How Medicare Works: A Comprehensive Guide

With over 58 million beneficiaries in 2019, Medicare is the largest health insurance program in the U.S.1 So how does Medicare work?

Below is a comprehensive explanation of the parts of Medicare, what Medicare covers, the eligibility requirements for Medicare, how to enroll in Medicare and how much Medicare costs.

Smiling couple outside in a park

What is Medicare?

Medicare is a federal health insurance program for people age 65 and over and for younger people with certain qualifying disabilities. Medicare was first established in 1965.  

There are four basic parts of Medicare, and each one covers a specific set of health care services.

Medicare Part A (hospital insurance) provides coverage for qualified inpatient treatment at hospitals and skilled nursing facilities. It also includes hospice care and limited in-home care.

Medicare Part B (medical insurance) helps cover the costs of qualified doctor’s office appointments and other outpatient care services. Part B also helps cover certain durable medical equipment (DME) and preventive care.

Part A and Part B are together commonly referred to as “Original Medicare.”

Medicare Part C is also known as “Medicare Advantage.” These private plans provide the same benefits covered by Part A and Part B, and many Medicare Advantage plans may offer additional benefits not covered by Original Medicare, such as dental, vision and hearing coverage. Many Medicare Advantage plans may also provide prescription drug coverage.

Medicare Part D includes private plans that provide coverage exclusively for prescription drugs.

How does Medicare pay for health care services?

The basics of Medicare are much like that of other types of health insurance. You will typically pay a monthly premium (more information about Medicare premiums below). You will then generally pay a deductible, which is the amount you pay before Medicare begins to cover its share of additional costs.

Once you reach your deductible, you will then split the cost-sharing responsibilities with Medicare through the use of copyaments or coinsurance. For example, you might be responsible for 20 percent of a doctor’s bill for qualified services, and Medicare might pay the remaining 80 percent.

To use Medicare, simply visit a health care provider who accepts Medicare, and they will use your Medicare card to file a claim for the services or items you receive.

Who is eligible for Medicare?

There are two primary ways to become eligible for Medicare:

  • Once you turn 65 years old, you can qualify for Medicare if you are a U.S. citizen or permanent legal resident who is also eligible for Social Security benefits.
  • Certain disabilities and conditions can qualify some individuals for Medicare benefits before age 65. If you have a qualifying Social Security disability status, if you have Amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease) or if you have End-Stage Renal Disease (ESRD), you may qualify for Medicare Part A and Part B coverage.

In order to be eligible for a Medicare Part C or Part D plan, you must also be eligible for Original Medicare.

If you have ESRD, you might not be eligible for a Medicare Part C plan. You may, however, be eligible to enroll in a Medicare Special Needs Plan.

How do I enroll in Medicare?

Some people who are already receiving Social Security or Railroad Retirement Board retirement benefits when they turn 65 will be automatically enrolled In Medicare Part A and Part B. You will receive your Medicare card in the mail prior to your 65th birthday. Part B is optional, and you can drop your Part B coverage if you so choose.

If you qualify for Medicare due to a disability, you may also be automatically enrolled by your 24th month of receiving Social Security or Railroad Retirement Board disability benefits. If you have ALS (Lou Gehrig’s disease) there is no 24-month waiting period.

If you’re still working when you turn 65 or if you are under 65 and have End-Stage Renal Disease (ESRD), you will have to manually enroll.

You can sign up for Medicare one of four ways:

Part C and Part D are sold by private insurance companies, so you will have to enroll in these plans through an insurer. There are only certain times of the year in which you may enroll in Medicare Advantage and Medicare Part D plans.

How much does Medicare cost?

There are a number of out-of-pocket costs associated with the different parts of Medicare, such as premiums, deductibles and copays or coinsurance.

Medicare premiums

Medicare Part A premiums are based on the number of years you have paid Medicare taxes. This premium can range from $0 (for those who have paid Medicare taxes for at least 10 years) to $437 per month in 2019 (for those who have paid fewer than 7.5 years-worth of Medicare taxes).

The Part B premium is based off your income from two years prior. Most people will pay the standard amount of $135.50 per month in 2019, but you may pay more based on your income.

Premiums for Part C and Part D plans vary because they are sold by private insurance companies. In 2019, Medicare Advantage premiums are projected to average $28 per month, while Part D premiums are set to average $32.50 per month.

Some Part C and Part D plans do not carry a premium, though $0 premium plans may not be available in all locations.

Medicare deductibles

Medicare Part A carries a deductible of $1,364 per benefit period in 2019. You could potentially experience more than one benefit period in a single calendar year.

Part B has a deductible of $185 per year in 2019.

Part C and Part D plans have deductibles of varying amounts, and many plans may feature $0 deductibles. $0 deductible plans aren’t available in all areas.

Medicare coinsurance and copayments

Medicare Part A coinsurance is tiered and is based on the number of days you spend as an inpatient. There is no coinsurance requirement for the first 60 days of inpatient care during a benefit period, but it can reach as high as $682 per day in 2019 for extended stays, after you reach the Part A deductible.

Part B requires a 20 percent coinsurance payment for most qualified services after you reach the Part B deductible.

Part C and Part D plans may have varying coinsurance and copayments that are particular to each plan.

Medicare Supplement Insurance can help cover out-of-pocket Medicare costs

Medicare Supplement Insurance, or “Medigap,” consists of plans that may be used alongside your Original Medicare coverage to help pay for some of Original Medicare’s out-of-pocket costs. For a monthly premium, these plans can help pay for certain Medicare deductibles and coinsurance or copayments.

Learn more about Medicare and compare Medicare Advantage plans

Want to learn more about how Medicare works? Speak with a licensed insurance agent to learn more about Medicare to compare Medicare Advantage plans that may be available in your area.

To get started and to speak with an agent, call TTY Users: 711 24 hours a day, 7 days a week.


1 Jacobson, Gretchen. Damico, Anthony. Neuman, Tricia. Medicare Advantage 2019 Spotlight: First Look. (Oct. 16, 2018). Kaiser Family Foundation. Retrieved from

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