16.1 Medicare Parts A and B (Original Medicare)

What Original Medicare Is

Medicare is the federal health program administered by the Centers for Medicare & Medicaid Services (CMS). Eligibility begins at age 65, or earlier for people who have received Social Security Disability Insurance (SSDI) benefits for 24 months, or who have End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS, Lou Gehrig's disease).

Original Medicare is the combination of Part A (Hospital Insurance) and Part B (Medical Insurance). It is a fee-for-service program: there is no annual out-of-pocket maximum, which is the single most important reason consumers buy a Medicare Supplement or enroll in Part C.

Part A: Hospital Insurance

Part A covers inpatient hospital care, skilled nursing facility (SNF) care, home health care, and hospice. Most people pay no Part A premium because they (or a spouse) paid Medicare payroll taxes for at least 40 quarters (10 years) of work.

Part A uses a benefit period, not a calendar year. A benefit period begins the day you are admitted as an inpatient and ends when you have been out of a hospital or SNF for 60 consecutive days. A new admission after that starts a brand-new benefit period and a new deductible.

• Days 1-60: patient pays one inpatient deductible per benefit period; Medicare pays the rest.
• Days 61-90: patient pays a daily coinsurance.
• Days 91-150: patient may use up to 60 lifetime reserve days, each with a higher daily coinsurance; these are used once in a lifetime.
• Beyond reserve days: patient pays all costs.

Worked Example: Benefit Periods

Using illustrative 2026-style figures: Part A inpatient deductible $1,676, days 61-90 coinsurance $419/day, lifetime-reserve coinsurance $838/day.

Scenario: A patient is hospitalized 65 days, discharged, and stays home 70 days, then is readmitted for 5 days.

• First stay: deductible $1,676 (days 1-60) + 5 days x $419 = $2,095 = $3,771.
• The 70-day gap exceeds 60 days, so a new benefit period begins.
• Second stay (5 days, all within days 1-60): a new $1,676 deductible.
• Total patient cost = $5,447. No reserve days were touched.

Trap: students assume one deductible per year. Part A charges a deductible per benefit period, and there is no yearly cap on benefit periods.

Skilled Nursing Facility (SNF) Coverage

SNF care is covered only after a qualifying 3-day inpatient hospital stay and only for skilled (not custodial) care.

Hospice is covered when a physician certifies a terminal prognosis of 6 months or less. Original Medicare does not pay for long-term custodial care, most dental, vision, hearing aids, or care outside the United States (with narrow exceptions).

Part B: Medical Insurance

Part B covers physician services, outpatient care, durable medical equipment (DME), lab tests, and many preventive services. It is voluntary and requires a monthly premium (illustrative standard $185/month in 2026), which is income-adjusted upward by the Income-Related Monthly Adjustment Amount (IRMAA) for high earners.

Part B has an annual deductible (illustrative $257). After the deductible, Medicare generally pays 80% of the Medicare-approved amount and the beneficiary pays the remaining 20% coinsurance with no out-of-pocket maximum.

• Worked example: approved amount $2,000, deductible already met. Medicare pays $1,600; beneficiary owes $400 (20%).

Enrollment Periods and the Late-Enrollment Penalty

• Initial Enrollment Period (IEP): 7 months — the 3 months before, the month of, and 3 months after the 65th-birthday month.
• General Enrollment Period (GEP): January 1 - March 31 each year for those who missed the IEP.
• Special Enrollment Period (SEP): for people who delayed Part B because they had employer group coverage; no penalty if they enroll within 8 months of losing that coverage.

Part B late penalty: premium rises 10% for each full 12-month period the person could have had Part B but did not, and the penalty lasts for life. Example: a 3-year delay = 30% permanent surcharge.

Part A Cost-Sharing in a Benefit Period

Medicare Part A uses a benefit period that begins at admission and ends after 60 consecutive days out of a hospital/SNF. There is no annual cap on benefit periods.

Skilled nursing facility coverage requires a prior 3-day inpatient hospital stay, then Medicare pays days 1-20 in full and the patient owes daily coinsurance for days 21-100; after day 100 the patient pays all costs.

Part B Premiums, Deductible, and the Late Penalty

Part B (medical insurance) is voluntary and requires a monthly premium. It pays 80% of the Medicare-approved amount for covered physician and outpatient services after the annual Part B deductible; the beneficiary pays the remaining 20% with no out-of-pocket cap (a key reason people buy Medigap).

The Part B late-enrollment penalty adds 10% to the premium for each full 12 months a person was eligible but not enrolled, and it lasts as long as the person has Part B. People still working with employer group coverage get a Special Enrollment Period and avoid the penalty.

Exam Tip: Original Medicare has no annual out-of-pocket maximum under Part B, the 20% coinsurance continues indefinitely, which is the gap Medigap fills.