An Introductory Guide to Medicare Parts A, B, C, and D
Medicare coverage and benefits are divided into four main parts
Medicare is primarily known as the federal health insurance program that is available to American citizens who are ages 65 or higher, but it also covers other smaller groups, such as people below that age with disabilities.
Founded in 1965, Medicare has grown to become a key provider of health insurance to older Americans. Although various media reports have discussed the potential long-term insolvency of Medicare, the Hospital Insurance (HI) Trust Fund that covers Medicare Part A is expected to pay full benefits until 2026. The Supplementary Medical Insurance (SMI) Trust Fund that covers Parts B and D is expected to be sufficiently financed in all years.
But simply planning to enroll in Medicare benefits at the age of 65 is not sufficient to get a handle on your health care. There is much to know about Medicare and what it covers and doesn't cover. Understanding Medicare Parts A, B, C, and D is the first step to planning for comprehensive health care in retirement.
Overview of Medicare Parts
Health care expenses are one of the least predictable and potentially most costly parts of retirement planning. To make matters worse, the programs within Medicare are quite complex, and most retirees do not entirely understand what their benefits are.
The best place to start in understanding the health care program for seniors is to familiarize yourself with the four primary Medicare parts:
- Medicare Part A: Hospital insurance
- Medicare Part B: Medical insurance
- Medicare Part C: Medicare Advantage
- Medicare Part D: Prescription Drug Coverage
Medicare Part A
Medicare Part A is known as hospital insurance, as it covers hospital expenses, such as inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. In addition, Part A covers services including lab tests and surgeries.
Medicare Part A is perhaps the most well-known part of the Medicare program. Retirees (and their spouses) aged 65 and over who meet certain criteria, such as paying at least 10 years into the Medicare system through Medicare taxes, pay no premiums for Part A. If you don't qualify for premium-free Part A coverage, you'll need pay for your own premiums, which can cost up to $458 per month as of 2020.
Both Parts A and B are generally available to people who are 65 or older, have a disability, or have End-Stage Renal Disease (ESRD). If you will be receiving Social Security or Railroad Retirement Board benefits at least four months before you reach age 65, you will automatically be enrolled in Parts A and B. If you're not receiving these benefits by then, you'll have to sign up for Parts A and B with Social Security.
You can choose to delay Part B if you choose, but be aware that Part A is considered emergency coverage; it represents the bare minimum in terms of health insurance coverage. While having Part A coverage alone is better than having no insurance at all, most retirees opt for additional coverage in the form of Part B.
In addition to monthly premiums, the four Medicare parts have deductibles of varying amounts that you must pay before the insurance starts to pay for services.
Medicare Part B
Medicare Part B is known as medical insurance, as it is an extension of the hospital and medical supply/equipment insurance provided by Part A. Part B of Medicare covers medically necessary services that you need to have a condition treated, as well as preventative care, which is used to prevent illness.
Part B covers costs for doctor visits and outpatient services such as physical therapy. This Medicare part can also cover costs like ambulance services, mental health services, some prescription drugs, and durable medical equipment, such as wheelchairs and walkers. The most important piece of Part B is that is covers what is considered preventive care, not just the medical necessities of Part A.
In general, people who are eligible for free premiums under Part A can enroll in Part B once they qualify for Part A. But unlike Medicare Part A, to receive Medicare Part B coverage, you must pay a monthly premium. The standard Part B monthly premium amount is $144.60 as of 2020, but the amount varies based on your income; the more you earn in retirement, the higher your Medicare Part B premium will be.
Having Parts A and B may still leave gaps in coverage of health care services you might rely on. Even with Part A and Part B coverage, services like long-term care, most dental care, annual eye examinations, and hearing aid services are not covered.
Medicare Part C
Medicare Part C, commonly known as Medicare Advantage, provides an alternative to Parts A and B. However, this Medicare part is offered through private companies that contract with Medicare to provide Part A and Part B benefits. In other words, your services won't be paid for by the conventional Medicare program.
The primary benefit of Medicare Advantage Plans is the choice of organization to engage for services (such as an HMO, PPO, or Medical Savings Account Plan), as well as the possibility of obtaining more comprehensive prescription drug coverage.
You are generally eligible to join one of these plans if you live in an area where a plan is offered, have Medicare Parts A and B, and don't have End-Stage Renal Disease. Since Part C plans are offered by private companies, you'll need to find a plan through Medicare's Plan Finder and then sign up for Medicare Advantage through the company website.
Part C premium costs vary depending on the plan provider. However, the average Medicare Advantage Plan with prescription drug coverage costs around $36 per month in 2020.
Part C usually eliminates the need for Medigap insurance—a type of coverage that you might choose if you have Medicare Parts A and B but want to cover some of the holes in coverage.
Medicare Part D
One of the biggest coverage gaps in the Medicare Parts is prescription drug coverage. To fill that gap, Medicare Part D was established in 2003 to cover prescription drugs for those who choose to purchase it. Like Medicare Part C, Part D is offered through private companies that contract with Medicare.
Anyone with Medicare can enroll in Part D by finding a plan through Medicare's Plan Finder and filling out an application with the plan provider. However, if you already have a Medicare Advantage Plan with prescription drug coverage and join a Medicare Part D plan, you will be disenrolled from the Medicare Advantage Plan and returned to the original Medicare program.
You pay for Medicare Part D through monthly premiums, and as with Part C, plan premiums vary by provider. However, the average monthly premiums for stand-alone prescription drug plans ranged from $13 to $83 in 2020.
Final Thoughts on the Medicare Parts
While navigating health care insurance as a senior can be confusing, Medicare introduces some structure to the health care maze through its different parts: A, B, C, and D.
While Part A covers hospital services, Part B covers medically necessary care and preventative care. As an alternative to these two parts, consider buying Part C coverage, known as Medicare Advantage, through a private company. Supplement the prescription drug coverage in either Parts A and B or Part C through optional Part D drug coverage.
Each Medicare part covers unique services and comes at different premium costs and through different methods of sign-up, so it's important to get familiar with them by referencing the Medicare website before enrollment.
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