16.1 Medicare Parts A and B (Original Medicare)

What Medicare Is and Who Qualifies

Medicare is the federal health insurance program administered by the Centers for Medicare and Medicaid Services (CMS). It covers people age 65 and older, plus those under 65 who have received Social Security Disability Insurance (SSDI) benefits for 24 months, and individuals with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS, Lou Gehrig's disease).

ALS and ESRD beneficiaries face no 24-month wait. ALS coverage begins the month SSDI starts; ESRD coverage generally begins the fourth month of dialysis. Exam questions test these eligibility triggers precisely, so memorize the 24-month disability rule and the two exceptions.

Part A: Hospital Insurance

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

Part A uses benefit periods, not calendar years. A benefit period begins on admission and ends after the beneficiary has been out of a hospital or SNF for 60 consecutive days. A new period means a new deductible.

Part A Cost Structure (illustrative figures)

Worked Coinsurance Scenario

A beneficiary is hospitalized for 75 days in one benefit period. Days 1-60 cost the deductible only. Days 61-75 are 15 days at the daily coinsurance. At roughly $419/day, that is 15 x $419 = $6,285 in coinsurance, on top of the ~$1,676 deductible. This is exactly the type of gap a Medicare Supplement is designed to fill, which connects to section 16.3.

Note the SNF rule: skilled nursing coverage requires a qualifying 3-day inpatient hospital stay first. Observation status does not count toward the three days, a common trap.

Part B: Medical Insurance

Part B (Medical Insurance) is voluntary and premium-based. It covers physician services, outpatient care, durable medical equipment (DME), lab tests, and preventive services. The standard 2026 premium is roughly $185/month, adjusted upward for higher incomes through the Income-Related Monthly Adjustment Amount (IRMAA).

Part B has an annual deductible (~$257) and then pays 80% of the Medicare-approved amount; the beneficiary pays the remaining 20% coinsurance with no out-of-pocket maximum. The open-ended 20% is the biggest exposure under Original Medicare and the core reason Medigap exists.

Part B Worked 80/20 Example

After the deductible is met, a beneficiary incurs $4,000 in Medicare-approved outpatient charges. Part B pays 80% = $3,200; the beneficiary owes 20% = $800. Because there is no annual cap on this 20%, a year of serious illness can leave the beneficiary owing thousands.

Enrollment Periods

• Initial Enrollment Period (IEP): 7 months, beginning 3 months before the 65th-birthday month and ending 3 months after.
• General Enrollment Period (GEP): January 1-March 31 each year for those who missed the IEP.
• Late-enrollment penalty: Part B premium rises 10% for each full 12-month period the person could have enrolled but did not, and the penalty is generally permanent.

What Original Medicare Does NOT Cover

Original Medicare (Parts A and B) excludes most routine dental, vision, and hearing care, eyeglasses, hearing aids, and most long-term custodial care. It also does not cover prescription drugs taken at home, which is why Part D (section 16.2) exists. Understanding these gaps is essential because supplements and Advantage plans are marketed precisely to close them.

Key Takeaways

• Part A = hospital, mostly premium-free with 40 quarters; uses benefit periods and 60-day resets.
• Part B = medical, voluntary, ~$185 premium, pays 80% after deductible with no out-of-pocket cap.
• Eligibility: age 65, 24 months of SSDI, or ESRD/ALS (no wait for ALS).
• IEP is 7 months; missing it triggers a 10% per 12-month permanent Part B penalty.
• SNF coverage needs a 3-day inpatient stay; observation status does not count.

Part A Benefit Periods and Lifetime Reserve

Part A hospital coverage is measured in benefit periods, which begin on admission and end after the patient has been out of a hospital/SNF for 60 consecutive days. Each new benefit period requires a new deductible. Within a stay, days 1-60 are covered after the deductible, days 61-90 require daily coinsurance, and days 91+ draw on 60 lifetime reserve days (used once, never replenished). Skilled nursing coverage requires a prior 3-day hospital stay and is limited to 100 days per benefit period.

Part B Premium, IRMAA, and Penalties

Part B is voluntary and requires a monthly premium plus an annual deductible, after which it pays 80% of the Medicare-approved amount (insured pays 20% with no out-of-pocket cap — the gap Medigap fills). Higher-income beneficiaries pay an income-related surcharge (IRMAA). Failing to enroll when first eligible without other creditable coverage triggers a lifelong late-enrollment penalty of 10% of the premium for each 12-month period of delay.