Medicare: What It Is, How It Works, Types, and Examples

Medicare is a U.S. government health insurance program that provides coverage primarily for individuals aged 65 or older. It also extends to younger people with specific disabilities and those with end-stage renal disease. This national program offers support for various aspects of healthcare, but some of its components come at a cost to the insured. While this structure provides participants with choices regarding costs and coverage, it can be complex for those seeking to enroll.

Medicare is a national health insurance program funded by the U.S. government and administered by the Centers for Medicare and Medicaid Services (CMS). It offers coverage not only to individuals aged 65 and older but also to those under 65 with specific disabilities and people with end-stage renal disease or amyotrophic lateral sclerosis (ALS).

Eligibility for Medicare is automatic for individuals receiving Social Security benefits when they turn 65. They are enrolled in Medicare Part A, which covers hospital costs, and Medicare Part B, which covers doctor visits, without the need for additional enrollment. However, other parts of the Medicare program, such as Medicare Part D for drug coverage or Medicare Supplement insurance (Medigap), require active enrollment. Missing the initial enrollment period or wanting to switch plans later can be done during annual Medicare open enrollment periods.

Medicare is primarily funded through payroll taxes under the Federal Insurance Contributions Act (FICA).

Eligibility for Medicare is determined by several criteria, with a general requirement being that individuals must have lived in the United States legally for at least five years and be aged 65 or older. People under 65 may qualify if they receive Social Security Disability Insurance (SSDI), but there is typically a 24-month waiting period after receiving the first check before becoming eligible for Medicare. However, this waiting period is waived for individuals with ALS or permanent kidney failure, and enrollment can be done through the Social Security Administration (SSA) website.

Medicare Part A, which covers hospital stays and inpatient care, offers free premiums to those who or their spouse have contributed to Medicare for 10 or more years through payroll taxes. Premiums for other parts of the Medicare program are the responsibility of the insured.

Medicare offers four main program types, with basic coverage provided through Parts A and B, or individuals can opt for the Medicare Part C plan. Additionally, there is the option to enroll in the Medicare Part D plan for prescription drug coverage.

Medicare Part A provides coverage for hospital expenses, skilled nursing facilities, hospices, and some home-based healthcare. However, it does not include coverage for long-term or custodial care. Automatic enrollment in Part A is available for anyone receiving Social Security benefits, while those who don’t receive these benefits can enroll through the SSA website. Deductibles and copayments apply, with specific amounts for each year.

Medicare Part B covers the costs of outpatient care, including doctor visits, preventive services, ambulance transport, specific medical equipment, and mental health care. The standard monthly premium for Medicare Part B enrollees varies each year, with an associated annual deductible. Premiums are higher for taxpayers with modified adjusted gross income (MAGI) above certain limits, which are adjusted annually.

Medicare Part C, also known as Medicare Advantage, is available to individuals eligible for Medicare Parts A and B. This plan is purchased from private insurers rather than Medicare and must offer coverage equivalent to Original Medicare (Parts A and B). Many Medicare Advantage plans include caps on out-of-pocket costs and additional benefits like dental, vision, and hearing care.

Medicare Part D offers supplemental prescription drug coverage to enrollees in Medicare Part A or Part B, subsidizing prescription drug costs that Original Medicare plans do not cover. Some Medicare Advantage plans include drug coverage, but individuals may need to purchase it separately. The average premium for a Part D plan in 2024 is $18.50.

The Inflation Reduction Act of 2022 introduced significant changes to Medicare Part D, including the availability of covered insulin prescriptions at a reduced cost, no cost-sharing for recommended adult vaccines, an out-of-pocket prescription drug cost cap, and expansion of the low-income subsidy program (LIS or “Extra Help”) to 150% of the federal poverty level starting in 2024.

Medicare and Medicaid are both government-sponsored health insurance programs, but they have different eligibility requirements. Medicare primarily serves individuals aged 65 and older and younger people with specific health conditions, while Medicaid is a joint federal and state program that provides healthcare coverage to people with low incomes. Qualifying for Medicaid typically requires having limited liquid assets. Medicaid coverage includes services such as doctor and nursing care, X-rays, hospitalization, home health care, lab and X-ray services, and, in some states, expanded coverage for prescriptions, physical therapy, dental services, and medical transportation.

The Medicare program was created by amending the Social Security Act in 1965 to provide coverage for individuals aged 65 and older without health insurance. On July 30, 1965, then-President Lyndon B. Johnson signed the bill authorizing Medicare and Medicaid. The Original Medicare program comprised Part A (Hospital Insurance) and Part B (Medical Insurance). Over the years, Congress expanded Medicare to cover disabled individuals, people with end-stage renal disease, and those aged 65 or older who select Medicare coverage. The Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced significant changes to Medicare, including Medicare Advantage Plans and the optional prescription drug benefit, Part D.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in 2020, expanding Medicare coverage for the treatment of COVID-19 and improving telehealth service coverage. In 2022, the Inflation Reduction Act brought about a redesign of Medicare prescription drug coverage and other related costs.

If you are 65 years old and eligible for Social Security, then Medicare is an option for you. If you’ve received Social Security Disability Insurance (SSDI) for 24 months, Medicare is also available, regardless of age. Individuals with certain disabilities, such as amyotrophic lateral sclerosis (ALS) or permanent kidney failure, are automatically eligible.

For most individuals, Medicare Part A premiums are free based on past payroll tax payments under the Federal Insurance Contributions Act (FICA). Some individuals may also qualify for free Medicare Part A based on a spouse’s work history. However, other parts of Medicare require premium payments.

Medicare covers healthcare costs in a manner similar to health insurance. While the basic part of Medicare does not have a premium, its coverage is more limited compared to private health insurance. Private health insurance often allows extending coverage to dependents, such as a spouse and children, whereas Medicare eligibility is based on age or disability.

Medicare does not cover certain crucial healthcare services, including long-term or custodial care. Medicaid covers these custodial costs, but Medicare does not. Additionally, Medicare does not cover services like eye exams, eyeglasses, dentures, most dental care, medical care overseas, cosmetic surgery, or massage therapy.

Individuals with a qualifying work history do not pay premiums for Medicare Part A. The standard monthly premium for Medicare Part B is automatically deducted from Social Security checks. The premium amount can vary from year to year.

Eligibility for Medicare is primarily based on age, with individuals aged 65 and older qualifying. Younger individuals with specific disabilities or conditions, such as amyotrophic lateral sclerosis (ALS) or permanent kidney failure, are also eligible. Those who have received Social Security Disability Insurance (SSDI) for 24 months can access Medicare regardless of age.

Medicare Part A is typically free for most individuals who have made payroll tax payments under the Federal Insurance Contributions Act (FICA). Some may qualify for free Part A based on a spouse’s work history. However, other parts of Medicare require premium payments.

Medicare does not cover long-term or custodial care, which is often covered by Medicaid. Additionally, it does not cover services like eye exams, eyeglasses, dentures, most dental care, medical care overseas, cosmetic surgery, or massage therapy.

Enrollment in Medicare can be done through various methods. If you are automatically enrolled because you’re eligible based on age or disability, you will receive your Medicare card in the mail three months before your 65th birthday or your 25th month of disability benefits. If you need to actively enroll, you can visit the official Medicare website, call the Social Security Administration, or visit your local Social Security office. Enrollment periods and requirements may vary, so it’s essential to stay informed about the process.

Yes, you can change your Medicare plan during specific periods. The most common opportunity for change is during the Medicare Annual Enrollment Period, which typically runs from October 15 to December 7 each year. During this time, you can switch between Original Medicare and Medicare Advantage plans, change your prescription drug coverage, or choose a different Medicare Advantage plan. Additionally, there are Special Enrollment Periods (SEPs) that allow for plan changes under certain circumstances, like moving to a new area or losing other coverage.

There can be penalties for late enrollment in certain parts of Medicare. If you do not enroll in Medicare Part B when you are first eligible and do not have other creditable coverage, you may be subject to a late enrollment penalty. This penalty results in higher premiums for Part B coverage for each year you were eligible but didn’t enroll. It’s crucial to understand your initial enrollment period and any Special Enrollment Periods (SEPs) to avoid these penalties.