Medicare is the federal health insurance program that covers most Americans starting at age 65. It’s built from several distinct parts, each covering different types of care with different costs, and understanding how those parts fit together is the key to making Medicare work for you. The program covers about 67 million people, and while the basics are straightforward, the details around costs, enrollment timing, and plan choices can make a real difference in what you pay.
The Four Parts of Medicare
Medicare is split into four lettered parts: A, B, C, and D. Parts A and B together form what’s called “Original Medicare,” which is the government-run program. Part C (Medicare Advantage) is a private-sector alternative. Part D covers prescription drugs.
Part A is hospital insurance. It covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. Most people don’t pay a monthly premium for Part A because they or a spouse paid Medicare taxes during their working years.
Part B is medical insurance. It covers doctor visits, outpatient care, preventive services like screenings and vaccines, durable medical equipment (wheelchairs, walkers, hospital beds), and yearly wellness visits. Part B requires a monthly premium, which in 2025 is $185.00 for most enrollees.
Part C (Medicare Advantage) bundles Parts A and B into a single plan run by a private insurance company. These plans often include drug coverage and sometimes extras like dental or vision. More on this below.
Part D is standalone prescription drug coverage. You add it to Original Medicare if you need help paying for medications. Medicare Advantage plans usually include drug coverage built in, so you wouldn’t need a separate Part D plan.
What Original Medicare Costs You
Original Medicare is not free. Even after you pay your Part B premium, you’re responsible for deductibles and coinsurance every time you use care.
For hospital stays under Part A, you pay a deductible of $1,676 per benefit period in 2025. That covers the first 60 days. If your stay runs longer, you owe $419 per day for days 61 through 90. Beyond that, Medicare dips into a limited pool of “lifetime reserve days” at $838 per day. For skilled nursing facility care, you pay $209.50 per day starting on day 21 through day 100.
For Part B services like doctor visits and outpatient procedures, you pay a $257 annual deductible in 2025. After that, you typically owe 20% of the Medicare-approved amount for each service. There’s no yearly cap on that 20% under Original Medicare, which means a serious illness or injury could lead to significant out-of-pocket costs. This is one of the biggest surprises for new enrollees, and it’s the main reason many people buy supplemental coverage.
How Medicare Advantage Differs
Medicare Advantage plans are offered by private insurers but regulated by Medicare. They must cover everything Original Medicare covers, and many add benefits like dental, vision, hearing, and gym memberships. About half of all Medicare beneficiaries now choose Advantage plans.
The tradeoff is flexibility. With Original Medicare, you can see any doctor or hospital in the country that accepts Medicare. With Medicare Advantage, you typically need to use doctors within the plan’s network. Going out of network for non-emergency care usually costs more, and some plans require referrals to see specialists.
On costs, Advantage plans work differently. Some have $0 monthly premiums beyond your standard Part B premium. The biggest structural advantage: every Medicare Advantage plan has a yearly out-of-pocket maximum. Once you hit that limit, you pay nothing for covered services the rest of the year. Original Medicare has no such cap. However, you can’t buy Medigap (supplemental insurance) if you’re enrolled in a Medicare Advantage plan, so the out-of-pocket limit serves a similar protective function.
Filling the Gaps With Medigap
If you stick with Original Medicare, that 20% coinsurance on Part B services adds up fast. Medigap policies, also called Medicare Supplement Insurance, are sold by private insurers specifically to cover those gaps. There are several standardized plan types, labeled with letters (Plan A, Plan B, Plan G, Plan N, and so on).
Most Medigap plans cover 100% of your Part B coinsurance, meaning your 20% share of doctor visits and outpatient care is picked up by the policy. Plan K covers 50% of that coinsurance, and Plan L covers 75%. Plan N covers 100% of Part B costs but charges small copayments for certain office and emergency room visits. Some plans also cover the Part A hospital deductible and other costs that Original Medicare leaves behind.
You pay a separate monthly premium for Medigap on top of your Part B premium. The best time to buy is during the six months after you first enroll in Part B at age 65, when insurers must accept you regardless of health conditions. After that window, you may face medical underwriting or higher prices.
Prescription Drug Coverage Under Part D
Medicare Part D covers prescription medications through private insurance plans. If you have Original Medicare, you enroll in a standalone Part D plan. If you have Medicare Advantage, drug coverage is usually included.
Part D plans have historically been complicated, with a coverage structure that included a notorious gap known as the “donut hole,” where enrollees paid a larger share of drug costs after hitting a certain spending threshold. That gap is eliminated starting in 2025. Even more significantly, out-of-pocket drug costs are now capped at $2,000 per year. Once you spend that amount, your prescriptions are fully covered for the rest of the year. This is a major change from prior years, when some enrollees with expensive medications could face thousands more in costs.
Who Qualifies and When
Most people become eligible for Medicare at 65. Your Initial Enrollment Period is a seven-month window that starts three months before the month you turn 65 and ends three months after. Signing up during this window ensures your coverage begins on time and avoids penalties.
Three groups qualify before age 65. If you receive Social Security disability benefits, you get Medicare automatically after 24 months of receiving those benefits. If you have ALS (Lou Gehrig’s disease), Medicare begins the same month your Social Security benefits start, with no waiting period. And if you have end-stage renal disease requiring dialysis or a kidney transplant, you qualify regardless of age.
Why Enrollment Timing Matters
Missing your enrollment window has lasting financial consequences. If you delay signing up for Part B without qualifying for a special exception (such as having employer-sponsored coverage through active employment), you’ll pay a late enrollment penalty of 10% added to your monthly premium for every full year you were eligible but didn’t enroll. That penalty doesn’t expire. It’s added to your premium for as long as you have Part B.
So if you waited two years past your enrollment window without qualifying coverage, you’d pay a 20% surcharge on top of the standard premium, permanently. For someone enrolling in 2026 at the projected standard premium of $202.90, that’s roughly an extra $40 per month, every month, for life. The same principle applies to Part D: delay without creditable drug coverage and you’ll face a penalty there too.
If you’re still working at 65 and have health insurance through your employer (or your spouse’s employer), you generally qualify for a Special Enrollment Period that lets you sign up for Medicare without penalty when that employer coverage ends. But the rules depend on the size of the employer, so confirming your specific situation before your 65th birthday is worth the effort.
Choosing Between Your Options
The core decision is between Original Medicare (possibly with Medigap and a Part D plan) and Medicare Advantage. Neither is universally better. Original Medicare with a Medigap policy gives you the widest choice of doctors and hospitals nationwide, with predictable out-of-pocket costs. You’ll pay more in monthly premiums but less when you actually need care.
Medicare Advantage often has lower monthly premiums and includes extras like dental and vision. But you’re limited to a network, and your costs for individual services can be higher until you hit the out-of-pocket maximum. If you travel frequently, live in multiple states, or have doctors spread across different health systems, Original Medicare’s nationwide flexibility may matter more. If you want a single plan that bundles everything together with a spending cap, Medicare Advantage may be the simpler choice.
Your health, your budget, your location, and which doctors you want to keep all factor into the decision. Plans vary significantly by region, so the Medicare Advantage options available in one zip code may look nothing like what’s offered in another.