How Medicare Works

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Medicare is the government's contract to provide healthcare insurance coverage for Americans over the age of 65. But, as with all contracts, it's always smart to read the fine print.

Medicare pays for about half of all medical costs for older Americans, including hospitalization, doctors, some nursing care, some prescription drug costs, and medical equipment and supplies. But there's much that Medicare doesn't cover, as well as an alphabet soup of coverages, premiums, deductibles, and eligibility requirements that can be difficult to navigate -- especially for someone facing a health crisis.

Here are the basics everyone should know about Medicare, and where to look for more information if you need it:

What is Medicare?

Medicare consists of four categories: Part A covers hospitalization, some skilled nursing facility and home health care, and hospice. Part B covers doctors' services and outpatient care such as X-rays, laboratory work, some home health care, physical and occupational therapy, and some preventive screening. Then there's Part C , also known as Medicare Advantage, which is Medicare received through a private managed care system such as an HMO (health maintenance organization) or PPO (preferred provider organization). When someone enrolls in a Medicare Advantage plan, they receive all the benefits of Medicare Parts A and B, as well as some additional coverage provided by the private plan. As with other managed care, however, Medicare Advantage plans limit where and how their members may receive care. Finally, there's Medicare Part D , which consists of private insurance plans that partially cover prescription drug costs.

Who's eligible for Medicare?

Most people qualify for all Medicare programs if they're 65 or older and are citizens or permanent residents of the United States. However, eligibility rules and availability are different for each plan within Medicare.

  • For Part A, people are automatically eligible without paying any premium if, in addition to the age and residency requirements, they worked and paid Social Security taxes for at least ten years. If not, they may still buy into Part A coverage for a yearly premium.
  • For Part B, every citizen and legal resident over 65 is eligible. Even if someone is under age 65, he or she may qualify for both Part A and B if he or she has been receiving Social Security disability benefits for two years or has a chronic kidney disease.
  • If they're eligible for Parts A and B, they can choose to receive that coverage through a Part C Medicare Advantage managed care plan, if a plan they like is available where they live.
  • Anyone eligible for Medicare may purchase a Part D prescription drug plan offered by private insurance companies in the state where they live.

How does someone enroll in Medicare?

Enrollment is different for each part of Medicare. People who are receiving any type of Social Security benefits when they turn 65 will be automatically enrolled in Parts A and B. Medicare will send them enrollment cards and information about three months before their 65th birthday. If they aren't automatically enrolled, they may sign up for Part A or Part B at any local Social Security office. They should enroll two or three months before they turn 65 to ensure prompt coverage.

If they delay enrolling in Part A past their 65th birthday, their coverage can date back to up to six months before the date they do apply. Delaying enrollment in Part B is more of a problem. If they wait more than three months after their 65th birthday to enroll in Part B, they may not enroll until January 1 of the following year, and the coverage won't start until July 1 of that year.

If they want to enroll in Part C or D of Medicare, they do so with the private managed care plan or insurance company that runs the particular plan or issues the policy they want. If they don't enroll in Part C or D when they turn 65, or if they want to switch coverage under Part C or D, they can do so during Medicare's annual enrollment period, which falls between October 15 and December 7. (Some managed care plans and insurance companies also allow enrollment throughout the year.)

Which healthcare providers can Medicare patients see?

They can go to any doctor, hospital, clinic, outpatient provider, nursing facility, home care agency, or pharmacy that is approved by Medicare and that accepts Medicare patients. Before a visit, it's essential to verify that the doctor or other provider accepts Medicare.

What's covered by Medicare?

Medicare is intended primarily to provide coverage if when someone becomes ill or injured. This includes hospitalization, doctors' services, lab work, X-rays, hospice, and just about every kind of outpatient care, as well as some inpatient nursing facility and psychiatric care.

Over the years, however, Medicare has evolved to also cover a range of preventive and screening services through the Part B plan. Some of these services include cardiovascular screening; smoking cessation counseling; screening for breast, cervical, vaginal, colon, and prostate cancers; immunizations for flu, pneumococcal virus, and hepatitis B; diabetes screening and supplies; glaucoma tests; and a "Welcome to Medicare" physical exam. Most Medicare Part C managed care plans offer even more of these preventive and screening services.

For those who meet certain requirements for home health care, Medicare also pays for part-time nursing care; part-time health aides; speech, physical, and occupational therapy; and medical supplies and equipment such as bandages and wheelchairs.

Under Part D, the prescription drug benefit, Medicare covers part of the cost of approved generic and brand-name prescription drugs purchased at participating pharmacies.

What's not covered by Medicare?

Medicare isn't intended or designed to provide long-term nursing home or in-home care, so there are significant gaps in these areas. Families can't rely on Medicare to pay for 24-hour at-home care, meals, delivery services, and many of the personal services provided by home health aides (except for some skilled nursing care for a short time if it's medically necessary ).

Although Medicare has added many preventive services to its coverage in recent years, many such routine care needs are not yet covered, including dental care, medical treatment outside the United States, routine foot care, glasses, and hearing aids. Medicare coverage for mental health treatment -- including depression, which is a growing issue among people over 65 -- is also significantly limited. And Medicare doesn't cover elective procedures, including cosmetic surgery.

Most important, make sure the doctors you have in mind accept Medicare, or the program won't pay for even covered costs. This is also true for outpatient care and home care, and for prescription drugs, which Medicare patients must buy from a pharmacy that participates in their particular Part D insurance plan.

How much does Medicare cost?

Each part of Medicare has a different payment system. And within each part, patients' out-of-pocket costs will depend on the particular way they receive their benefits. However, the following basic information about premiums and copayments holds true in most cases. The figures given are for 2012.

  • Part A : Most people pay no premium for Medicare Part A. People who aren't automatically eligible for Part A pay a monthly premium of up to $451. Everyone with Part A pays a deductible of $1,156 for each period of hospitalization, and copayments for each day past the first 60 days of a particular hospital stay.
  • Part B : Every individual pays a premium of at least $99.90 a month for Part B coverage, deducted from monthly Social Security checks; this figure goes up for people with high incomes. A person must also meet an annual deductible of $140. After the deductible, Medicare pays 80 percent of the approved amount for covered doctor services and 80 to 100 percent of the approved amount for outpatient services and medical equipment. Those who don't enroll in Part B when they turn 65 can enroll later -- but each year they put it off, the premium increases by 10 percent.
  • Part C : Part C Medicare Advantage private managed care health plans lump Part A and B together, offering one monthly premium and the plan's own set of copayments and deductibles. It's important to check not only premiums but also out-of-pocket costs when considering one of these plans.
  • Part D : Every prescription drug plan under Part D has different premiums, copayments, and drugs it covers. In choosing a plan, be sure not to focus solely on the lowest monthly premium but also on coverage of the specific drugs needed and any copayments that might apply.

Where can I find more information about Medicare?

More detailed information about each part of Medicare is offered in the articles on this site listed below. You can also look at the federal website for Medicare and Medicaid , as well as at Benefits Checkup , an online service run by the National Council on Aging that can help you identify which government benefits your seniors qualify for and how to enroll.

Stephanie Miles

Stephanie Miles is a former business journalist for the online Wall Street Journal and CNET Networks, who focuses on consumer issues including finance and personal technology as well as consumer marketing and advertising. See full bio

over 1 year, said...

I am disabled and receiving my widows pension. Was told at 52 I go to Medicare instead of Medicade. Is this true

about 3 years, said...

My brother lives in NJ he has beginning of Alzheimer's his wife and him wants to move to Florida I live in palm coast Florida can recommend some location

over 3 years, said...

To quote the 3 Amigos, there are plethora of free services that can you help you learn more about Medicare: 1. State Health Insurance Assistance Programs (SHIP) 2. Medicare Rights Center 3. AARP (great basic information) You can also research ways to save costs through targeted programs: 1. Medicare Savings Programs (Medicare.Gov) 2. State Pharmaceutical Assistance Programs

over 4 years, said...

Hi my mother lives with me and she has Alzheimer's I need a day care have her be during the day I live in Orlando,Florida can recommend some locations

almost 5 years, said...

Re: G'ma42young comment: Yes, the plan F does pay the copays, etc, but you do pay a premium for that if you have purchased it as a Medicare supplement and if you consider what it costs you every month, most of the time the premium exceeds what you would have paid in the HMO copays. Especially if you purchase one that covers your prescriptions also, which the HMOs cover as well.

almost 5 years, said...

I find it unfair that other plans beside HMO's are not discussed here nor, are they advertised bc the gov't would rather we all take these type of HMO's so they do not have to process anything. The ins co's do it all but there are co pays,deductibles and limits. I have a plan "F" and do not pay any of that. This is not a service to the elderly.

almost 5 years, said...

Medicare is a great alternative to private insurance but before completely relying on the said government program, why not assess your needs first and find out if this program provides benefits that can satisfy your needs? This is very important because this federal program has its limitations and this might create inconveniences and financial problems to you in the future. I suggest you determine your needs first, do a little bit more research about long term care, and it can also help if you ask the help of a specialist.

about 5 years, said...

I am 69 ,I got my green card in October 2012' which rules me out of Medicare Advantage.

about 5 years, said...

Am I correct that if I am still fully employed at age 65 and covered by my employer's health plans, that I am NOT required to take Medicare Part B until after I stop working; and then I will not be penalized so long as I enroll in the first year I am not covered by my employer's health plan?

over 5 years, said...

My advice is not try to deal with the Social Security Administration without an attorney. Lawyers advertise extensively about the two-thirds of disabilty claims denied until the client obtains legsl assistance when 75% of the claims are validated. I have had the same experience dealing with the SSA for Medicare. The SSA's main goal is to eliminate subscribers, to impose penalties which would make a loan shark blush with shame, and to even interfere with the provision of services by private insurance companies. After my experiences with the SSA I would prefer an IRS audit any day than to deal this tyrannical federal agency.

over 5 years, said...

In your article you have OMITTED COMPLETELY the Medigap coverage called Plans A thru J. We are very happy with our Plan F, purchased through USAA. We found that the Medicare Advantage plans were difficult to understand and predict, changed (usually to company's benefit) with yearly market conditions, and seemed like a gamble for the individual. Thanks for great articles. I am a frequent reader.

over 5 years, said...

It was spelled out simply and clearly.

over 5 years, said...

I know better how to prepare. Thought once one was eligible for Social Security Medicare was automatic - know how to prepare as the time draws nigh...

over 5 years, said...

There is FREE help with any questions, problems, decisions or possible fraud concerning Medicare by state certified volunteers. These are people who are NOT selling any health insurance, give any legal advce, or get paid for their time. Each state has Senior Health Insurance Program (SHIP). They go by different names in each state, but they can be contacted by calling Medicare (1-800-Medicare, 1-800-633-4227), and asking for the state's SHIP 800 telephone number; then calling and getting the county's local SHIP number. It may take quite a bit of time, but it is worth the effort. You will get someone who has been certified by the state to be a help to any Medicare beneficiary. They have been mandated in the original Medicare legislation back in 1965 when Pres. Johnson signed Medicare into law that the states were to assist the Medicare beneficiaries with any difficulties with Medicare. I know this because I am one of these volunteers and we are usually recruited through other organizations like AARP, senior centers, community centers, or retireement organiztions. We are "the best kept secret about Medicare. If you have any questions, any SHIP would be able to answer it or get you referred to the proper place or handle any appeals legally. Medicare .

over 5 years, said...

For those of you who did not understand what "financial Assistance" said, Medicare part F is just a Medicare supplement policy that covers the Part A and B deductibles and copays. That would mean everything is covered but just remember, these supplements that do these are usually very expensive, 150 to 200.00 a month for good policies that roll over from Medicare and do not need separate billing. And most people that are pretty healthy would not pay that in copays on an HMO in a month or in the 20 percent of Medicare allowable in Medicare office visits. But if you have lots of illnesses and go into hospitals a lot, it would be worth it with the big inpatient deductibles.

over 5 years, said...

A person eligible for medicare must be aware that the costs associated with dementia and Alzheimer's are paid at a lower rate than other medical costs. And that amount fluctuates according to when the treatment was administered. Be careful!

over 5 years, said...

I would like to know why we have the HMO's crammed down our throats in the form of TV commercials however, I have a Plan F that covers More than the HMO's. I have no co-pays, no deductibles and my Plan F is billed by Medicare. I do nothing. The Government is taking advantage of the elderly and it makes me angry that we can't even get all of the available facts. There are plans that go clear to J but AARP (the supposedly help for the elderly ) has done everything to capitalize on all so the seniors are in the dark. This is disgusting. If I was to get cancer, I would have to come up with a huge co-pay before I could get chemo with the HMO's with mine, I have to come up with nothing. Is our government telling all that to our seniors???? I think not. I will not belong to AARP when they have taken advantage of seniors. They charged me 3X 's for my house and auto insurance under Hartford. Wrong!Q!!Q

over 5 years, said...

Have not seen it laid out these plainly before.

over 5 years, said...

Concise lists of coverages.

over 6 years, said...

This article is very helpful in a general sort of way. It needs updating. The new dates for the open enrollment period have been moved to October 15 to December 7 starting in 2011. That means to be able to make any changes in your health insurance, without a penalty, is between those dates. Those changes will take effect the next January 1. Also, there is a penalty in Part D that can be very severe. You are penalized if you do NOT select a "credible" drug plan when you are first eligible. For more complete information, go to and get the full story. Other than these two glaring problems, the article lays out the major emphasis.