13.1 Medicare Parts A, B, C, and D

Medicare Overview

Medicare is the federal health program administered by the Centers for Medicare & Medicaid Services (CMS) for people age 65 and older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD) or ALS (Lou Gehrig's disease). Eligibility for premium-free Part A generally requires the worker or spouse to have earned 40 quarters (10 years) of Medicare-covered employment. Disabled individuals qualify after receiving Social Security Disability Insurance (SSDI) for 24 months; ALS patients qualify immediately, and ESRD generally after a waiting period.

Part A — Hospital Insurance

Part A covers inpatient hospital care, skilled nursing facility (SNF) care, home health, and hospice. It is funded by the FICA payroll tax and is premium-free for those with 40 quarters. Part A uses a benefit period, which starts on admission and ends after the insured has been out of a hospital or SNF for 60 consecutive days.

Key 2026 cost-sharing structure (memorize the pattern, not exact dollars):

Trap: Part A pays for skilled nursing care only, requires a prior 3-day inpatient hospital stay, and never covers long-term custodial care (help with eating, bathing, dressing). Custodial-only care is the domain of Medicaid or private long-term care insurance, not Medicare. SNF coverage stops at 100 days per benefit period.

Part B — Medical Insurance

Part B is voluntary and covers physician services, outpatient care, durable medical equipment, lab work, and many preventive services. Enrollees pay a monthly premium (income-adjusted via IRMAA), an annual deductible, and then 20% coinsurance of the Medicare-approved amount; Medicare pays 80%. There is no out-of-pocket maximum under Original Medicare (Parts A and B), which is why supplements exist.

Late enrollment penalty: failing to enroll in Part B when first eligible (without other creditable coverage) adds 10% to the premium for each full 12-month period the person could have had it — and the penalty is permanent.

Enrollment Periods

• Initial Enrollment Period (IEP): 7 months — the month of turning 65, the 3 months before, and the 3 months after.
• General Enrollment Period (GEP): Jan 1 - Mar 31 each year, for those who missed IEP (coverage begins the month after enrollment).
• Special Enrollment Period (SEP): for those with employer group coverage, ending 8 months after that coverage or employment ends, with no Part B penalty.
• Annual Election Period (AEP): Oct 15 - Dec 7 for changing Part C / Part D.

Part C — Medicare Advantage

Part C (Medicare Advantage) is offered by private insurers approved by CMS. It must cover everything Original Medicare covers (often bundling Part D and extras like vision/dental). Plans use networks (HMO/PPO) and, unlike Original Medicare, must include an annual out-of-pocket maximum. To enroll, a person must already have both Part A and Part B.

Part D — Prescription Drug Coverage

Part D is voluntary drug coverage sold by private insurers. It has its own premium and a late enrollment penalty of 1% of the national base premium per month without creditable coverage. Beneficiaries can get Part D as a stand-alone PDP (with Original Medicare) or built into an MA-PD plan.

Worked Example — Part B Cost Sharing

Suppose a beneficiary has already met the annual Part B deductible. She receives outpatient services with a Medicare-approved amount of $4,000. Medicare pays 80% ($3,200) and the beneficiary owes the 20% coinsurance of $800. If she had not met the deductible, she would first pay the deductible and then 20% of the remaining approved amount.

Because Original Medicare has no out-of-pocket maximum, this 20% applies to every additional service all year. A beneficiary with $100,000 of approved charges could owe roughly $20,000 in coinsurance — the open-ended exposure that drives the purchase of a Medigap policy.

Comparison trap: A Medicare Advantage plan (Part C) caps the annual out-of-pocket cost, while Original Medicare does not. Candidates frequently confuse the two — Original Medicare alone leaves unlimited cost-sharing risk.

Coordination and Choosing a Path

A beneficiary generally picks one of two paths: (1) Original Medicare + a Medigap policy + a stand-alone Part D plan, or (2) a Medicare Advantage (MA-PD) plan that bundles A, B, and D. A person cannot combine a Medigap policy with a Medicare Advantage plan.

• Path 1 offers broad provider choice (any provider accepting Medicare) but requires paying separate premiums for Medigap and Part D.
• Path 2 usually has lower premiums and an out-of-pocket cap but restricts care to a network and may require referrals.

Producers must present these trade-offs accurately and may not steer a client into MA simply to avoid the Medigap underwriting rules.

Enrollment Periods and Late Penalties

Examiners test Medicare enrollment timing closely. The Initial Enrollment Period (IEP) spans seven months — the three months before, the month of, and the three months after the 65th birthday. Missing it without creditable coverage exposes the beneficiary to a Part B late penalty of 10% for each full 12-month period of delay, charged for life, plus a General Enrollment Period (January 1 to March 31) with delayed coverage.

A Special Enrollment Period waives the penalty for those who delayed because they had active employer group coverage. Part A is premium-free for those with 40 quarters of Medicare-covered employment; others may buy in. Tying these rules together lets you answer the common scenario question about a worker who stays on an employer plan past 65 and later transitions to Medicare without penalty.