What Is Medicare?
Medicare is the United States federal health insurance program primarily for people age 65 and older. It also covers certain people under 65 with qualifying disabilities, people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant), and people with ALS (amyotrophic lateral sclerosis, also called Lou Gehrig's disease).
Medicare is administered by the Centers for Medicare & Medicaid Services (CMS), a federal agency within the U.S. Department of Health and Human Services (HHS). Social Security handles enrollment for most people. As of 2025, over 65 million Americans are enrolled in Medicare.
Medicare is not the same as Medicaid. Medicaid is a separate program for low-income people of all ages, jointly funded by states and the federal government. Some people qualify for both — they're called "dual eligible" beneficiaries.
A Brief History of Medicare
Medicare was signed into law by President Lyndon B. Johnson on July 30, 1965, as part of the Social Security Act. The program was designed to provide health coverage for older Americans who often couldn't obtain affordable private insurance. In 1972, Medicare was expanded to cover people under 65 with disabilities and those with ESRD. The Medicare Modernization Act of 2003 added Part D (prescription drug coverage), which took effect in 2006. The Affordable Care Act (2010) and the Inflation Reduction Act (2022) made further significant changes, including drug cost protections.
How Is Medicare Funded?
Medicare is funded through three main sources:
- Payroll taxes: Employees and employers each pay a 1.45% Medicare tax on all wages (2.9% total). Self-employed workers pay both shares. This funds Part A for most beneficiaries.
- Monthly premiums: Beneficiaries pay monthly premiums for Parts B and D (and optionally for Medigap and Medicare Advantage).
- General federal revenue: The federal government subsidizes a portion of Parts B and D costs from general tax revenue.
The 4 Parts of Medicare
Medicare is organized into four distinct parts, each covering different types of healthcare:
Covers inpatient hospital stays, care in a skilled nursing facility (SNF), hospice care, and some home health care. Most people receive Part A premium-free if they or their spouse worked and paid Medicare taxes for at least 10 years (40 quarters).
| Premium (most) | $0/mo |
| Hospital deductible | $1,676 |
| Days 61–90 copay | $419/day |
Covers medically necessary services like doctor visits, outpatient care, preventive services, durable medical equipment (DME), mental health services, and lab tests. Part B also covers many preventive services at no cost when you see a provider who accepts Medicare assignment.
| Standard premium | $185/mo |
| Annual deductible | $257 |
| Coinsurance | 20% |
Medicare Advantage plans are offered by private insurance companies approved by Medicare. They cover all Part A and Part B services (except hospice, which is still covered by Original Medicare) and usually include Part D drug coverage. Many plans offer extra benefits such as dental, vision, hearing, and fitness memberships. You must continue paying your Part B premium.
Full Medicare Advantage guideCovers prescription drugs. Available as a standalone Prescription Drug Plan (PDP) to use alongside Original Medicare, or bundled into a Medicare Advantage plan (MAPD). Plans use a formulary (drug list) organized into tiers that determine your cost for each medication. Starting in 2025, the out-of-pocket maximum for Part D is $2,000 per year — a major benefit improvement under the Inflation Reduction Act.
Full Part D guideMedigap — Medicare Supplement Insurance
Medigap (also called Medicare Supplement insurance) is private insurance you can buy to help pay costs that Original Medicare doesn't cover — like deductibles, coinsurance, and copays. There are 10 standardized Medigap plan types (A through N), each offering a different level of coverage. Medigap cannot be used alongside Medicare Advantage — it only works with Original Medicare (Parts A and B).
The best time to buy Medigap is during your 6-month open enrollment period, which begins the month you're both 65 or older AND enrolled in Part B. During this window, insurers must sell you a policy at standard rates regardless of your health history.
Full Medigap guideOriginal Medicare vs. Medicare Advantage: The Big Choice
Every Medicare beneficiary faces a fundamental choice between two paths:
| Feature | Original Medicare + Medigap + Part D | Medicare Advantage (Part C) |
|---|---|---|
| Provider choice | Any Medicare provider, nationwide | Usually network-limited |
| Referrals | Not required | Often required (HMO plans) |
| Out-of-pocket cap | Provided by Medigap plan | Built into plan design by law |
| Typical monthly cost | ~$375+ (Part B + Medigap + Part D) | Often $0 beyond Part B |
| Extra benefits | No dental/vision/hearing | Often included |
| Best for | Those wanting flexibility, willing to pay more for it | Those wanting lower cost and don't mind a network |
When Does Medicare Start?
For most people turning 65, the Initial Enrollment Period (IEP) is a 7-month window: it starts 3 months before your birthday month, includes your birthday month, and extends 3 months afterward. If you're already receiving Social Security or Railroad Retirement Board benefits, you'll be enrolled in Parts A and B automatically. If you're still working with employer coverage, you may be able to delay enrollment without penalty.
Each year, the Annual Open Enrollment Period (October 15 – December 7) lets existing beneficiaries switch Medicare Advantage or Part D plans. Changes take effect January 1.
Full enrollment guide with all periods and penalties →What Medicare Does Not Cover
Understanding gaps in Medicare coverage is just as important as knowing what's covered. Original Medicare generally does not cover:
- Routine dental care (cleanings, fillings, extractions)
- Routine vision exams and most eyeglasses or contacts
- Hearing aids and routine hearing exams
- Long-term custodial care (help with daily activities in a nursing home)
- Most care received outside the United States
- Cosmetic surgery
- Most prescription drugs (covered separately through Part D)
Medicare Advantage plans often include some dental, vision, and hearing benefits as extras, which is one reason many people choose them.