What Is Medicare?

What exactly is Medicare and how does it work? 

Medicare is a federal health insurance program primarily designed for people age 65 or older and younger people who are eligible for medicare due to certain disabilities and End Stage Renal Disease.

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A brief history of Medicare

Medicare health coverage dates back to 1965 when President Lyndon B. Johnson signed Medicare and Medicaid into law.

The original components of Medicare consisted of Part A and Part B, which today are known as “Original Medicare.” Original Medicare Parts A and B offer hospital insurance (Part A) and medical care insurance (Part B).

In 1972, Medicare expanded to provide coverage for the disabled and people with End Stage Renal Disease requiring dialysis or a kidney transplant. Medicare continued to evolve over the years.

Medicare Part C plans — known as Medicare Advantage plans — allow Medicare beneficiaries to receive their benefits through private health plans.

Medicare Part D prescription drug plans (and many Medicare Advantage plans) provide prescription drug coverage.

Learn more about Medicare eligibility and requirements for enrolling in Medicare.

What are the different parts of Medicare?

Medicare is made up of four parts. These are labeled as Part A, Part B, Part C and Part D.

Parts A and B are provided by the federal government, while Part C plans and Part D plans are sold by private insurance companies.

Part A — Hospital insurance

Part A of Medicare provides coverage for stays in a hospital, skilled nursing facility, hospice care and limited home health care.

Part B — Medical insurance

Part B of Medicare covers doctor’s appointments, medical services, medical supplies and preventive care, among other services.

Part B requires monthly premiums. The standard Part B premium in 2019 is $135.50 per month.

Part C — Medicare Advantage

Medicare Advantage is an alternative to Original Medicare. Instead of receiving Medicare benefits from the traditional government fee-for-service system, you receive your benefits from one of many private health insurance plans.

Medicare Advantage plans are required by law to cover at least the same benefits that are offered by Original Medicare.

A Part C Medicare plan may also provide additional benefits that Original Medicare doesn’t, like dental care, vision and prescription drug coverage.

Part D

Medicare Part D provides prescription drug coverage.

You can receive prescription drug benefits two ways — through a Medicare Advantage plan that covers prescription drugs or through a standalone Prescription Drug Plan that can be used with Original Medicare or with a Medicare Advantage plan that doesn’t offer drug coverage.

What is Medicare Supplement Insurance (Medigap)?

Medicare Supplement Insurance (also called Medigap) is a type of plan sold by private insurance companies that provides coverage for some of the out-of-pocket costs that Original Medicare doesn't pay for.

These out-of-pocket costs include deductibles, coinsurance, copayments and more.

How does Medicare work?

Medicare can work in a similar way to other forms of health insurance, such as employer-sponsored group plans.

When you need care, you typically want to visit a health care provider who accepts Medicare.

There are three categories of providers as it relates to Medicare acceptance:

  • Participating providers
    Most doctors and health care providers across the U.S. accept Medicare reimbursement as payment-in-full for their services. This means that they participate in Medicare.

    This is also referred to as accepting Medicare assignment.

  • Non-participating providers
    Some doctors may treat Medicare patients but do not accept Medicare reimbursement as full payment. These providers do not accept Medicare assignment.

    Providers who don't accept Medicare assignment are allowed to charge up to 15 percent more than the Medicare-approved amount for their service or items.

  • Opt-out providers
    Some health care providers chose to opt out of Medicare entirely and do not accept Medicare beneficiaries as patients and don't accept Medicare reimbursement.

When you visit a provider who accepts Medicare patients, you will first have to reach a deductible before your coverage kicks in (Part A and Part B each have a separate deductible).

Once your deductible has been met, you will then typically be charged copayments (a flat fee) or coinsurance (a percentage of the bill) for your covered care.

Who is eligible for Medicare?

If you are a U.S. citizen or permanent legal resident of at least five consecutive years, you are eligible for Medicare Part A if you meet one of the following criteria:

  • You are at least 65 years old and are eligible for Social Security or Railroad Retirement Board benefits.

  • You are under 65 years old and have been receiving disability benefits for at least 24 months.

Eligibility for additional parts of Medicare typically require Part A enrollment.

How much does Medicare cost?

Medicare-covered services and different parts of Medicare can include a number of expenses, depending on the services you receive and the type of coverage you have.

  • Premiums
    Medicare Part A and Part B have monthly premiums that are standardized by the federal government (although most people do not pay a premium for Part A).

    Private forms of Medicare insurance are free to set their own premiums. Some Medicare Advantage plans feature $0 premiums.

  • Deductibles
    Medicare Part A and Part B have set deductibles that work differently, depending on the types of covered care you receive.

    Just as with premiums, the deductibles found in private forms of Medicare insurance can vary by plan (and some plans feature $0 deductibles).

  • Cost-sharing
    Medicare Part A and Part B coinsurance and copayments are standardized and can vary depending on your income and other factors.

    The coinsurance and/or copayments for Medicare Advantage plans, Part D plans and Medigap plans may vary. 

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