Medicare Explained: Parts A, B, C and D and When to Sign Up

Turning 65 soon? Here's what each part of Medicare covers, when you need to enroll, and how to avoid late penalties that last for life.

Medicare is the federal health insurance program for people 65 and older, as well as some younger people with disabilities or certain conditions such as end-stage renal disease. Most Americans will rely on it for decades, yet its alphabet soup of "parts" confuses almost everyone at first. Getting enrollment right matters: some mistakes trigger penalties that stay with you as long as you have Medicare.

The four parts of Medicare

Part A — Hospital insurance

Part A helps cover inpatient hospital stays, care in a skilled nursing facility after a qualifying hospital stay, hospice care and some home health care. Most people pay no monthly premium for Part A because they or their spouse paid Medicare taxes while working for at least 10 years (40 credits). You still pay a deductible and some coinsurance.

Part B — Medical insurance

Part B covers doctor visits, outpatient care, preventive services, lab tests, some medical equipment and many other services. Most people pay a standard monthly premium, which is set each year; people with higher incomes pay more. Part B also has an annual deductible, after which you typically pay 20% of the Medicare-approved amount for most services.

Part C — Medicare Advantage

Medicare Advantage plans are offered by private insurance companies approved by Medicare. They bundle Part A and Part B coverage, and usually Part D drug coverage, into one plan. Many include extras like dental, vision or hearing benefits. In exchange, they usually have provider networks and may require referrals or prior authorization. Unlike Original Medicare, they have an annual limit on out-of-pocket costs for covered services.

Part D — Prescription drug coverage

Part D plans, also sold by private insurers, help pay for prescription medicines. You can add a stand-alone Part D plan to Original Medicare, or get drug coverage through most Medicare Advantage plans. Each plan has its own list of covered drugs (a formulary) and costs.

Original Medicare vs. Medicare Advantage

This is the biggest choice you'll make. Original Medicare (Parts A and B) lets you see any doctor or hospital in the country that accepts Medicare, usually without referrals. But it has no yearly out-of-pocket cap, so many people add a Medigap (Medicare Supplement) policy to cover gaps like the 20% coinsurance, plus a Part D plan.

Medicare Advantage often has lower premiums and extra benefits, but you're typically limited to a network, and costs depend heavily on the plan. Think about your doctors, how often you travel, your medicines and your budget.

When to sign up

Initial Enrollment Period

Your Initial Enrollment Period is a seven-month window around your 65th birthday: the three months before your birthday month, the month itself, and the three months after. Signing up in the months before your birthday helps your coverage start without a gap.

If you're already receiving Social Security retirement benefits, you'll usually be enrolled in Parts A and B automatically and receive your Medicare card in the mail. If not, you can sign up online at SSA.gov, by phone or at a Social Security office.

If you're still working

If you or your spouse are still working and have group health coverage from that employer, you may be able to delay Part B without a penalty and sign up later during a Special Enrollment Period. Rules depend on the size of the employer and your situation, so check carefully with your employer's benefits office and Medicare before you delay.

Annual Open Enrollment

Every year from October 15 to December 7, you can switch between Original Medicare and Medicare Advantage, change Medicare Advantage plans, or join, switch or drop a Part D plan. Changes take effect January 1. There's also a Medicare Advantage Open Enrollment Period from January 1 to March 31 for people already in an Advantage plan.

Avoid late enrollment penalties

• Part B penalty: If you don't sign up when you're first eligible and don't qualify for a Special Enrollment Period, your Part B premium can go up 10% for each full 12-month period you could have had it but didn't — usually for as long as you have Part B.
• Part D penalty: If you go 63 days or more in a row without Part D or other "creditable" drug coverage after your Initial Enrollment Period, a penalty is added to your premium for as long as you have drug coverage.

Getting help

• Use the Medicare Plan Finder at Medicare.gov to compare drug and Advantage plans using your actual medicines and pharmacies.
• Every state has a State Health Insurance Assistance Program (SHIP) offering free, unbiased one-on-one counseling.
• If your income and savings are limited, you may qualify for Medicare Savings Programs or Extra Help with drug costs.

Be cautious of unsolicited calls or ads promising "free" benefits or asking for your Medicare number. Medicare will not call you to sell plans.

This guide is general information. Costs and rules change each year; confirm details at Medicare.gov.