13.1 Medicare Parts A, B, C, and D

Medicare is the federal health insurance program administered by the Centers for Medicare & Medicaid Services (CMS) for people age 65 and older, certain people under 65 with disabilities, and people with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). It is funded by payroll taxes (FICA), premiums, and general revenue. To qualify premium-free, an individual generally needs 40 quarters (10 years) of Medicare-covered work.

The Four Parts

Part A: Hospital Insurance

Most people pay no Part A premium because of their work record. Part A uses a benefit period, which begins on admission and ends after 60 consecutive days out of a hospital or SNF. There is no limit on the number of benefit periods.

Skilled nursing facility coverage requires a qualifying 3-day inpatient hospital stay. Days 1-20 are fully covered; days 21-100 carry a daily coinsurance ($217.00 in 2026); after day 100 the patient pays all costs.

Part B: Medical Insurance

Part B is voluntary and requires a monthly premium ($202.90 standard in 2026), which is higher for high-income beneficiaries under the Income-Related Monthly Adjustment Amount (IRMAA). After a small annual deductible ($283 in 2026), Medicare generally pays 80% of the approved amount and the beneficiary pays 20% coinsurance with no out-of-pocket maximum. This open-ended 20% is why Medigap exists.

Part C: Medicare Advantage

Medicare Advantage plans are offered by private insurers approved by CMS. A beneficiary must have both Part A and Part B and continue paying the Part B premium. Plans typically use HMO or PPO networks, may require referrals, and must include an annual out-of-pocket maximum (a key advantage over Original Medicare). Most include Part D (MA-PD) and extras like dental, vision, and hearing.

Part D: Prescription Drugs

Part D is delivered by private stand-alone plans (PDPs) or built into MA-PD plans. Beginning in 2025, the Inflation Reduction Act capped annual out-of-pocket drug spending ($2,000 in 2025, $2,100 in 2026) and eliminated the old coverage-gap 'donut hole.' Enrollees who go 63+ consecutive days without creditable drug coverage incur a permanent late enrollment penalty.

Enrollment Periods

• Initial Enrollment Period (IEP): 7 months — the 3 months before, the month of, and the 3 months after the 65th birthday month.
• General Enrollment Period (GEP): January 1 - March 31; coverage begins the month after enrollment.
• Annual Enrollment Period (AEP): October 15 - December 7; switch Part C/D plans, effective January 1.
• Special Enrollment Period (SEP): triggered by qualifying events such as losing employer group coverage based on current employment (8-month SEP).

Exam Trap: COBRA and retiree coverage are NOT considered active-employment group coverage. Relying on them does not protect against Part B late penalties.

How the Parts Fit Together for a Client

On the exam, the recurring decision is Original Medicare plus a supplement versus Medicare Advantage. Original Medicare (Parts A and B) lets the beneficiary use any provider that accepts Medicare nationwide, has no network, and pairs with a stand-alone Part D plan and a Medigap policy that fills the cost-sharing gaps. Medicare Advantage (Part C) replaces the way A and B are delivered: the private plan administers the benefits, usually through an HMO or PPO network with referral and prior-authorization rules, and it must cap annual out-of-pocket spending, which Original Medicare alone does not.

A beneficiary cannot legally pair a Medigap policy with a Medicare Advantage plan, so the two paths are mutually exclusive.

Part A's hospice benefit is a frequent test item: it covers pain management and supportive care for a terminally ill beneficiary (certified with a prognosis of six months or less), is available even to those who waive curative treatment, and includes respite care for caregivers. Part B's preventive services — annual wellness visit, many screenings, and vaccines — are generally covered at zero cost-sharing, while most other Part B services leave the open-ended 20 percent coinsurance that drives Medigap demand.

A second high-yield point is the interaction between late-enrollment penalties and creditable coverage. Part B's penalty adds 10 percent to the premium for each full 12-month period the beneficiary could have had Part B but did not, and the surcharge lasts for life. Part D's penalty is 1 percent of the national base beneficiary premium for each month without creditable drug coverage. Employer group coverage based on current employment delays these penalties through a Special Enrollment Period; COBRA and retiree plans do not.

Memorize the enrollment-window dates and which events trigger an SEP, because scenario questions almost always hinge on whether the beneficiary acted within the correct window.