How Medicare Works: Parts A, B, C, and D Explained

The Four-Part Architecture of American Senior Healthcare

More than 65 million Americans rely on Medicare, yet a 2023 Kaiser Family Foundation survey found that fewer than half of beneficiaries could correctly identify what each part covers. The program, signed into law in 1965 under President Lyndon Johnson, has since expanded far beyond its original hospital-and-physician framework into a multi-part system with distinct premiums, deductibles, and coverage rules that interact in ways that routinely confuse beneficiaries and their families.

Understanding Medicare is not optional for anyone approaching age 65. Missing an enrollment window triggers permanent premium surcharges that follow beneficiaries for life. The numbers are stark.

Part A: Hospital Insurance

Part A covers inpatient hospital stays, skilled nursing facility (SNF) care following a qualifying hospital stay, hospice care, and some home health services. Most beneficiaries receive Part A premium-free if they or their spouse paid Medicare taxes for at least 40 quarters (10 years) of covered employment. Those with 30–39 quarters pay $278 per month in 2024; those with fewer than 30 quarters pay $505 per month.

The 2024 Part A inpatient deductible is $1,632 per benefit period—not per calendar year. A benefit period begins on the day of hospital admission and ends when the beneficiary has been out of inpatient care for 60 consecutive days. A beneficiary hospitalized twice in the same year may owe the deductible twice. Coinsurance for extended stays adds further costs:

• Days 1–60: $0 coinsurance (deductible already paid)
• Days 61–90: $408 per day
• Days 91–150: $816 per day (lifetime reserve days)
• Beyond 150 days: beneficiary pays 100% of costs

Part B: Medical Insurance

Part B covers outpatient services, physician visits, preventive care, durable medical equipment, and most outpatient drugs administered in a clinical setting. Unlike Part A, Part B always carries a premium. The standard 2024 monthly premium is $174.70, but higher-income beneficiaries pay more through the Income-Related Monthly Adjustment Amount (IRMAA).

The 2024 Part B deductible is $240 annually. After the deductible, Medicare pays 80% of approved costs; the beneficiary is responsible for the remaining 20% with no out-of-pocket maximum—an exposure that can become catastrophic without supplemental coverage.

IRMAA Surcharge Brackets (2024)

Part C: Medicare Advantage

Medicare Advantage (MA) allows private insurers to deliver Parts A and B benefits—and usually Part D—in a bundled plan. By 2024, 54% of all Medicare beneficiaries were enrolled in Medicare Advantage, a historic milestone that marked the first time MA enrollment exceeded traditional Medicare enrollment.

MA plans typically offer lower out-of-pocket maximums and added benefits (dental, vision, hearing, fitness programs) that Original Medicare does not cover. The trade-off is network restriction—most plans use HMO or PPO structures requiring beneficiaries to use specific providers. Prior authorization requirements are more prevalent in MA plans than in traditional Medicare, and coverage disputes are more common.

• MA plans may charge $0 monthly premium beyond the Part B premium
• Out-of-pocket maximums for in-network care cannot exceed $8,850 in 2024
• Plans receive risk-adjusted capitation payments from CMS
• Benchmark payments vary by county, creating geographic disparities

Part D: Prescription Drug Coverage

Part D is voluntary standalone drug coverage available to Original Medicare enrollees; MA plans typically bundle it in. Each Part D plan maintains its own formulary (list of covered drugs) divided into tiers that determine cost-sharing. The 2024 reforms under the Inflation Reduction Act introduced a $2,000 annual out-of-pocket cap on Part D costs—the most significant structural change since Part D launched in 2006. The catastrophic coverage phase coinsurance was also eliminated.

Late enrollment in Part D triggers a permanent penalty of 1% of the national base beneficiary premium for each month of uncovered delay, compounded for life.

Medigap: Filling the Gaps

Medigap (Medicare Supplement Insurance) plans, sold by private insurers, pay costs that Original Medicare leaves behind—deductibles, coinsurance, and sometimes foreign travel emergency care. Since 2020, newly eligible beneficiaries cannot purchase Plans C or F (which covered the Part B deductible), leaving Plans G and N as the most comprehensive options. Plans are standardized by letter across states; only premiums differ by insurer and location.

What Medicare Does Not Cover

The program's most criticized gaps are routine dental, vision, and hearing coverage—services the 1965 legislation excluded and that Congress has repeatedly failed to add despite broad public support. Long-term custodial care (assistance with daily living activities in a nursing home) is also not covered; Medicaid picks up that cost for those who qualify financially.

Enrollment Windows and Penalties That Last Forever

The Initial Enrollment Period spans seven months centered on a beneficiary's 65th birthday month. Missing it without qualifying coverage (such as employer group insurance) triggers the Part B late enrollment penalty—10% added to the standard premium for each 12-month period of delay, permanent for as long as the beneficiary has Part B. The Part A penalty (if applicable) adds 10% for twice the number of years enrollment was delayed.

Special Enrollment Periods allow delayed enrollment without penalty for those with creditable employer coverage, but the rules around what counts as "creditable" and when the SEP clock starts trip up thousands of near-retirees each year. Consulting a licensed Medicare counselor through the State Health Insurance Assistance Program (SHIP)—a free federal resource—before the Initial Enrollment Period opens is advisable for anyone whose situation is not straightforward.