Parts A, B, C, D Explained
Part A (Hospital Insurance)
Pays for inpatient hospital care, stays in skilled nursing facilities, hospice services, and certain types of home health care. Typically comes with no monthly premium if you or your spouse contributed Medicare payroll taxes for at least 10 years.
Part B (Medical Insurance)
Helps cover physician visits, outpatient treatments, preventive care, medical equipment, and some home health services. Requires a monthly premium, with the amount adjusted according to your income.
Part C (Medicare Advantage)
Provided through Medicare‑approved private insurers. Bundles Part A and Part B benefits, often adds prescription drug coverage, and may include extras like dental, hearing, or vision care. Costs and specific benefits differ from one plan to another.
Part D (Prescription Drug Coverage)
Offers insurance for prescription medications, including many recommended vaccines. Sold through private plans that partner with Medicare. Usually involves an additional monthly premium.
Medigap (Supplemental Insurance)
A separate type of private insurance that helps pay out‑of‑pocket expenses—such as deductibles and coinsurance—left over from Original Medicare (Parts A and B). Plans are standardized and identified by letters ranging from A to N.”
Eligibility
The following are the basic criteria of which Americans must have one for Medicare eligibility, according to Ramsey:
Be 65 years or older
Have a disability status (qualifying for Social Security disability insurance)
Have end-stage renal disease (requiring dialysis or a kidney transplant)
Have amyotrophic lateral sclerosis or ALS (aka Lou Gehrig’s disease)
IPPS
DRGs
Medicare: Rates are set by the federal government using a fee schedule and standardized formulas (like the Inpatient Prospective Payment System, or IPPS).
These formulas calculate a flat base payment rate for services, which is adjusted for factors like geographic differences in input costs and case complexity (Diagnosis-Related Groups or DRGs).
Medicare, as the largest single payer in the U.S., has significant power to set these rates, which are generally lower than commercial rates and are often seen as a benchmark.
Enrolling in Medicare
1. Initial Enrollment Period (IEP) — Most Common
This is when most people first sign up. A 7-month window that Starts 3 months before the month you turn 65, includes your birthday month and ends 3 months after your birthday month
Best practice: Enroll before your birthday month to avoid delays in coverage.
What you can enroll in:
Medicare Part A (hospital insurance)
Medicare Part B (medical insurance)
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2. If You’re Still Working at 65 (or Covered by a Spouse’s Job)
You may be able to delay Part B without penalty if:
You have current employer health coverage, and the employer has 20 or more employees
When that coverage ends, you get a: Special Enrollment Period (SEP) 8 months after your job or employer coverage ends (whichever comes first). No late penalty if you enroll during this time
COBRA or retiree coverage does not count as active employer coverage for delaying Part B.
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3. General Enrollment Period (If You Missed the Above)
If you didn’t sign up when you should have:
When: January 1 – March 31 each year
Coverage starts: July 1
Penalty: You may pay a late-enrollment penalty for Part B for life
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4. If You’re Under 65
You may qualify earlier if you:
Have received Social Security Disability Insurance (SSDI) for 24 months
Have ALS (enrolls automatically)
Have End-Stage Renal Disease (ESRD) (special rules apply)
Pay Part A Premium?
You must pay a monthly premium for Medicare Part A if you or your spouse did not pay Medicare taxes for at least 10 years (40 quarters).
Most people receive Part A for free because they meet this work requirement. If you do not qualify for premium-free Part A, the cost for 2026 depends on how long you worked:
30–39 quarters: $311 per month.
Fewer than 30 quarters: $565 per month.
Medicare Part D
Donut Hole
As of 2025, the Medicare Part D “donut hole” has been officially eliminatedKey Changes in 2026
Annual Out-of-Pocket Cap: Your total spending on covered drugs is capped at $2,100 (up from $2,000 in 2025).
Catastrophic Coverage: Once you reach the $2,100 limit, you pay $0 for covered prescriptions for the rest of the year
Deductible: The maximum annual deductible is $615.
Payment Plan: You can opt into the “Medicare Prescription Payment Plan” to spread your out-of-pocket costs into monthly installments throughout the year.