Medicare 101: What is Medicare?

Understanding Medicare basics is critical to making sure you have the right health insurance.

What is Medicare?

Medicare is a federal program that provides health insurance to those over the age of 65, as well as certain individuals under 65 with disabilities.

The goal of Medicare is to provide health insurance coverage to eligible individuals (called ‘beneficiaries’) regardless of income, medical history, or health status. In 2020, Medicare covered over 62 million beneficiaries in the U.S. including 54 million aged 65 and older.

Medicare should not be confused with Medicaid, which is a federal and state program that helps with medical costs for those with limited income and resources.

Original Medicare (Part A & B)

Traditionally, Medicare coverage consists of two parts. These are known as ‘Original Medicare’:

• Medicare Part A (Hospital Insurance): which covers inpatient hospital care, surgery, lab tests, short-term skilled nursing facilities, home health care as well as hospice care

• Medicare Part B (Medical Insurance): which covers medically necessary doctor and outpatient medical services and supplies. Part B also covers ambulance services, durable medical equipment, hospice care, home health care and certain preventive services and screenings

It’s important to understand that Original Medicare does not pay for everything. Even when enrolled in Original Medicare, you are responsible for premiums as well as various out-of-pocket costs such as deductibles, copays, and coinsurance.

Medicare Part C, Part D, and Medicare Supplement

In addition to Original Medicare, there are various other parts of Medicare that are sold by private health insurance companies. These plans often act as:

• An alternate to Original Medicare such is the case with Medicare Advantage (also known as Part C coverage); OR

• Supplemental coverage that helps to cover some of the out-of-pocket costs that you may need to pay under Original Medicare in return for a monthly premium. These include standalone Prescription Drug Plans (also known as Part D plans) as well as Medicare Supplement plans (also known as ‘Medigap’)

These different parts of Medicare are described in more detail below.

Who is eligible for Medicare?

Medicare eligibility for individuals 65 and over

You are eligible to enroll in Medicare Part A and B if you are:

• Over the age 65 and a U.S. citizen; OR

• A permanent resident who has been living in the U.S. constantly for the past 5 years

Most people are eligible for premium-free Part A coverage and do not have to pay premiums in order to be covered under Part A. However, for Part B coverage, all Medicare beneficiaries must pay premiums in order to be covered.

The premium for Part B is set by the Centers for Medicare and Medicaid Services (CMS) each year. What you pay will depend on your income filed with the IRS from 2 years ago. In 2024, the standard Part B premium is $174.70 per month for all individuals with income below $103,000 (or $206,000 for those that filed jointly) on their tax return from 2 years ago (2022 tax year).

Premiums for Part B (and Part A if applicable) are typically deducted monthly from your Social Security payments. If you do not currently receive Social Security payments but are enrolled in Medicare, you will receive a bill for your premium every 3 months.

Medicare eligibility for individuals under 65

Individuals who are under the age of 65 with disabilities may also qualify for Medicare. These include:

• Social Security Disability Benefits: Individuals who have received SSD benefits for at least 24 months

• End-Stage Renal Disease (ESRD): Individuals that have ESRD (permanent kidney failure requiring dialysis or transplant). Benefits will typically begin on the first day of the fourth month of dialysis treatments

• Amyotrophic Lateral Sclerosis (ALS): Individuals with ALS (also known as Lou Gehrig’s disease). Benefits will typically begin as soon as you start receiving SSD benefits

When can I enroll in Medicare?

Automatic Enrollment

Depending on your current situation you may automatically be enrolled in Medicare:

• If you are turning 65 and have been receiving Social Security payments at least 4 months prior to being eligible for Medicare, you will automatically get Part A and B starting the first day of the month you turn 65. If your birthday lands on the first day of the month, then coverage will start the first day of the prior month. You will typically also receive your red, white, and blue Medicare card in the mail 3 months before your 65th birthday

• If you are turning 65 and not receiving Social Security: you will need to proactively sign up for Medicare during your Initial Enrollment Period (described below) by contacting the Social Security Administration. This includes anyone who has not been receiving Social Security for at least 4 months prior to being eligible for Medicare

• If you are under 65 and have a disability: you will automatically get Part A and B after you have received disability benefits from Social Security Disability Income for 24 months (unless you have ESRD or ALS)

How to Enroll in Medicare

The Social Security Administration (SSA) is in charge of processing enrollment applications for Original Medicare (Part A and B) and overseeing premiums and penalties.

If you are not receiving Social Security and automatically enrolled in Medicare, you can apply for Part A and B coverage through the Social Security Administration website: ssa.gov/benefits/medicare.

Medicare Enrollment Periods

Initial Enrollment Period

If you are turning 65, you have a 7-month ‘Initial Enrollment Period’ to sign up for Part A and/or Part B coverage.

The Initial Enrollment Period begins 3 months before the month you turn 65, includes the month you turn 65 and ends 3 months after the month you turn 65.

If you sign up for Medicare Part A and/or Part B before the month in which you turn 65, your coverage will start on the first day of the month you turn 65 (except if your birthday lands exactly on the first day of the month in which case your coverage starts the first day of the prior month).

Enrolling either in the month of your birthday or after will result in delays in the commencement of coverage by up to 3 months from the date that you sign up.

General Enrollment Period

If you happen to miss your Initial Enrollment Period, you do get another chance to enroll for Medicare Parts A and B between January 1 and March 31 each year (called the ‘General Enrollment Period’). However, if you enroll during this period, your Medicare coverage will begin on the 1st of the month after you apply.

Other Medicare enrollment periods that you should know

There are other ‘enrollment periods’ that you should be aware of once you start receiving Medicare coverage:

• Annual Election Period: Every year, Medicare’s annual open enrollment period is October 15 – December 7. During this period, all existing Medicare beneficiaries are allowed to freely switch between different Medicare coverage if they decide to change or update their coverage options.

• Special Enrollment Periods: Once you are enrolled in Medicare, most beneficiaries will be unable to switch plans outside of the Annual Election Period unless they experience a ‘qualifying event’. Qualifying events may include things such as a permanent change of address, losing employer coverage or ceasing to work, gaining or losing Medicaid eligibility or if you begin experiencing a severe chronic condition.

When should I enroll in Medicare?

Should I enroll immediately when I turn 65?

If you are turning 65, it is recommended that you enroll in both Medicare Part A and B during your Initial Enrollment Period to avoid any penalties if any of these situations apply to you:

• You receive health insurance from you or your spouse’s employer and that employer has fewer than 20 employees

• You are currently using COBRA or retiree insurance from a previous job

• You are enrolled in individual health insurance plan such as an ACA plan

• You rely on short-term insurance, or have no insurance at all

• You have VA health coverage

• You have TRICARE coverage and are retired

What happens if I’m 65 and still receiving insurance from my employer (or spouse’s employer)?

In general, if the employer providing coverage has 20 or more employees, you can choose to delay your Medicare Part A and B enrollment without any penalties. You may also choose to cancel your employer coverage to use Medicare instead, or have both Medicare and employer coverage at the same time.

For more information on how to manage Medicare alongside employer-provided insurance, refer to our article on Medicare When Working Past 65.

Note that COBRA or other employer-sponsored retiree insurance does not qualify you for Part A and B deferral without penalties. You or your spouse must be working in order to defer enrollment

What happens if I don’t enroll in Medicare when I am eligible?

Medicare Late Enrollment Penalties

If you choose to not enroll in Part A and B when you are first eligible and do not qualify for deferred enrollment, you may be subject to late enrollment penalties when you subsequently decide to enroll in Medicare later. The penalties for delayed enrollment include:

• Part A Penalties: If you don’t qualify for premium-free Part A and don’t buy it when you’re first eligible, your monthly premium may go up 10% and you will have to pay the higher premium for twice the number of years you could’ve had Part A, but didn’t sign up

• Part B Penalties: If you didn’t get Part B when you were first eligible and did not qualify for deferral, your monthly premium may go up 10% for each 12-month period you could’ve had Part B but didn’t sign up. In most cases, you’ll have to pay this penalty each time you pay your premiums, for as long as you have Part B

What is Medicare Part A, B, C, D, and Medicare Supplement?

Original Medicare

As mentioned at the beginning of this article, traditional Medicare coverage consists of Part A and B coverage and is called ‘Original Medicare’:

Medicare Part C, Part D, and Medicare Supplement

In addition to Original Medicare which is provided directly by the federal government, Medicare also includes Part C (Medicare Advantage), Part D (Prescription Drugs Plans), and Medicare Supplement (Medigap) coverage. These are alternate or supplemental coverage options to Original Medicare that are provided by private health insurance companies: