13.1 Medicare Parts A, B, C, and D

Medicare Overview

Medicare is the federal health insurance program created in 1965 under Title XVIII of the Social Security Act. It is administered by the Centers for Medicare & Medicaid Services (CMS) and funded through payroll taxes, premiums, and general revenue. Eligibility begins at age 65 for individuals who (or whose spouse) paid Medicare taxes for at least 40 quarters (10 years). It also covers people under 65 who have received Social Security Disability Insurance (SSDI) for 24 months, and those with End-Stage Renal Disease (ESRD) or ALS (Lou Gehrig's disease) regardless of age.

The Initial Enrollment Period

The Initial Enrollment Period (IEP) is a 7-month window: it begins 3 months before the month you turn 65, includes your birthday month, and ends 3 months after. Failing to enroll in Part B when first eligible (without other creditable coverage) triggers a permanent late-enrollment penalty of 10% of the premium for each full 12-month period you delayed. The General Enrollment Period runs January 1 through March 31 each year for those who missed their IEP.

Part A — Hospital Insurance

Part A covers inpatient hospital care, skilled nursing facility (SNF) care, home health, and hospice. Most people pay no Part A premium because they earned 40 quarters of coverage. Part A uses a benefit period (spell of illness) that begins on admission and ends 60 consecutive days after discharge.

The 2024 cost-sharing structure:

Note that Part A pays nothing after day 90 unless lifetime reserve days are used, and SNF coverage requires a prior qualifying 3-day inpatient hospital stay. The benefit period is the central unit of Part A accounting: a new deductible applies each time a fresh benefit period begins, so a beneficiary readmitted more than 60 days after discharge faces another full deductible.

Part B — Medical Insurance

Part B is voluntary and requires a monthly premium ($174.70 standard in 2024, higher for high incomes via IRMAA — the Income-Related Monthly Adjustment Amount). It covers physician services, outpatient care, durable medical equipment, lab tests, and preventive services. After a small annual deductible ($240 in 2024), Medicare pays 80% of the approved amount and the beneficiary pays 20% coinsurance with no out-of-pocket maximum. This unlimited 20% exposure is the gap Medigap policies are designed to fill.

What Medicare does NOT cover

A frequently tested point is the list of exclusions under Original Medicare. Medicare does not pay for long-term custodial (nursing-home) care, routine dental care and dentures, routine eye exams and most eyeglasses, hearing aids, cosmetic surgery, or care received outside the United States (with narrow exceptions). These gaps drive the markets for Medicaid (custodial care), Medicare Advantage extras, and stand-alone long-term care insurance discussed later in this chapter.

Part C — Medicare Advantage

Part C (Medicare Advantage) lets private insurers contract with CMS to deliver Parts A and B benefits (and usually Part D drug coverage) through managed-care arrangements such as HMOs and PPOs. Enrollees must keep paying their Part B premium. Plans often add extras (dental, vision, hearing) and cap out-of-pocket costs, but typically use provider networks and prior authorization. A beneficiary cannot have both a Medicare Advantage plan and a Medigap policy — Medigap only supplements Original Medicare.

Part D — Prescription Drug Coverage

Part D is voluntary outpatient prescription drug coverage offered through private plans. Like Part B, delaying enrollment without creditable drug coverage creates a permanent late penalty (1% of the national base premium per month delayed). Each plan publishes a formulary organized in tiers. Beneficiaries with limited income may qualify for the Low-Income Subsidy (Extra Help).

Key Part D phases:

• Deductible phase — beneficiary pays full cost up to the annual deductible.
• Initial coverage — plan and beneficiary share costs.
• Coverage gap ("donut hole") — historically higher cost-share; now beneficiaries pay 25% of brand and generic costs.
• Catastrophic coverage — reached after the true out-of-pocket threshold; cost-sharing drops sharply.

Comparing the four parts at a glance

Memorize this grid cold: most Medicare questions on the exam can be answered by recalling which part pays and how cost-sharing is structured.

Special enrollment and creditable coverage

A worker (or spouse) who is still actively employed and covered by an employer group health plan of 20 or more employees may delay Part B without penalty and use a Special Enrollment Period (SEP) when that coverage ends. The SEP runs for eight months after employment or group coverage stops. This is the single most common real-world reason a 65-year-old defers Part B, and the exam rewards candidates who can separate "creditable coverage" (delay is penalty-free) from a simple failure to enroll (penalty applies).

Producers advising near-retirees must verify the employer size, because a plan with fewer than 20 employees makes Medicare the primary payer and delaying Part B becomes a costly mistake.