Understanding the Four Parts of Medicare in 2024

Considering the average cost of health insurance, it's always best to know your options. Medicare is known as federal health insurance because it's government-funded. Medicare is available to individuals who are at least 65 years old. Younger people may qualify for it if they have specific disabilities or End-Stage Renal Disease.

Medicare gets funding from two trust funds — Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). The former gets funding from several sources, including income taxes. So, the Medicare costs you encounter can be affected by how long you've worked and paid Medicare taxes.

Parts A and B are Original Medicare, and Part C is known as Medicare Advantage. You may also find supplemental plans such as Medigap to fill in the gaps in Original Medicare coverage.

Medicare Part A, which covers inpatient care in hospitals, skilled nursing facilities, nursing homes and hospice care, is included in Original Medicare (along with Part B). You can use it in any hospital in the U.S. accepting Medicare. However, it does not cover the following:

• Long-term care, room and board in nursing homes or assisted living facilities
• Custodial care (bathing, dressing, eating, bathroom use and others)
• Cost of hiring a private nurse
• The first three pints of blood (except when the hospital gets it free from a blood bank)

Most policyholders don't pay for Medicare Part A — you don’t have to pay if you've worked for at least 40 quarters (ten years) and paid Medicare taxes. However, if you don't qualify for premium-free Part A, you may purchase it for $278 or $506 monthly, depending on your deficit.

The difference between Medicare Parts A and B is the services they cover. While both are components of Original Medicare, the former focuses on inpatient services, and the latter helps with outpatient care costs, including:

• Services from most health care providers
• Ambulance services
• Office visits and tests for some clinical research studies
• Medical equipment
• Inpatient and outpatient services and partial hospitalization for mental health patients
• Cancer treatment

However, Part B won't cover dental and vision services, visits to your chiropractor or acupuncturist or most medical services outside of the U.S. It's also worth noting that Part B has no out-of-pocket maximum. That, plus your $20 copays, can quickly drive up your medical expenses.

Although Original Medicare is government-funded, only private health insurance companies offer Medicare Advantage (Medicare Part C). If you qualify for Medicare Parts A and B, you're automatically eligible for Medicare Advantage.

The primary purpose of Medicare Advantage is not to supplement Original Medicare, but to replace it. That's why it covers everything in Parts A and B, along with dental, hearing and vision coverages, plus some prescriptions. It's an excellent option if you prefer to have one plan covering most of your medical needs.

However, purchasing Medicare Advantage doesn't exempt you from Part B costs, like premiums and deductibles.

Like Medicare Part C (Medicare Advantage), you can purchase Part D from private insurers. It covers brand-name prescription drugs (or their generic counterparts), and costs may vary widely depending on the plan. Some insurers may require you to pay a deductible or a copay, while others don't.

When exploring Part D plans, ensure your required drug is within its formulary. Otherwise, your plan won't cover it. Another factor affecting your plan's pricing is where the medication falls within its four tiers.

There are several ways to put a Medicare plan together. One option is to purchase Original Medicare and add Part D to cover the costs of your prescription drugs. Alternatively, you can use Medigap or other supplemental plans as a substitute for Part D.

However, if you prefer an all-in-one plan, you might be better off enrolling in Medicare Advantage. This will save you from purchasing multiple health insurance policies, since most Part C plans include Part A and B coverage, plus some prescription drugs.

Understanding the various costs and coverage gaps will help you determine whether you have the coverage you need and prevent surprises when accessing health care.

MoneyGeek's guide explains the four parts of Medicare, but you may have other questions. These are the ones policyholders ask and their respective answers.