Medicare 101: Understanding the basics

If your mind is flooded with questions when you think about Medicare, you’re not alone. What is it? When do you need it? Which plan is right for you? A lot of the answers depend on your circumstances, which is why you’ll want to grasp the basics before you make any big decisions.

What is Medicare?

Medicare is a federal health insurance program for: 

• People who are 65 or older
• Those who have received disability benefits for at least 24 months
• Those diagnosed with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS)

There are several “parts” of Medicare that serve different purposes, but we’ll talk more about that later:

• Part A (hospital, inpatient care and skilled nursing care)
• Part B (doctor visits, outpatient care, labs, durable medical equipment and emergency care)
• Part D (prescription drug coverage)
• Medicare Advantage aka Part C (private, bundle-style plans of Parts A, B and usually D)
• Medicare Supplemental Insurance aka Medigap (additional private insurance)

When should I enroll in Medicare?

You’re probably hoping for a simple answer to this question, but the truth is: it depends. Some people plan to enroll when they turn 65, and others wait. There are several enrollment periods to be aware of: 

Initial Enrollment Period (IEP): Congrats, this is your first chance to sign up for Medicare! It’s a seven-month window generally starting three months before you turn 65 and ending three months after you turn 65. This window is determined by your Medicare effective date, which is the first day of the month that you turn 65 or the month prior if your birthday falls on the first day of the month.

Special Enrollment Period (SEP): Some life events – like moving or losing your current coverage – will allow you a window of time to enroll in or make changes to certain Medicare-based plans. Many people leverage an SEP as they continue to work past age 65 while remaining on their group employer or spouse’s employer plan. Once they move away from that coverage, they’re granted a Special Enrollment Period.

General Enrollment Period (GEP): If you missed your Initial Enrollment Period and you’re not entitled to a Special Enrollment Period, you can use this period (January 1 to March 31) to enroll in Medicare. Unless you have a life event that qualifies you for an SEP, you may pay a monthly late enrollment penalty once you sign up – which is why we recommend avoiding this if possible.

Annual Enrollment Period (AEP): Every year from October 15 to December 7, people who already have Medicare can make changes to their coverage for the coming year. If your needs have changed and you want to look into new coverage, check in with your insurance advisor. If you don’t want to make changes, your plan will renew on its own. No action needed!

Medicare 101 tip: Whether or not you plan to enroll in Medicare around your 65th birthday, it’s a good idea to ask an insurance advisor about next steps to avoid late penalties down the line.

What if I’m working past 65?

You have the option to enroll in Medicare whether you’re retiring or not, but that decision comes down to what’s right for you. If you’re on a credible health plan provided by your employer, you can delay enrolling in Medicare without a penalty. Here are a couple questions to ask yourself:

How does my (or my spouse’s) employer-provided coverage compare to Medicare? If you currently have a plan that works well for your needs and your wallet, maybe it’s not time to switch yet. You’ll want to weigh the pros and cons of different plans, including:

• Networks: Is your current network limiting, or full of choices? How would it compare to your potential Medicare plan?
• Total costs: What are you paying for your premium and things like doctor visits and prescriptions? Is there room to save?
• Out-of-pocket maximums: An out-of-pocket maximum is a cap on the amount of money you have to pay for covered health care services in a plan year. Medicare Part B (which covers everyday medical services) doesn’t have an out-of-pocket maximum, so keep that in mind if you’re considering enrolling.

Do I need to cover dependents? If you have a younger spouse or children on your employer-provided health plan, keep in mind they won’t be covered by your new Medicare plan. If you switch, they’ll need to find coverage somewhere else.

Medicare 101 tip: When deciding if you want to keep your employer-provided coverage, remember that Medicare doesn’t cover ancillary services like dental, vision, hearing, long-term care, life, hospital indemnity insurance and more.  

What are the parts of Medicare?

Your health care needs are unique. Medicare is broken down into different parts to give you options for serving those needs.

Parts A and B (Original Medicare)

These two go hand in hand and are known together as Original Medicare (or traditional Medicare). This two-part program includes everyday medical coverage and hospital insurance. You typically pay a portion of the costs for covered services as you get them.

Part A helps cover inpatient care in hospitals, skilled nursing facility care and hospice care. Understanding the various expenses is crucial to choosing the right Medicare insurance plan. You need to consider your premiums, copayments and coinsurance expenses. For example, in 2024:

• Premiums were $0 for most recipients. If the beneficiary or their spouse paid Medicare taxes for 40 quarters (10 years) then Medicare Part A is free.
• Deductibles were $1,632 but change every year.
• Coinsurance varied by plan.

Part B helps cover:

• Services from doctors and other health care providers
• Outpatient care
• Medical equipment (wheelchairs, walkers, hospital beds, etc.)
• Some preventive services (screenings, vaccines, annual wellness exam, etc.)

Again, Medicare Part B doesn’t have an out-of-pocket maximum. To help pay your out-of-pocket costs with Original Medicare, you have the option to also carry Part D (prescription drug coverage) or Medicare Supplemental Insurance (Medigap).

The cost of Medicare Part B is calculated based on the adjusted gross income reported on your taxes from two years prior. In 2024 (for single taxpayers with an income less than or equal to $103,000 or taxpayers who were married filing jointly with an income less than or equal to $206,000):

• Premiums were $174.70.
• Deductibles were $240.
• Coinsurance was 20%.

Part D (prescription drug coverage)

Part D helps cover prescription drug costs, including some shots or vaccines. It’s often used in addition to Original Medicare, which doesn’t cover drugs on its own, or as part of a Medicare Advantage plan. With Part D, drug costs are usually organized into different tiers to determine their costs.

Medicare Advantage (Part C)

Think of Medicare Advantage as the private version of Original Medicare. It acts as a “bundle” of Parts A, B and usually D. While some people choose to combine Original Medicare with Part D for hospital, medical and prescription coverage, you could also go with a Medicare Advantage plan that includes prescription drugs (called MAPD) to cover the same categories. 

Where to find care: When you have Medicare Advantage, you’ll have to stick with doctors who are in your private plan’s network.

Medicare 101 tip: You might hear about Medicare Advantage plans with $0 premiums, but there are still costs associated with them. If you’re considering one, ask an insurance advisor about it. 

Medicare Supplemental Insurance (Medigap)

Medigap is also a plan you would get from a private company, but it only serves as an optional add-on to Original Medicare. You can use it to share out-of-pocket costs like copayments and deductibles for the services Original Medicare already covers. While you could choose Original Medicare or Medicare Advantage as standalone coverage, Medigap would be an extension of your Original Medicare plan. 

Medicare 101 tip: The cost of Medigap plans could vary based on your age, gender, ZIP code and tobacco use. Keep this in mind if you’re considering adding one to your Original Medicare coverage. Also, its open enrollment period can be a bit tricky, so meet with an advisor if you have questions. Depending on your enrollment timing, you may be subject to health underwriting.  

I have more questions. What now?

There’s a lot of valuable information in this article for Medicare beginners, but there’s still more to learn. Meeting with an insurance advisor is a great way to get clarity on your lingering questions and feel confident in your next steps. At no cost to you, a Desert Financial insurance advisor can:

• Provide in-depth education and answer your questions
• Explain enrollment timelines and how to avoid late penalties
• Break down costs and coverage details of different plans
• Help you enroll and/or make changes to your current plan(s)
• Be a year-round resource for all your Medicare needs

No matter what approach you take to learning about Medicare, just remember the confusion you might be feeling is temporary. Soon, you can take a deep breath and enjoy your hard-earned Medicare benefits.