With four parts and supplemental insurance options, making Medicare choices can be confusing. Here are the basics.
When you turn 65, one of the biggest decisions you’ll face is how to handle your healthcare. Enter Medicare. It’s the national health insurance program that most retirees rely on to cover medical expenses. But as helpful as it is, Medicare can be confusing, with various parts, plans, and options to choose from. So, where do you start?
Let’s break it down, step by step, so you can understand what Medicare covers, how much it costs, and how to choose the right options for your needs.
Part A: Hospital Insurance
The first component of Medicare is Part A, often called “hospital insurance.” This part covers your inpatient hospital stays, care in a skilled nursing facility, hospice care, and limited home health services. If you’ve worked and paid Medicare taxes for at least ten years, you likely won’t have to pay a premium for Part A.
However, Part A isn’t completely free. You’ll still be responsible for some out-of-pocket costs. For example, in 2025, there’s a $1,676 deductible for each benefit period. After that, Medicare covers the first 60 days of your hospital stay, but you’ll pay daily coinsurance for longer stays.
Here’s what Part A covers:
Part B: Medical Insurance
Next is Part B, which covers doctor visits, outpatient care, medical supplies, and preventive services like flu shots. Unlike Part A, you’ll need to pay a monthly premium for Part B. In 2025, the standard premium is $174.70, but it could be higher depending on your income.
Part B also comes with a deductible - $285 in 2025. After you meet it, Medicare typically pays 80% of the cost for approved services. You’ll be responsible for the remaining 20% with no liability cap. So, it’s important to keep in mind that Part B doesn’t cover everything, and out-of-pocket costs can add up.
Part B covers:
Part C: Medicare Advantage Plans
Now, Part C is where things can get a bit more complicated. Also known as Medicare Advantage, Part C is offered by private insurance companies that contract with Medicare. Essentially, it bundles Parts A and B, and often Part D (which covers prescription drugs), into one plan.
Medicare Advantage plans usually come with extra benefits that Parts A and B Medicare don’t cover, like vision, hearing, and dental services. These plans also offer an out-of-pocket maximum each year, so they work to ensure your savings aren't drained by a lengthy hospital stay.
The downside? These plans often have network restrictions, meaning you must stick with a specific group of doctors and hospitals.
The cost of Medicare Advantage plans varies, but most include your Part B premium, and some charge an additional monthly premium. Co-pays and deductibles will depend on the plan you choose.
If you like the idea of an all-in-one plan with some extra perks, Medicare Advantage might be a good fit. Just be sure to check the provider network and costs carefully before enrolling.
Key benefits of Part C (Medicare Advantage):
Part D: Prescription Drug Coverage
Finally, we have Part D, Medicare’s prescription drug coverage. This part is optional, but if you don’t sign up when you’re first eligible, you could face a late enrollment penalty later.
Like Medicare Advantage, Part D plans are offered by private insurance companies. Each plan has a list of covered drugs, known as a formulary, and your out-of-pocket costs will depend on which medications you need. Most plans have a monthly premium, and many also have a deductible.
If you've heard of the coverage gap, often called the “donut hole,” the good news it that it was eliminated in 2025. There's now an out-of-pocket maximum for drug costs of $2,000.
If you take regular medications or have high prescription costs, it’s essential to carefully compare Part D plans to make sure your drugs are covered at an affordable price.
Part D covers:
Enrollment and Penalties
Medicare has specific enrollment windows, and missing these can lead to penalties. You’re first eligible to sign up for Medicare three months before you turn 65, during your Initial Enrollment Period (IEP). If you’re still working and covered by employer insurance, you may be able to delay enrollment, but be careful.
Failing to enroll in Part B or Part D when first eligible can result in permanent late enrollment penalties. Part B's penalty is an additional 10% for each year you delay signing up. For Part D, it’s 1% of the “national base beneficiary premium” for each month you didn’t have coverage. These penalties stick with you for life, so enrolling on time is crucial.
Supplemental Coverage: Medigap
Even with Medicare, out-of-pocket costs can add up. That’s where Medigap, or Medicare Supplement Insurance, comes in. Medigap, or Medicare Supplement Insurance, is sold by private insurers to help cover deductibles, copays, and coinsurance that Medicare doesn’t fully pay for.
There are several different Medigap plans, and each one offers different levels of coverage. Some cover everything, while others only cover certain expenses. Medigap plans don’t work with Medicare Advantage, though, so you’ll need to choose one or the other.
If you stick with Original Medicare (Parts A and B), having a Medigap policy can provide an extra layer of protection for your healthcare costs.
The Takeaway
Medicare is a lifeline for millions of retirees, but it’s not a one-size-fits-all program. Understanding the differences between Parts A, B, C, and D (and how they work together) is the first step toward making the right choices for your healthcare in retirement.
Take time to review your options carefully. Consider your current and future health needs, compare costs, and ensure you’re signing up for the coverage that best suits your situation.
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