13.1 Medicare Parts A, B, C, and D

Medicare overview

Medicare is a federal health insurance program created in 1965 under Title XVIII of the Social Security Act and administered by the Centers for Medicare & Medicaid Services (CMS). It covers three eligibility groups: people age 65 or older, people under 65 who have received Social Security Disability Insurance (SSDI) for 24 months, and people of any age with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS).

ALS and ESRD waive the 24-month wait. ALS coverage begins the month SSDI starts; ESRD coverage generally begins the fourth month of dialysis. Memorize the 24-month rule as the default and these two as the exam's classic exceptions.

Part A — Hospital insurance

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

Part A uses benefit periods, not calendar years. A benefit period starts on hospital admission and ends after the insured has been out of a hospital or SNF for 60 consecutive days. There is no limit on the number of benefit periods.

Part B — Medical insurance

Part B is voluntary and requires a monthly premium (a standard base, higher for high earners under IRMAA). It covers physician services, outpatient care, durable medical equipment, lab work, and preventive services. After a small annual deductible, Medicare pays 80% of the approved amount and the beneficiary pays the remaining 20% coinsurance with no out-of-pocket cap.

Worked example: a covered outpatient procedure has a Medicare-approved amount of $2,000. After the deductible is met, Part B pays 80% = $1,600 and the beneficiary owes 20% = $400. Because there is no annual maximum, a year of large claims can leave open-ended exposure, which is the core reason Medigap exists.

Part C — Medicare Advantage

Part C, Medicare Advantage (MA), is offered by private insurers approved by CMS. An MA plan must cover everything Original Medicare (A and B) covers and usually bundles in Part D drug coverage. Plans are typically HMOs or PPOs with provider networks and a mandatory annual out-of-pocket maximum — a key advantage over Original Medicare. Enrollees still pay the Part B premium.

Part D — Prescription drug coverage

Part D is optional outpatient prescription drug coverage sold through private stand-alone PDPs or built into an MA plan. Plans use formularies and tiered cost-sharing. The historic 'donut hole' coverage gap was eliminated, and beginning 2025 a beneficiary's annual out-of-pocket drug spending is capped (about $2,000).

Enrollment periods and penalties

• Initial Enrollment Period (IEP): a 7-month window — the 3 months before the 65th-birthday month, the birthday month, and the 3 months after.
• General Enrollment Period (GEP): January 1 - March 31 each year for those who missed the IEP.
• Annual Election Period (AEP): October 15 - December 7 to change MA/Part D plans.
• Special Enrollment Period (SEP): for those who delayed Part B because of active employer group coverage.

Trap: delaying Part B without creditable employer coverage adds a 10% premium penalty for each full 12-month period of delay, charged for life. Delaying Part D without creditable drug coverage adds roughly 1% per month of the national base beneficiary premium, also for life. These late-enrollment penalties are favorite exam distractors.

What Medicare does not cover

Exam questions often hinge on exclusions. Original Medicare does not cover long-term custodial care (help with bathing, dressing, and eating when that is the only care needed), most dental care, routine vision and eyeglasses, hearing aids, routine foot care, cosmetic surgery, or care received outside the United States (with narrow exceptions).

The classic trap pairs Medicare with nursing-home care: Medicare covers only skilled care in a SNF after a qualifying 3-day inpatient stay, and only up to 100 days per benefit period. It does not pay for ongoing custodial nursing-home stays, which is exactly where Medicaid and long-term care insurance take over (Section 13.3).

How the parts fit together

A beneficiary generally chooses one of two paths. Path one — Original Medicare: keep Parts A and B, add a stand-alone Part D drug plan, and optionally add a Medigap policy (Section 13.2) to cover cost-sharing. Path two — Medicare Advantage: enroll in a Part C plan that bundles A, B, and usually D, accept a provider network, and rely on the plan's annual out-of-pocket maximum instead of Medigap. A person cannot hold both a Medigap policy and a Medicare Advantage plan at the same time.

IRMAA and higher-income surcharges

Higher-income beneficiaries pay an Income-Related Monthly Adjustment Amount (IRMAA) on top of the standard Part B and Part D premiums. IRMAA is determined from the modified adjusted gross income reported to the IRS, typically using a tax return from two years earlier. The exam usually only expects you to recognize that the Part B premium is not the same flat amount for everyone — high earners pay more, and most beneficiaries pay the standard base rate.