Medicare is split into four parts, each covering a different category of health care. Part A covers hospital stays, Part B covers doctor visits and outpatient care, Part C (Medicare Advantage) bundles everything through a private insurer, and Part D covers prescription drugs. Understanding what each part does, what it costs, and how they fit together is the key to making smart choices when you enroll.
Part A: Hospital Insurance
Part A is the foundation of Medicare. It pays for inpatient care when you’re admitted to a hospital, a critical access hospital, or a skilled nursing facility. It also covers hospice care for terminal illness and some home health services. If you need inpatient behavioral or mental health treatment, that falls under Part A as well.
Most people pay no monthly premium for Part A because they or a spouse paid Medicare taxes for at least 10 years while working. If you don’t meet that threshold, you can still buy into Part A, but you’ll owe a monthly premium. Regardless of premium status, you pay a deductible each time you’re admitted to the hospital for a new “benefit period,” which resets after you’ve been out of a hospital or skilled nursing facility for 60 consecutive days.
Part B: Medical Insurance
Part B covers two broad categories: medically necessary services and preventive services. Medically necessary services include doctor visits, outpatient procedures, lab tests, ambulance rides, durable medical equipment like wheelchairs or oxygen tanks, and limited outpatient prescription drugs. Preventive services include screenings, vaccines, and wellness visits designed to catch problems early.
In 2025, the standard Part B premium is $185 per month, and the annual deductible is $257. Higher-income enrollees pay more. After you meet the deductible, you typically pay 20% of the Medicare-approved amount for most services, with no cap on out-of-pocket spending under Original Medicare alone. That open-ended 20% is one of the main reasons people add supplemental coverage.
One notable detail: if you use an insulin pump covered under Part B’s durable medical equipment benefit, your cost for a month’s supply of insulin is capped at $35, and the Part B deductible doesn’t apply to it.
Part C: Medicare Advantage
Part C isn’t a separate benefit. It’s an alternative way to receive your Part A and Part B coverage through a private insurance company instead of directly through the federal government. These plans are called Medicare Advantage plans, and they must cover everything Original Medicare covers. Many also add extras that Original Medicare does not, like routine dental exams, vision care, hearing aids, and fitness memberships.
Most Medicare Advantage plans bundle Part D drug coverage in, so you don’t need a separate prescription drug plan. The trade-off is that Advantage plans typically require you to use doctors and hospitals within a network. If you go out of network for non-emergency care, you’ll either pay more or the plan won’t cover it at all. Many plans also require prior authorization before they’ll approve certain services or supplies.
You still pay your Part B premium when you enroll in a Medicare Advantage plan. Some Advantage plans charge an additional monthly premium on top of that, while others charge $0 extra and instead control costs through copays, coinsurance, and network restrictions. Every Advantage plan is required to set a maximum out-of-pocket limit, which is a protection Original Medicare does not offer on its own.
Part D: Prescription Drug Coverage
Part D is optional drug coverage offered through private insurance companies approved by Medicare. If you have Original Medicare (Parts A and B) and want prescription drug coverage, you enroll in a standalone Part D plan. If you have a Medicare Advantage plan, drug coverage is usually built in.
Each Part D plan maintains a formulary, which is a list of the drugs it covers. Plans organize drugs into tiers that determine what you pay:
- Tier 1 (lowest cost): most generic drugs
- Tier 2 (medium cost): preferred brand-name drugs
- Tier 3 (higher cost): non-preferred brand-name drugs
- Specialty tier (highest cost): very expensive drugs, often for complex conditions
If your doctor prescribes a drug on a higher tier and believes there’s no suitable lower-tier alternative, you or your doctor can request an exception to get the drug at a lower cost.
A major change took effect in 2025: total out-of-pocket spending on Part D drugs is now capped at $2,000 per year. Before this cap, people taking expensive medications could face thousands more in costs once they hit the coverage gap. This $2,000 limit, introduced through the Inflation Reduction Act, is one of the most significant recent changes to Medicare.
How the Parts Work Together
When people say they’re “on Medicare,” they’re usually on one of two setups. The first is Original Medicare: Part A plus Part B, often paired with a standalone Part D drug plan and sometimes a Medigap policy to cover the gaps (like that uncapped 20% coinsurance under Part B). The second is Medicare Advantage: a single Part C plan that replaces Original Medicare and typically includes drug coverage.
You can’t have both a Medigap policy and a Medicare Advantage plan at the same time. Medigap works only with Original Medicare. It helps pay your share of costs, like deductibles and coinsurance, but it won’t cover extras like dental or vision. Medicare Advantage handles gaps differently, through built-in cost limits and bundled extra benefits, but it restricts your choice of providers.
Who Qualifies for Medicare
Most people become eligible at age 65. Your initial enrollment period is a seven-month window that starts three months before your 65th birthday month and ends three months after it. Signing up within that window is important because delays trigger penalties that follow you for years.
You can also qualify before 65 in two situations. The first is disability: if you’ve received Social Security disability benefits for 24 months, you’re automatically enrolled. People with ALS (Lou Gehrig’s disease) are enrolled as soon as disability benefits begin, with no waiting period. The second is end-stage renal disease. If your kidneys have permanently failed and you need regular dialysis or a kidney transplant, you can get Medicare at any age. Coverage typically starts the first day of the fourth month of dialysis, or the month you’re admitted for a transplant if the surgery happens within two months.
If you have Medicare solely because of kidney failure, coverage isn’t permanent. It ends 12 months after you stop dialysis or 36 months after a successful kidney transplant.
Late Enrollment Penalties
Missing your enrollment window costs real money, and the penalties don’t go away. For Part A (if you have to pay a premium), the penalty is a 10% increase, and you’ll pay it for twice the number of years you were eligible but didn’t sign up. For Part B, you’ll pay an extra 10% on your premium for every full year you could have enrolled but didn’t. That penalty lasts as long as you have Part B.
Part D penalties work differently. You’ll pay an extra 1% of the national base premium for every month you went without creditable drug coverage after first becoming eligible. That adds up to 12% per year of delay. The penalty applies if you go 63 or more consecutive days without drug coverage that’s at least as good as Medicare’s. These surcharges are added to your monthly premium permanently, so enrolling on time, even if you’re healthy and not taking medications, is worth serious consideration.