16.1 Medicare Parts A and B (Original Medicare)

What Medicare Is

Medicare is the federal health insurance program administered by the Centers for Medicare and Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS). It is funded primarily through payroll taxes (FICA), general federal revenue, and premiums. The Social Security Administration handles enrollment.

Original Medicare refers to the two government-run pieces enrollees keep when they do not buy a private plan: Part A (Hospital Insurance) and Part B (Medical Insurance).

Who Is Eligible

Most people qualify at age 65. Others qualify before 65 by being:

• Receiving Social Security Disability Insurance (SSDI) for 24 months (the 24-month waiting period is waived for ALS/Lou Gehrig's disease).
• Diagnosed with End-Stage Renal Disease (ESRD) requiring dialysis or a transplant.

Exam trap: Medicare eligibility is tied to age 65 or qualifying disability/ESRD — it is not income-based. The income-based program is Medicaid. Examiners pair the two to test whether you confuse them.

The Four Parts at a Glance

Medicare is built from four parts, each with a distinct job. Understanding the structure makes the rest of the unit easier:

Parts A and B together are "Original Medicare" — the government-run core covered in this section. Parts C and D, both private, are covered in Section 16.2.

Part A: Hospital Insurance

Part A covers inpatient care: hospital stays, skilled nursing facility (SNF) care, hospice, and some home health services. 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.

Premium-Free vs. Premium Part A

How Part A Pays — Benefit Periods

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

• The enrollee pays a per-benefit-period deductible (one flat amount), then $0 coinsurance for days 1–60.
• Days 61–90 carry a daily coinsurance.
• Days 91–150 draw on 60 lifetime reserve days (used once, never replenished), at a higher daily coinsurance.
• Inpatient psychiatric care is capped at 190 lifetime days.
• SNF coverage requires a qualifying 3-day inpatient hospital stay and runs up to 100 days (days 21–100 carry coinsurance).

Trap: Part A does not cover custodial/long-term care — only skilled care. Long-term custodial care is the job of LTC insurance or Medicaid.

Part B: Medical Insurance

Part B is voluntary and covers outpatient and physician services: doctor visits, lab tests, durable medical equipment (DME), outpatient surgery, ambulance, and most preventive care. Unlike Part A, Part B always charges a monthly premium.

Part B Cost Mechanics

• Standard monthly premium (set annually by CMS).
• Annual deductible the enrollee pays before Medicare shares costs.
• After the deductible, Medicare pays 80% of the approved amount and the enrollee pays 20% coinsurance with no out-of-pocket maximum.
• High earners pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of the standard premium.

Worked example — the 80/20 split

Assume the Part B deductible is already met. A physician's Medicare-approved amount is $600.

• Medicare pays 80% = $480.
• The enrollee owes 20% coinsurance = $120.

Because there is no annual out-of-pocket cap under Original Medicare, that 20% can grow without limit — the core reason beneficiaries buy a Medigap policy (Section 16.3).

Enrollment Periods

Trap: Skipping Part B without qualifying group coverage triggers a late-enrollment penalty of 10% of the premium for each full 12 months you could have had it — and it lasts for life.

What Part B Does NOT Cover

Examiners love testing the exclusions of Original Medicare, because they are the gaps that Medigap (Section 16.3) and other products fill:

• Routine dental, vision, and hearing care, plus dentures, eyeglasses, and most hearing aids.
• Long-term custodial care (help with bathing, dressing, eating) — covered by LTC insurance or Medicaid, not Medicare.
• Most care received outside the United States.
• Outpatient prescription drugs — those require a separate Part D plan (Section 16.2).

Worked example — annual Part B exposure

Suppose a beneficiary incurs $10,000 of Medicare-approved Part B charges in a year and the deductible is already met. Medicare pays 80% = $8,000; the beneficiary owes 20% = $2,000. If charges were $50,000, the 20% share would be $10,000 — and because there is no out-of-pocket cap, that exposure keeps climbing. This unlimited 20% liability is the single fact that drives most Medigap sales.