Federal Medicare is the United States government’s health insurance program, primarily for people 65 and older. It covers hospital stays, doctor visits, preventive care, and prescription drugs for more than 65 million Americans. The program is run by the Centers for Medicare & Medicaid Services (CMS), a federal agency, and is funded through payroll taxes, premiums, and general tax revenue.
Who Qualifies for Medicare
Most people become eligible at age 65 if they or their spouse paid Medicare taxes for at least 10 years (40 quarters) of work. Your Initial Enrollment Period is a seven-month window that starts three months before the month you turn 65 and ends three months after it. If you sign up before your birthday month, coverage begins the month you turn 65. Sign up later in that window, and coverage starts the following month.
Age isn’t the only path in. People under 65 qualify if they’ve received Social Security disability benefits for 24 months. You can also get Medicare at any age if you have end-stage renal disease (permanent kidney failure requiring dialysis or a transplant), provided you or your spouse has the required work history under Social Security or the Railroad Retirement Board.
The Four Parts of Medicare
Medicare is split into four lettered parts, each covering a different category of care. Parts A and B together are called “Original Medicare” and are administered directly by the federal government. Parts C and D involve private insurance companies approved by Medicare.
Part A: Hospital Insurance
Part A covers inpatient care: hospital stays, skilled nursing facility stays after a hospitalization, hospice care, and some home health services. Most people pay no monthly premium for Part A because they or a spouse paid Medicare taxes while working. If you don’t have enough work history, you can buy into Part A for up to $518 per month in 2025, or $285 per month if you have at least 30 quarters of coverage.
Part A does have a deductible, though. Each time you’re admitted to the hospital (per “benefit period”), you pay $1,676 in 2025 before Part A starts covering costs.
Part B: Medical Insurance
Part B covers outpatient care: doctor visits, preventive screenings, lab tests, mental health services, ambulance services, durable medical equipment like wheelchairs and oxygen supplies, and limited outpatient prescription drugs. It also covers medically necessary services and preventive care such as flu shots and cancer screenings designed to catch illness early.
Everyone pays a monthly premium for Part B. The standard premium is $185 per month in 2025, though higher earners pay more based on income. Part B also has an annual deductible of $257 in 2025. After that, you typically pay 20% of the Medicare-approved amount for most services, with no cap on what you could owe in a year unless you have supplemental coverage.
Part C: Medicare Advantage
Medicare Advantage is an alternative way to receive your Medicare benefits. Instead of getting Parts A and B directly from the government, you enroll in a private health plan that contracts with Medicare. These plans must cover everything Original Medicare covers, and most also bundle prescription drug coverage and extras like dental, vision, or hearing benefits.
The trade-off is flexibility. Original Medicare lets you see any doctor or hospital in the country that accepts Medicare, with no referrals needed. Medicare Advantage plans typically require you to use doctors within a network and may require referrals to see specialists. Non-emergency care outside the network often costs significantly more or isn’t covered at all.
One major advantage of these plans: they cap your yearly out-of-pocket spending. Original Medicare has no such limit. Once you hit your Medicare Advantage plan’s maximum, covered services cost you nothing for the rest of the year.
Part D: Prescription Drug Coverage
Part D covers outpatient prescription drugs and is offered through private insurance companies approved by Medicare. You can add a standalone Part D plan to Original Medicare, or get drug coverage bundled into a Medicare Advantage plan.
In 2025, the Part D benefit has three phases. First, you pay full price for prescriptions until you meet a $590 annual deductible. Then you enter the initial coverage phase, where you pay 25% of the cost for covered drugs. Once your total out-of-pocket spending hits $2,000, you enter the catastrophic phase, where you pay nothing for covered medications for the rest of the year. This $2,000 annual cap, introduced under the Inflation Reduction Act, is a significant change from previous years when costs could climb much higher.
What Original Medicare Doesn’t Cover
Original Medicare has notable gaps. It does not cover routine dental care, most vision exams, hearing aids, or long-term custodial care in a nursing home. It also doesn’t cover care outside the United States in most cases. These gaps are one reason many people add supplemental coverage or choose Medicare Advantage plans that include some of these benefits.
Filling the Gaps With Medigap
If you stick with Original Medicare, you can purchase a Medigap (Medicare Supplement Insurance) policy from a private insurer to help cover the costs Original Medicare leaves behind, like the 20% coinsurance on Part B services and the Part A hospital deductible. Medigap plans are standardized by letter (Plan A, Plan B, Plan G, Plan N, and so on), and each letter covers a specific set of costs.
Plan G is one of the most popular options. It covers Part A deductibles, Part B coinsurance, and skilled nursing facility coinsurance, among other costs. Plans C and F cover the Part B deductible as well, but are only available to people who became eligible for Medicare before January 1, 2020. Plans K and L take a different approach, covering 50% and 75% of certain costs respectively, with a yearly out-of-pocket limit. Once you hit that limit, the plan covers 100% of covered services for the rest of the year.
You cannot combine a Medigap policy with a Medicare Advantage plan. It’s one or the other.
Enrollment Timing and Penalties
When you sign up matters. If you miss your Initial Enrollment Period around age 65 and don’t have qualifying coverage through an employer, you’ll face a late enrollment penalty for Part B that lasts for as long as you have Medicare. The penalty adds 10% to your monthly Part B premium for every full year you were eligible but didn’t enroll. So if you waited two years, you’d pay a 20% surcharge on top of the standard premium, permanently.
Part D has a similar penalty structure. If you go 63 or more consecutive days without creditable drug coverage after your initial enrollment period, you’ll pay an extra 1% of the national base premium for every month you went without coverage.
Outside of the Initial Enrollment Period, you can sign up during the General Enrollment Period, which runs January 1 through March 31 each year, with coverage starting July 1. If you’re still working and covered by an employer plan, you qualify for a Special Enrollment Period that lets you sign up without penalty when that employer coverage ends.
How Medicare Is Paid For
Medicare is funded through a combination of sources. Payroll taxes of 1.45% from both employees and employers (2.9% total) fund Part A through the Hospital Insurance Trust Fund. Parts B and D are funded by a mix of beneficiary premiums and general federal revenue. Higher-income beneficiaries pay larger premiums for both Part B and Part D, with surcharges based on tax returns from two years prior.