What Is Medicare?
Medicare is a U.S. government health insurance program that subsidizes healthcare services. The plan covers people age 65 or older, younger people who meet specific eligibility criteria, and individuals with certain diseases.
Medicare is divided into different plans that
cover a variety of healthcare situations—some of which come at a cost to the insured person. While this allows the program to offer consumers more choice in terms of costs and coverage, it also introduces complexity for those seeking to sign up.
Key Takeaways
- Medicare is a national program that subsidizes healthcare services for anyone age 65 or older, younger people with specific eligibility criteria, and people with certain diseases.
- Medicare is divided into four categories: Medicare Part A, Part B, Part C (also called Medicare Advantage), and Part D for prescription drugs.
- Medicare Part A premiums are free for those who made Medicare contributions for 10 or more years through their payroll taxes.
- Patients are responsible for paying premiums for other parts of the Medicare program.
When Am I Eligible For Medicare?
How Medicare Works
Medicare is a national healthcare program funded by the U.S. government. Congress created the program as part of amendments to the Social Security Act in 1965 to give coverage to people ages 65 and older who didn’t have any health insurance.
The program is now administered by the Centers for Medicare and Medicaid Services (CMS) and extends coverage to include people with certain disabilities and those who have end-stage renal disease and amyotrophic lateral sclerosis (ALS), or Lou Gehrig’s disease. There are four different parts to Medicare, all of which provide different types of services for the insured:
- Medicare Part A
- Medicare Part B
- Medicare Part C
- Medicare Part D
Who Is Medicare For?
Eligibility depends on a number of criteria, but in general, anyone who has lived in the United States legally for at least five years and is age 65 or older qualifies for Medicare coverage. Enrollment in Parts A and B is automatic for anyone who receives Social Security benefits. Part D coverage is optional, and enrollment must be done by the individual.
People under age 65 may qualify if they receive Social Security Disability Insurance (SSDI). Those who receive SSDI generally need to wait 24 months after they receive their first check before they become eligible for Medicare, although the program waives this requirement for anyone with ALS and or with permanent kidney failure. Enrollment can be done through the Social Security Administration (SSA) website.
Anyone with ALS automatically qualifies for Medicare, regardless of age.
Premiums for Medicare Part A are free if an insured person or their spouse contributed to Medicare for 10 or more years through their payroll taxes. You are responsible for paying premiums for other parts of the Medicare program.
The program is funded through a variety of sources. U.S. taxpayers contribute to the program through the Federal Insurance Contributions Act (FICA), which goes toward Social Security and Medicare deductions.
As of 2021 and 2022, employees contribute a total of 7.65% of their paychecks to these programs—6.2% to Social Security and 1.45% to Medicare. Employers also pay the same percentage on behalf of each employee.
How Do I Enroll in Medicare?
As long as you are eligible to receive Social Security benefits when you turn 65, you will automatically be enrolled in Medicare Part A, which covers hospital costs, and Medicare Part B, which covers your visits to the doctor. You don’t need to do anything to enroll in these programs.
However, you will have to enroll for other parts of the Medicare program.
If you want Medicare Part D prescription drug coverage, you’ll need to enroll yourself. If you’re not receiving Social Security benefits, you can sign up for this through the SSA website. You should do this in a seven-month window around your 65th birthday. This window includes the three months before the month when you turn 65, your birthday month, and the three months after your birthday month. If you miss this period, you may incur a penalty.
If you want Medicare Supplement Insurance (Medigap), you also need to enroll yourself. The enrollment period for this starts the month when you turn 65 and are enrolled in Medicare Part B. The private insurers that provide Medigap plans are required to take you if you sign up during that period. Otherwise, there is no guarantee that they will sell you a Medigap plan.
If you miss your initial enrollment period or want to switch plans later, there are several annual Medicare open enrollment
periods.
What Does Medicare Pay For?
As mentioned above, there are four different types of Medicare programs available to individuals. Basic Medicare coverage comes predominantly via Parts A and B or through the Medicare Part C plan. Individuals also may opt to enroll in the Medicare Part D plan.
Medicare Parts A and B are colloquially known as “Original Medicare,” since they date from the beginning of the program back in 1965.
What Does Medicare Part A Cover?
Medicare Part A covers costs billed by hospitals or similar inpatient or inpatient-like settings, such as skilled nursing facilities, hospice, and some home-based healthcare. However, this plan doesn’t cover long-term or custodial care. Coverage is automatic for anyone who receives Social Security benefits. For those who don’t receive benefits, enrollment can be done through the SSA website.
Deductibles and co-insurance for Part A are as follows:
| Inpatient hospital deductible | $1,484 | $1,556 |
| Daily co-insurance for 61st–90th Day | $371 | $389 |
| Daily co-insurance for lifetime reserve days | $742 | $778 |
| Skilled nursing facility co-insurance | $185.50 | $194.50 |
What Does Medicare Part B Cover?
Medicare Part B generally covers costs for outpatient care such as doctor visits. Part B also covers preventive services, ambulance services, certain medical equipment, and mental health coverage. Some prescription drugs also qualify under this plan.
The standard monthly premium for Medicare Part B enrollees is $170.10 for 2022, an increase of $21.60 from $148.50 in 2021. The annual deductible is $233 in 2022, an increase of $30 from the annual deductible of $203 in 2021.
However, premiums are higher for any individual taxpayer whose modified adjusted gross income (MAGI) is more than $88,000, and more than $176,000 for married couples in 2021. Those thresholds rise to $91,000 and $182,000, respectively, in 2022.
What Is Medicare Part C?
Individuals who are eligible for Medicare Parts A and B are likewise eligible for Part C, also known as Medicare Advantage. Consumers purchase Medicare Advantage plans through private insurers rather than through the government itself. Medicare Advantage must offer coverage that is at least equivalent to Original Medicare (Parts A and B).
Many of these plans offer annual limits on out-of-pocket costs. Many also provide benefits that Original Medicare patients otherwise would need to purchase via supplemental insurance such as a Medigap plan, and they may include co-pays, co-insurance, deductibles, and even costs related to insurance while traveling outside the U.S. Some plans may also include dental, vision, and hearing care. Note that hearing aids, are not covered by basic Medicare, although some Medicare Advantage plans do cover hearing services as supplemental benefits.
What Is Medicare Part D?
Medicare offers supplemental prescription drug coverage through Medicare Part D. Enrollees in Medicare Part A or Part B may enroll in Part
D to receive subsidies for prescription drug costs that Original Medicare plans do not cover.
The History of the Medicare Program
Medicare was created on July 30, 1965, when then-President Lyndon B. Johnson signed into law the bill that led to both Medicare and Medicaid. The Original Medicare program included what is now referred to as Part A (Hospital Insurance) and Part B (Medical Insurance).
In the intervening years, Congress has made many changes to Medicare. In general, the program has been extended by making more people eligible for it and expanded by using it to cover more medical conditions.
For example, in 1972, Medicare was expanded to cover the disabled, people with end-stage renal disease requiring dialysis or kidney transplant, and people age 65 or older who select Medicare coverage. Since then, even more benefits, like prescription drug coverage, have been added.
The Medicare Prescription Drug Improvement and Modernization Act (MMA) of 2003 made the biggest changes to Medicare in 38 years. Under the new legislation, private health plans approved by Medicare became known as Medicare Advantage Plans. These plans are sometimes called Part C or “MA Plans.” The MMA also expanded Medicare to include an
optional prescription drug benefit, Part D, which went into effect in 2006.
The CARES Act of 2020
On March 27, 2020, then-President Donald Trump signed a $2 trillion coronavirus emergency stimulus package, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, into law. It expanded Medicare’s ability to cover treatment and services for those affected by COVID-19, the novel coronavirus. The CARES Act also:
- Increased flexibility for Medicare to cover telehealth services.
- Authorized Medicare certification for home health services by physician assistants, nurse practitioners, and certified nurse specialists.
- Increased Medicare payments for COVID-19-related hospital stays and durable medical equipment.
For Medicaid, the Families First Coronavirus Response Act (FFCRA) clarified that non-expansion states can use the Medicaid program to cover COVID-19–related services for uninsured adults who would have qualified for Medicaid if the state had chosen to expand. Other populations with limited Medicaid coverage are also eligible for coverage under this state option.
Medicare vs. Medicaid
Both Medicare and Medicaid are government-sponsored health insurance programs, but there are different eligibility requirements for each program. While Medicare is meant for those ages 65 and older and younger people with certain health conditions, Medicaid is a joint federal and state program that provides healthcare coverage to people with low incomes. To qualify for Medicaid, recipients are required by their state to have a limited amount of liquid assets.
Anyone with Medicaid coverage is eligible to receive services such as doctor and nursing services, X-rays, hospitalization, home healthcare, and lab and X-ray services. Also, some states may extend patients’ prescription drug coverage, physical therapy,
dental services, and medical transportation.
Who Is Eligible for Medicare?
If you are 65 years old and eligible for Social Security, then Medicare is an option for you. If you’ve received Social Security Disability Insurance (SSDI) for 24 months, Medicare becomes available. Individuals who have certain disabilities, such as amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease) or
permanent kidney failure, are automatically eligible.
Is Medicare Free?
For most individuals, Medicare Part A is free, due to their payment of payroll taxes under the Federal Insurance Contributions Act (FICA). Individuals can also qualify for free Medicare Part A due to the work history of a spouse. If an individual does not qualify, then they will have to pay a premium for Medicare Part A. Other types of Medicare require a premium payment.
Is Medicare Insurance?
Medicare covers healthcare costs for eligible individuals in the same way that health insurance does, but that’s where the similarity ends.
There is no premium for the basic part of Medicare, but coverage is more limited than private health insurance. Private health insurance often allows you to extend coverage to dependents, such as your spouse and children. Medicare, on the other hand, is individual insurance. Most people with Medicare coverage have to qualify on their own through age or disability.
What Is Not Covered by Medicare?
Several key healthcare costs still aren’t covered by Medicare. The biggest of these is long-term care, also known as custodial care. Medicaid, the federal health program for those on low incomes, pays these custodial costs, but Medicare doesn’t.
Common expenses that Medicare does not cover include:
- Eye exams and eyeglasses
- Dentures
- Most dental care
- Medical care overseas
- Cosmetic surgery
- Massage therapy
How Much Is Taken From Your Social Security Check for Medicare?
For individuals with qualifying work history, there’s no premium for Medicare Part A. The standard premium for Medicare Part B in 2021 is $148.50, which is automatically deducted from your Social Security check. The standard Part B premium amount in 2022 is $170.10.
The Bottom Line
Medicare is a U.S. government health insurance program that subsidizes healthcare services. The plan covers people age 65 or older, younger people who meet specific eligibility criteria, and individuals with certain diseases.
As long as you are eligible to receive Social Security benefits when you turn 65, you will automatically be enrolled in Medicare Part A, which
covers hospital costs, and Medicare Part B, which covers your visits to the doctor. You can enroll in other parts of Medicare once you become eligible.