Medicare 101: Parts A, B, C, and D Explained

Medicare is one of the most important — and most confusing — benefits available to Americans approaching retirement. The alphabet soup of Parts A, B, C, and D trips up even financially sophisticated people, and the enrollment rules have penalties built in that can follow you for life.

Here is a plain-English guide to how Medicare actually works.

The Basic Structure

Medicare is the federal health insurance program for Americans 65 and older, and for certain younger individuals with disabilities. It is divided into parts, each covering a different category of health care.

Part A: Hospital Insurance

Part A covers inpatient hospital stays, skilled nursing facility care (under specific conditions), hospice care, and some home health care.

For most people, Part A is premium-free — if you or your spouse worked and paid Medicare taxes for at least 40 quarters (10 years), you've already paid in.

Key limitation: Part A has a deductible per benefit period (not per year), and it does not cover long-term custodial nursing home care. A hospital stay of more than 60 days begins to incur coinsurance costs.

Part B: Medical Insurance

Part B covers outpatient care: doctor visits, preventive services, lab work, durable medical equipment, mental health services, and some home health care.

Part B has a monthly premium (the standard rate in 2025 is around $185/month, though higher earners pay more — see IRMAA in our tax planning article). There is also an annual deductible and a 20% coinsurance after the deductible is met — with no out-of-pocket maximum under Original Medicare.

Part D: Prescription Drug Coverage

Part D covers prescription drugs. These are standalone plans offered by private insurers and attached to Original Medicare, or they're bundled into Medicare Advantage plans.

Each Part D plan has its own formulary (list of covered drugs), tiered cost-sharing, and monthly premium. Choosing the right Part D plan requires comparing your specific medications against each plan's formulary each year — plans can change annually.

Warning: If you delay enrolling in Part D without creditable drug coverage from another source (like an employer plan), you'll pay a permanent late enrollment penalty — 1% of the national base premium for every month you were eligible but didn't enroll.

Part C: Medicare Advantage

Medicare Advantage (Part C) is not a separate part of Original Medicare — it's an alternative way to receive your Medicare benefits through a private insurance company that contracts with Medicare.

Medicare Advantage plans:

• §Must cover everything Original Medicare covers (Parts A and B)
• §Usually include Part D drug coverage
• §Often add extra benefits: dental, vision, hearing, gym memberships
• §Use networks — HMOs or PPOs — meaning you may need referrals or face higher costs for out-of-network care
• §Typically have lower (sometimes $0) monthly premiums but higher out-of-pocket costs when you need care

The Big Choice: Original Medicare + Supplement vs. Medicare Advantage

This is the most consequential Medicare decision most people make.

Original Medicare + Medigap (Supplement)

A Medigap policy is sold by private insurers to fill the gaps in Original Medicare — covering deductibles, coinsurance, and copayments. With a good Medigap plan (like Plan G, one of the most comprehensive available), your out-of-pocket costs are highly predictable and often very low.

Pros: Freedom to see any doctor who accepts Medicare nationwide; predictable costs; no network restrictions.

Cons: Higher monthly premiums (Medigap + Part B + Part D); you need to shop for coverage separately.

Medicare Advantage

Pros: Often lower premiums; bundled coverage including drugs and extras; annual out-of-pocket maximum (unlike Original Medicare).

Cons: Network restrictions; prior authorization requirements; plans can change benefits annually; may be limiting if you travel frequently or need specialized care.

The right choice depends on your health needs, budget, preferred doctors, and how often you travel. People with chronic conditions who value predictability often prefer Original Medicare + Medigap. Healthier individuals who want lower premiums and don't mind network restrictions often find Advantage plans suitable.

Enrollment Windows — Don't Miss Them

• §Initial Enrollment Period (IEP): The 7-month window around your 65th birthday (3 months before, the month of, 3 months after).
• §Special Enrollment Period (SEP): If you're still working and covered by employer insurance, you can delay Part B without penalty and enroll later when coverage ends.
• §General Enrollment Period: January 1–March 31 each year, for those who missed IEP (with penalties).
• §Annual Enrollment Period (AEP): October 15–December 7, to change Part D or Medicare Advantage plans.

Missing enrollment windows without qualifying exceptions can result in permanent premium surcharges — a costly mistake that never goes away.