Medicare is described as having four parts, which is accurate but slightly misleading — it makes them sound like four things you buy. In practice, Parts A and B are the government program, and Parts C and D are two different ways private carriers plug into it.
Here is what each one actually does.
Part A — hospital insurance
Part A covers care you receive as an admitted inpatient, plus a few related services.
What it covers
- Inpatient hospital stays, including a semi-private room, meals, general nursing and drugs administered as part of your inpatient treatment
- Skilled nursing facility care following a qualifying inpatient hospital stay, for a limited number of days
- Hospice care for people with a terminal prognosis
- Some home health services, where the criteria are met
What it costs
Most people pay no monthly premium for Part A. You qualify for premium-free Part A if you or a spouse worked and paid Medicare payroll taxes for at least 40 quarters — ten years. People without that work history can buy into Part A at a monthly premium.
Part A does have a deductible, and it works differently from any deductible you have met before: it applies per benefit period, not per year. A benefit period starts the day you are admitted and ends when you have been out of a hospital or skilled nursing facility for 60 consecutive days. Two separate admissions eight months apart mean two deductibles in the same calendar year.
Part B — medical insurance
Part B is the part you use constantly. It covers care outside an inpatient admission.
What it covers
- Doctor visits, including specialists
- Outpatient hospital care and same-day surgery
- Diagnostic tests, laboratory work and imaging
- Preventive services — many at no cost to you, including an annual wellness visit
- Durable medical equipment such as walkers, wheelchairs and oxygen
- Certain drugs administered in a clinical setting, such as infusions
- Ambulance services, mental health care and some home health
What it costs
Part B has a standard monthly premium, which is usually deducted from your Social Security payment. Higher earners pay more through the income-related monthly adjustment amount (IRMAA), which is based on your tax return from two years earlier.
There is an annual deductible, and after that Part B pays 80 percent of the Medicare-approved amount for covered services. You pay the remaining 20 percent, with no annual limit. That uncapped 20 percent is the single most important structural fact about Original Medicare, and it is why almost nobody holds Original Medicare alone.
Part C — Medicare Advantage
Part C is not an extra layer on top of A and B. It is a substitution: a private insurance carrier takes on the job of delivering your Part A and Part B benefits, and Medicare pays that carrier a fixed monthly amount to do it.
Because the carrier is managing a budget, it manages utilization — hence networks, referrals, prior authorisation and tiered drug formularies. Because that management saves money, the carrier can offer things Original Medicare does not: a dental allowance, a hearing benefit, an over-the-counter card, a fitness membership, sometimes a reduction of your Part B premium.
| How it works | Original Medicare | Medicare Advantage |
|---|---|---|
| Who pays your claims | The federal government | A private carrier |
| Provider access | Any provider nationwide who accepts Medicare | The plan’s network |
| Referrals | Never required | Often required on HMO plans |
| Prior authorisation | Rare | Common |
| Drug coverage | Buy Part D separately | Usually bundled |
| Extras (dental, vision, hearing) | Not covered | Frequently included |
| Annual out-of-pocket cap | None | Required |
| Monthly plan premium | None (you pay Part B) | Often $0, on top of Part B |
Advantage plans come in three main shapes. An HMO has the tightest network and the lowest premium; out-of-network care is generally limited to emergencies. A PPO covers out-of-network care at a higher cost share, which travels better. An HMO-POS is an HMO with a few specified out-of-network services allowed.
The full treatment is on our Medicare Advantage page.
Part D — prescription drug coverage
Part D is prescription drug coverage sold by private carriers. You can get it two ways: as a standalone plan alongside Original Medicare and a Medigap policy, or bundled inside a Medicare Advantage plan, in which case the plan is called an MAPD.
Every Part D plan has four moving parts:
- A monthly premium
- An annual deductible, which some plans charge and some waive on lower tiers
- A tiered formulary setting your copay or coinsurance for each drug
- An annual out-of-pocket cap, after which covered drugs cost you nothing for the rest of the plan year
The single most common Part D mistake
Choosing the plan with the lowest premium. Plans differ enormously in how they treat specific drugs — the same medication can be a preferred generic on one plan and a non-preferred brand on another, a difference measured in hundreds of dollars a year. For anyone taking several prescriptions, the low-premium plan routinely finishes mid-table on total cost.
Run your actual drug list. Our Part D total cost estimator compares three plans on annual total, or send us the list and we will run every plan in your county for free.
There is also a late-enrollment penalty: go 63 days or more without creditable drug coverage after your Initial Enrollment Period and Medicare adds a permanent surcharge to your Part D premium. This catches people who take no medication at 65 and see no reason to buy drug coverage. If that is you, the right move is usually the least expensive compliant plan in your area, held purely as penalty protection.
Where Medigap fits
Medicare Supplement — Medigap — is not a part of Medicare with a letter. It is a private policy that sits alongside Original Medicare and pays the deductibles and coinsurance Medicare leaves behind, including that uncapped 20 percent.
Medigap plans are standardised by federal law and identified by letter. Plan G from one carrier pays exactly what Plan G from another carrier pays. The differences between carriers are price, rate-increase history and service — not benefits.
Medigap does not include prescription coverage, so you buy a standalone Part D plan alongside it. It also does not include dental, vision or hearing.
Detail on our Medicare Supplement page.
The two arrangements almost everybody ends up with
Once you strip away the noise, there are two structures:
Arrangement one — Original Medicare, plus a supplement, plus a drug plan. You pay three premiums: Part B, Medigap and Part D. In exchange you can see any provider in the country who accepts Medicare, you need no referrals, and you pay close to nothing at the point of care. This suits people who travel, want unrestricted specialist access, or want maximum predictability.
Arrangement two — a Medicare Advantage plan. You pay your Part B premium and usually a $0 or low plan premium. Drug coverage and extras are bundled. You use a network and pay copays as you go, capped by an annual out-of-pocket maximum. This suits people whose doctors are in-network, who stay mostly local, and who prefer a low fixed cost with variable usage costs.
Neither is better. The right one is decided by your doctors, your prescriptions, your travel and your budget — which is what a free plan comparison is for.
What to do with this
Work out which of those two structures fits you before you look at a single specific plan. The structure decision is the one that is hard to reverse, because leaving Medicare Advantage for a Medigap policy later can require medical underwriting. The plan-within-a-structure decision can be revisited every autumn.
If you would like someone to walk through it with you, get in touch. There is no fee, and no obligation.
Frequently asked questions
Do I need both Part A and Part B?
To enroll in a Medicare Advantage plan or a Medicare Supplement you must have both Part A and Part B. Some people with creditable employer coverage take Part A only at 65 and delay Part B, which is reasonable at larger employers and often a mistake at smaller ones.
Is Part C in addition to Parts A and B?
No. Part C is a different way of receiving your Part A and Part B benefits. When you enroll in a Medicare Advantage plan you keep paying your Part B premium and you stay in the Medicare program, but a private carrier administers your benefits with its own network and cost sharing.
Can I have Part C and a Medigap policy at the same time?
No. Medicare Advantage and Medicare Supplement are mutually exclusive arrangements. A Medigap policy pays the gaps in Original Medicare, and Original Medicare is not what pays your claims when you are on an Advantage plan.
What is Part B excess charge?
A provider who does not accept Medicare assignment may bill up to 15 percent above the Medicare-approved amount. That extra is called an excess charge. Medigap Plan G covers it; Plan N does not. Some states prohibit excess charges entirely.