Medicare 101: Parts A, B, C, and D Explained — What's Covered and What It Costs

Who Qualifies for Medicare?

• U.S. citizens and permanent residents who have lived in the U.S. for 5+ years
• Age 65+
• Under 65 with certain disabilities (after receiving SSDI for 24 months)
• Any age with ALS or End-Stage Renal Disease (ESRD)

Medicare Part A: Hospital Insurance

What it covers:

• Inpatient hospital stays
• Skilled nursing facility care (after a qualifying hospital stay)
• Hospice care
• Some home health services

What it costs: most people pay $0 premium for Part A. You qualify for premium-free Part A if you or your spouse worked 40 quarters — ten years — paying Medicare payroll tax. With 30 to 39 quarters you pay a reduced premium; with fewer than 30 you pay the full one, which runs over $500 a month. CMS resets both figures each autumn, so check the current amounts on medicare.gov rather than an article. Note the spousal route: a person who never worked can get premium-free Part A on a spouse's record, including a divorced spouse after a marriage of at least ten years.

Cost-sharing: Part A is not free even when the premium is. You pay an inpatient deductible of $1,736 per benefit period in 2026 — not per year — then $434 a day for hospital days 61–90, and $217 a day for skilled-nursing days 21–100 (days 1–20 in a skilled nursing facility are covered in full, and after day 100 Medicare pays nothing). That "per benefit period" wording matters: a benefit period ends only after you have been out of a hospital or skilled nursing facility for 60 consecutive days, so two separate hospitalisations in one year can mean paying the $1,736 twice.

Medicare Part B: Medical Insurance

What it covers:

• Doctor visits and outpatient care
• Preventive services (free annual wellness visit, flu shots, cancer screenings)
• Lab tests, imaging, and equipment
• Some home health and ambulance services

What it costs: the standard premium is $202.90/month in 2026. Higher earners pay more via IRMAA (Income-Related Monthly Adjustment Amount), assessed on the modified AGI from the return you filed two years earlier — so your 2026 premium is set by your 2024 income:

IRMAA is a cliff, not a slope. One dollar of 2024 MAGI above $109,000 moves a single filer from $202.90 to $284.10 a month — $81.20 more, or $974.40 across the year — plus $14.50 a month of Part D surcharge, another $174. A dollar of income costing $1,148 of premium is a marginal rate no bracket table shows you. For a married couple both on Medicare, every figure doubles, because each spouse pays on the same joint MAGI. Check which tier your income lands in and how far you are from the next cliff before any December decision about a Roth conversion, a capital gain, or an IRA withdrawal.

Cost-sharing: a $283 annual deductible in 2026, then Medicare pays 80% of approved costs. You pay the other 20% — with no out-of-pocket maximum under Original Medicare.

The "No Cap" Problem With Original Medicare

Here's the biggest risk most people don't understand: Original Medicare (Parts A + B) has no out-of-pocket maximum. If you have a serious illness requiring expensive treatment, your 20% coinsurance can run into tens of thousands of dollars.

This is why most retirees add either a Medigap (Supplement) policy or choose Medicare Advantage.

Medicare Part C: Medicare Advantage

Medicare Advantage plans are private insurance alternatives to Original Medicare. They must cover everything Parts A and B cover, but typically also include:

• Dental, vision, and hearing coverage (not covered by Original Medicare)
• Prescription drug coverage (Part D bundled in)
• Out-of-pocket maximum (the crucial protection Original Medicare lacks)
• Extras like gym memberships, transportation to appointments

What it costs: Many plans have $0 additional premium beyond the Part B premium you already pay. Others charge $50–$200/month more.

The trade-off: Medicare Advantage uses networks. You may need referrals to see specialists, and out-of-network care may not be covered. Original Medicare + Medigap offers more provider flexibility.

Medigap (Medicare Supplement) Insurance

Medigap fills the "gaps" in Original Medicare — covering your deductibles, coinsurance, and copays. Popular plans include Plan G (comprehensive, covers almost everything except Part B deductible) and Plan N (lower premium but some copays).

What it costs: $100–$300+/month depending on your age, location, and plan chosen. Plan G typically runs $120–$200/month for a 65-year-old.

When to buy: Buy Medigap during your 6-month Medigap open enrollment window starting the month you turn 65 and enroll in Part B. During this window, you cannot be denied or charged more for pre-existing conditions. After the window closes, insurers can reject you or charge you more based on health.

Medicare Part D: Prescription Drug Coverage

Part D covers prescription medications through private plans. If you have Original Medicare, you add Part D separately. If you have Medicare Advantage, it's usually bundled in.

What it costs: varies by plan — typically $35–$100/month, plus a deductible and tiered copays by drug category. High earners also pay the Part D IRMAA surcharge shown in the table above, which is billed separately from the plan premium.

The big change, and the reason old Part D advice is misleading: the "donut hole" coverage gap is gone, replaced by a hard annual out-of-pocket cap of $2,100 for 2026. Once your covered drug spending reaches that ceiling, you pay nothing more for covered drugs for the rest of the year. Anyone on an expensive specialty medication used to face effectively unlimited exposure; they now face $2,100. If you are budgeting from an article or a spreadsheet written before 2025, it is almost certainly overstating your drug costs by thousands.

Low-income help: the Extra Help (Low Income Subsidy) programme can cover most Part D costs for qualifying beneficiaries — worth checking, because a large share of eligible people never apply.

Enrollment Deadlines: Don't Miss These

Missing Medicare enrollment deadlines leads to permanent premium penalties.

Initial Enrollment Period (IEP): A 7-month window surrounding your 65th birthday — 3 months before, the month of, and 3 months after. Enroll during the first 3 months for coverage starting on your birthday month.

Late enrollment penalties — both permanent, and they work differently:

• Part B: 10% added to your premium for each full 12-month period you were eligible and didn't enroll. Two years late is 20% of $202.90 — about $487 a year, for life, rising every year as the base premium rises.
• Part D: 1% of the national base beneficiary premium for each month without creditable drug coverage. A three-year gap is a 36% surcharge, not 30% — the Part D penalty counts months, while Part B counts completed years, which is why a 14-month Part D gap costs more than a 14-month Part B gap in proportional terms.

If you're still working at 65: If you have employer coverage from a large employer (20+ employees), you can delay Medicare enrollment without penalty. Enroll within 8 months of leaving your employer plan.

Special Enrollment Period (SEP): 8-month window after employer coverage ends. Do not rely on COBRA as your "employer coverage" — COBRA doesn't extend your SEP.

Original Medicare vs Medicare Advantage: How to Choose

Rule of thumb: If you want maximum flexibility and travel frequently, Original Medicare + Medigap is the gold standard. If you're budget-conscious, healthy, and prefer a managed care approach, Medicare Advantage may work well — just read the network and prior authorization requirements carefully.

Planning for Medicare Before Age 65

Use your HSA wisely — but stop contributing in time. HSA funds pay Medicare Part B, C and D premiums and out-of-pocket costs tax-free, which makes an HSA the single best account to carry into retirement. The trap: enrolling in Medicare ends HSA eligibility, and Part A is backdated up to six months when you enrol after 65. So stop HSA contributions six months before you file for Medicare or Social Security — claiming Social Security at 65 or later enrols you in Part A automatically. Contributions inside that retroactive window are excess contributions carrying a 6% excise tax for every year they remain.

IRMAA planning is the highest-value hour in pre-Medicare financial planning. Your 2026 Part B premium is set by your 2024 income, so the decisions that matter were made two years before the bill arrives. A Roth conversion, a capital gain, or a large IRA withdrawal at 63 shows up as a Medicare surcharge at 65 — and because IRMAA is a cliff, going one dollar over a threshold costs the same as going ten thousand over. The right move is to size conversions to fill the space below the next threshold: test what a given conversion does to your total tax and your future premium rather than converting a round number.

If your income has since fallen — you retired, a spouse died, you sold a business — you are not stuck with the two-year lookback. File Form SSA-44 to have IRMAA recalculated on current income after a qualifying life-changing event. This form saves people thousands and is almost never mentioned by the letter that announces the surcharge.

Budget the whole number, not just the premium. Between Part B, Part D, a Medigap policy, the Part B deductible and dental and vision that Medicare does not cover, healthcare is typically the second- or third-largest line in a retirement budget. It also inflates faster than the rest of it. Put a real figure in your plan — work out what guaranteed income you need to cover fixed costs like these before touching the portfolio.

Early retirement gap: if you retire before 65 you must bridge the years until Medicare. Options: COBRA (18 months, at full unsubsidised cost plus 2%), the ACA Marketplace, retiree benefits from a former employer, or a spouse's plan. Marketplace premium tax credits are tested on modified AGI, not on assets, so how you fund those years changes the price — and note that the same low-MAGI discipline that earns you a credit before 65 keeps you out of IRMAA afterwards. It is one strategy, not two. Model the whole pre-65 to post-65 sequence rather than treating the two phases separately.

FAQ

Can I have Medicare and employer insurance at the same time?

Yes. The question is which pays first (primary vs secondary). If your employer has 20+ employees, employer insurance is primary; Medicare is secondary. Under 20 employees, Medicare is typically primary.

Is Medicare free?

No. Part A is usually premium-free if you worked 40 quarters, but Part B costs $202.90/month at the standard rate in 2026 and more if IRMAA applies. Add a Part D plan ($35–$100), a Medigap policy ($100–$300), the $283 Part B deductible, the $1,736 Part A deductible per benefit period, and 20% coinsurance on everything Medigap doesn't cover. Between premiums alone, budget $350–$750 a month per person, and more if your income triggers IRMAA — a single filer in the top tier pays $689.90 for Part B by itself.

What does Medicare not cover?

Original Medicare doesn't cover: routine dental, routine vision, hearing aids, long-term custodial care, most care outside the U.S., and cosmetic procedures. Many of these can be added through Medicare Advantage plans.

When should I sign up for Medicare if I'm on a spouse's plan?

You can delay without penalty as long as you're covered by active employer insurance (not retiree insurance, not COBRA). When that coverage ends, you have an 8-month SEP to enroll.

Can I switch from Medicare Advantage to Original Medicare later?

You can switch during the Annual Enrollment Period (October 15 – December 7) or the Medicare Advantage Open Enrollment Period (January 1 – March 31). But switching back to Original Medicare does not guarantee you a Medigap policy. Your protected six-month Medigap window opened the month you turned 65 and enrolled in Part B, and once it closed, insurers in most states may underwrite you — meaning they can decline you, or charge more, based on your health. A few states require guaranteed issue year-round; most do not. This is the asymmetry that makes the initial choice more consequential than it looks: Advantage-to-Original is easy on paper and can be impossible in practice once you have developed a condition.

Sources

1. Centers for Medicare & Medicaid Services — 2026 Medicare Parts A & B Premiums and Deductibles, fact sheet of 14 November 2025, the source for the Part A deductible and coinsurance, the Part B premium and deductible, and the IRMAA schedule on this page; and Medicare & You for the coverage and enrollment rules (cms.gov, medicare.gov)
2. Social Security Administration — IRMAA determinations and Form SSA-44, the life-changing event request (ssa.gov)
3. Kaiser Family Foundation — Medicare Advantage enrollment and plan design research (kff.org)