What Is Medicare? How It Works, Who Qualifies, and How to Enroll

What Is Medicare?

Medicare is a U.S. government health insurance program covering primarily people age 65 or older. Medicare coverage is for particular aspects of health care, and some come at a cost for the insured. While this allows the program to offer participants more choices regarding costs and coverage, it also introduces complexity for those seeking to sign up.

How Medicare Works

Medicare is a national health insurance program funded by the U.S. government and administered by the Centers for Medicare and Medicaid Services (CMS). The program extends coverage to people younger than 65 with specific disabilities and those with end-stage renal disease or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease.

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 must enroll for other parts of the Medicare program, such as Medicare Part D (drug coverage) or Medicare Supplement insurance (Medigap). If you miss your initial enrollment period or want to switch plans later, there are several annual Medicare open enrollment periods.

Payroll taxes primarily fund Medicare, under the Federal Insurance Contributions Act (FICA).

Qualifications for Medicare

Eligibility depends on several criteria, but in general, anyone who has lived in the United States legally for at least five years and is 65 or older qualifies for Medicare coverage.

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. However, the program waives this requirement for anyone with ALS or permanent kidney failure. Enrollment can be done through the Social Security Administration (SSA) website.

Premiums for Medicare Part A, which covers hospital stays and other inpatient care, are free if the 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.

Types of Medicare

As mentioned above, four different types of Medicare programs are available to individuals. Basic Medicare coverage comes predominantly via Parts A and B or the Medicare Part C plan. Individuals also may opt to enroll in the Medicare Part D plan.

What Does Medicare Part A Cover?

Medicare Part A covers the cost of hospitals, skilled nursing facilities, hospices, 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. Enrollment can be done through the SSA website for those who don't receive benefits.

Deductibles and copayments for Part A are as follows:

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 transport, certain medical equipment, and mental health care.

The standard monthly premium for Medicare Part B enrollees is $174.70 for 2024, up from $164.90 for 2023. The annual deductible is $240 in 2024, an increase of $14 from the 2023 annual deductible of $226.

However, premiums are higher for taxpayers with modified adjusted gross income (MAGI) above limits adjusted annually. For 2024, these were set at $103,000 for single taxpayers and $206,000 for married couples filing jointly.

What Is Medicare Part C?

Individuals eligible for Medicare Parts A and B are eligible for Part C, also known as Medicare Advantage. Consumers purchase Medicare Advantage plans from private insurers rather than Medicare. These plans must offer coverage that is at least equivalent to Original Medicare (Parts A and B).

Many Medicare Advantage plans offer annual caps on out-of-pocket costs. Many also provide benefits such as dental, vision, and hearing care.

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.

Medicare Advantage plans often include drug coverage, but you may also need to purchase coverage separately. In 2024, the average premium for a Part D plan is $18.50.

Inflation Reduction Act and Medicare Part D

The Inflation Reduction Act of 2022 made some important changes to Medicare Part D. The following will roll out over 2023-2024:

• Covered insulin prescriptions available for $35 per month
• No cost-sharing for recommended adult vaccines
• An out-of-pocket prescription drug cost cap in Medicare
• Low-income subsidy program (LIS or “Extra Help”) expansion to 150% of the federal poverty level starting in 2024
  

Medicare vs. Medicaid

Both Medicare and Medicaid are government-sponsored health insurance programs, but there are different eligibility requirements for each program. However, some people are eligible for both programs, also called dual eligibles.

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 care, X-rays, hospitalization, home health care, and lab and X-ray services. Some states may offer expanded coverage for prescriptions, physical therapy, dental services, and medical transportation.

The History of the Medicare Program

Congress created the program by amending the Social Security Act in 1965 to provide coverage for people age 65 and older without health insurance. On July 30, 1965, then-President Lyndon B. Johnson signed the bill authorizing 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 expanded Medicare by making more people eligible for coverage, and extended coverage for more medical conditions. 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. Congress has since added new benefits like prescription drug coverage.

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.

In response to the COVID-19 pandemic, then-President Donald Trump signed a $2 trillion package of relief measures, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, into law on March 27, 2020. It expanded Medicare coverage for the treatment of COVID-19. The CARES Act also improved telehealth service coverage and increased Medicare payments for COVID-19-related hospital stays and durable medical equipment.

In 2022, the Inflation Reduction Act was passed and included a redesign of Medicare prescription drug coverage and other costs.

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.

If you're 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.