use. A drug that costs $50 per month in one plan might cost $200 in another. The same plan can change its formulary (the list of drugs it covers) and its prices each year. Reviewing your plan every fall during open enrollment and switching if a cheaper plan covers your drugs can save significant money.

You pay a monthly premium for Part D, a deductible before coverage kicks in, and then coinsurance or copays for each prescription. If your annual drug costs reach a certain threshold, you enter the "donut hole" — a gap where you pay more out of pocket — though the gap has shrunk in recent years and continues to shrink.

Income-based programs reduce premiums and out-of-pocket costs for lower-income seniors

If your income is low, you may may have access to for programs that pay some or all of your Medicare premiums and out-of-pocket costs. These programs are run by your state, not by Medicare itself, so may be able to access rules and the amount of help vary by state.

Medicaid is a joint federal-state program that covers low-income people of any age. In states that expanded Medicaid, it covers many people over 65 with low income. Medicaid can pay your Medicare premiums, deductibles, and coinsurance, and it covers services Medicare does not, like long-term care and dental. may be able to access depends on your income and assets and varies by state.

The may have access to Medicare Beneficiary (QMB) program pays Part B premiums, deductibles, and coinsurance for people with income below a certain level. The Specified Low-Income Medicare Beneficiary (SLMB) program pays Part B premiums only. The Medicare Savings Program (MSP) is the umbrella name for these programs. You apply through your state Medicaid office, not through Medicare.

The Low-Income Subsidy (LIS) program, also called "Extra Help," pays Part D premiums and reduces your out-of-pocket drug costs. You apply through Social Security or at your local Social Security office.

Enrollment windows and deadlines have real financial consequences

Your Initial Enrollment Period (IEP) is the seven-month window centered on your 65th birthday — three months before, the month you turn 65, and three months after. You must enroll in Part A and Part B during this window. If you delay Part B enrollment and do not have other may have access to coverage, you pay a penalty of 10 percent of the standard Part B premium for each year you were not enrolled, and this penalty is permanent.

You must also enroll in Part D during your IEP or during the Annual Enrollment Period (AEP) in the fall. If you go without Part D coverage and later enroll, you pay a penalty of 1 percent of the national average Part D premium for each month you were not enrolled.

The Annual Enrollment Period (AEP) runs from October 15 to December 7 each year. During this window, you can switch between Original Medicare and Medicare Advantage, change your Medigap plan, or change your Part D plan. Changes take effect January 1. Outside of AEP, you can only make changes if you have a may have access to life event, such as moving out of your plan's service area, losing other health coverage, or becoming may be able to access for Medicaid.

Working past 65 or having employer coverage changes when you enroll

If you are still working at 65 and have health insurance through your employer or your spouse's employer, you may not need to enroll in Medicare right away. If your employer has 20 or more employees, your employer coverage is primary (it pays first), and you can delay Part B enrollment without penalty. You must still enroll in Part A, which is free for most people.

Once you stop working or lose your employer coverage, you have eight months to enroll in Part B without penalty. This is called the Special Enrollment Period (SEP). If you miss this window, you pay the permanent Part B penalty.

If you have coverage through your spouse's employer, the same rule applies — you can delay Part B, but once that coverage ends, you have eight months to enroll in Part B penalty-free.

Frequently Asked Questions

Do I have to enroll in Medicare at 65 if I am still working?

You must enroll in Part A at 65 even if you are working, because it is free and has no penalty for delaying. You can delay Part B if your employer has 20 or more employees and you have health insurance through work. Once you stop working or lose that coverage, you have eight months to enroll in Part B without penalty.

Can I switch from Medicare Advantage back to Original Medicare?

Yes, during the Annual Enrollment Period (October 15 to December 7) each year. If you switch to Original Medicare, you have six months to enroll in a Medigap policy without being denied or charged more based on your health. Outside of open enrollment, you can only switch if you have a may have access to life event, such as moving out of your plan's service area.

What happens if I do not choose a Part D plan?

If you go without Part D coverage when you are first may be able to access, you pay a penalty of 1 percent of the national average Part D premium for each month you were not enrolled. This penalty is permanent and added to your premium for as long as you have Part D. Enrolling during the Annual Enrollment Period does not erase the penalty.

How do I know which Medigap plan to choose?

Compare plans by the same letter across different insurance companies — Plan G from Company A covers the same things as Plan G from Company B, but prices differ. Look at your expected health care use and which deductibles and coinsurance matter most to you. Plan G covers the most; Plan A covers the least. Enroll during your six-month window after turning 65 to avoid health-based denials or higher prices.

What if my income changes and I think I may have access to for help paying premiums?

Contact your state Medicaid office to ask about the Medicare Savings Program (MSP) for help with Part B premiums, or contact Social Security about the Low-Income Subsidy (LIS) program for help with Part D costs. may be able to access is based on income and assets and varies by state. You can apply at any time, not just during enrollment periods.