16.1 Medicare Parts A and B (Original Medicare)

Original Medicare: Parts A and B

Medicare is the federal health program administered by the Centers for Medicare and Medicaid Services (CMS). It serves people age 65 and older, people who have received Social Security Disability Insurance (SSDI) for 24 months, and people with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). People with ALS receive Medicare the first month they get SSDI, with no 24-month wait.

Original Medicare is the combination of Part A (Hospital Insurance) and Part B (Medical Insurance). It is administered directly by the federal government, lets the enrollee use any provider that accepts Medicare nationwide, and requires no referrals to see specialists.

Eligibility for premium-free Part A is built on work credits earned through Medicare payroll taxes. A worker (or a spouse) who has earned 40 quarters of covered employment qualifies for premium-free Part A. Those who are already drawing Social Security at 65 are automatically enrolled in Parts A and B; everyone else must actively sign up. Understanding who must act and who is enrolled automatically is a recurring exam theme.

Part A: Hospital Insurance

Part A is premium-free for anyone who has 40 quarters (10 years) of Medicare-taxed employment. Those with fewer credits may buy in by paying a monthly premium. Part A covers four facility-based services.

Part A uses a benefit period, not a calendar year. A benefit period begins on admission and ends after the patient has been out of a hospital or SNF for 60 consecutive days. A new admission after that starts a new benefit period and a new Part A deductible.

Part A Cost Sharing (Benefit Period)

Worked example: A retiree is admitted, discharged, then readmitted 75 days later. Because more than 60 days separated the stays, a second benefit period begins and the patient owes a second Part A deductible. If instead the readmission were on day 40, it would fall in the same benefit period and no new deductible would apply. This benefit-period mechanic is a frequent exam trap.

Trap: Part A has no annual deductible. The deductible resets every benefit period, so a patient hospitalized three separate times in one year could owe three deductibles.

Part B: Medical Insurance

Part B is voluntary and requires a monthly premium that is income-adjusted (higher earners pay an Income-Related Monthly Adjustment Amount, or IRMAA). Part B covers physician services, outpatient hospital care, durable medical equipment, lab tests, and most preventive services.

The Part B cost structure is straightforward and heavily tested:

• Enrollee pays the annual Part B deductible (one per calendar year).
• After the deductible, Medicare pays 80% of the Medicare-approved amount.
• The enrollee pays the remaining 20% coinsurance.
• There is no out-of-pocket maximum on this 20%.

Worked example: A Medicare-approved outpatient procedure is $4,000 and the annual deductible is already met. Medicare pays 80% = $3,200; the enrollee owes the 20% coinsurance = $800. Because there is no cap, a year of large claims can leave the enrollee with thousands in coinsurance, which is exactly why Medigap exists.

Note a subtlety with assignment: a provider who accepts assignment agrees to the Medicare-approved amount as full payment, so the enrollee owes only the 20%. A non-participating provider may charge an excess charge above the approved amount (limited by law), which the enrollee pays on top of the 20%. Several Medigap plans specifically cover these Part B excess charges, so exam questions tie the two concepts together.

Enrollment Periods and Penalties

Late-enrollment penalty (Part B): A person who delays Part B without creditable coverage (active employer group health based on current employment) pays a permanent surcharge of 10% for each full 12-month period of delay.

Worked example: Someone eligible at 65 enrolls 30 months late with no creditable coverage. That is two full 12-month periods (the partial third period does not count), so the penalty is 20% added to the Part B premium for life.

Coordination scenario: A 67-year-old still works for a company with 25 employees and is covered by the active group plan. Because the employer plan is creditable, they may delay Part B with no penalty and use the 8-month Special Enrollment Period (SEP) after the job or coverage ends. Employer size matters: at small employers Medicare is generally primary, so delaying Part B there can be risky. Always match the enrollment window to the coverage facts.