Medicare Explained: Parts A, B, C and D

Medicare covers more than 65 million Americans, and it’s the payer that sets the tone for everyone else. Commercial contracts are often priced as a percentage of Medicare rates, and Medicare’s coding and billing rules end up as industry defaults. If you work anywhere near claims, you’ll run into it within a week.

This post covers who qualifies, what Parts A, B, C and D are, what Medicare doesn’t cover, and how enrollment works.

What Medicare is

Medicare is a federal health insurance program, run by the Centers for Medicare & Medicaid Services (CMS) and funded mainly through payroll taxes, premiums and general federal revenue. Unlike Medicaid it isn’t means-tested: your income doesn’t decide whether you qualify.

Who qualifies

You’re eligible if you meet one of these:

• Age 65 or older. For premium-free Part A, you or your spouse need to have paid Medicare taxes for at least 10 years (40 quarters). If you worked fewer quarters you can still get Medicare, but you pay a premium for Part A.
• Disability. People under 65 who have received Social Security Disability Insurance (SSDI) for 24 months.
• End-stage renal disease (ESRD), meaning permanent kidney failure that needs dialysis or a transplant.
• ALS (Lou Gehrig’s disease). People with ALS qualify as soon as their SSDI starts, with no 24-month wait.

The four parts

Medicare is split into lettered parts, and each one pays for different things.

Part	Name	Covers	Default?
A	Hospital insurance	Inpatient hospital stays, short skilled nursing facility stays, hospice, some home health	Yes, usually premium-free
B	Medical insurance	Doctor visits, outpatient care, lab tests and X-rays, preventive services, durable medical equipment, some drugs given in a clinic	Yes, with a monthly premium
C	Medicare Advantage	A private plan that replaces A and B (and usually D)	Optional
D	Prescription drugs	Outpatient prescription drugs	Optional

Part A is the hospital side. It pays for an inpatient stay, a short stay in a skilled nursing facility after a hospital stay, hospice care and some home health care. Patients still pay a per-stay deductible and coinsurance for long stays.

Part B is the medical side: physician services, outpatient care, labs and imaging, preventive care, ambulance services, and durable medical equipment such as wheelchairs. It also covers a limited set of drugs given in a clinic, like infusions. Most people pay a monthly premium for Part B, and then 20% coinsurance on most services after a small yearly deductible.

Part D covers prescription drugs bought at a pharmacy. It’s optional and sold by private insurers. It’s also the part people most often regret skipping: if you go without drug coverage for long enough and enroll later, you pay a late enrollment penalty added to your premium for as long as you have Part D.

Part C, Medicare Advantage, is a private plan approved by Medicare that bundles A and B, and usually D, into one plan. Medicare pays the private insurer a fixed amount per member, and the insurer runs the plan, often as an HMO or PPO with extras like dental or vision. Roughly half of Medicare beneficiaries now choose Advantage over Original Medicare.

Original Medicare vs Medicare Advantage

This choice confuses newcomers more than anything else.

	Original Medicare (A + B)	Medicare Advantage (C)
Who pays claims	Medicare, through regional contractors	A private insurer
Network	Any provider that accepts Medicare	The plan’s network (HMO or PPO rules apply)
Out-of-pocket cap	None for A and B	Yes, a yearly maximum
Prior authorisation	Rarely	Common
Drug coverage	Add a separate Part D plan	Usually included
Extras (dental, vision)	No	Often

People on Original Medicare often buy a Medigap (Medicare supplement) policy to cover the 20% coinsurance and other gaps, since Original Medicare has no out-of-pocket maximum.

For engineers, the big difference is who processes the claim. Original Medicare claims go to a Medicare Administrative Contractor (MAC), a regional company that processes Part A and B claims for CMS. Medicare Advantage claims go to the private plan, which runs its own adjudication, prior authorisation and networks.

What Medicare doesn’t cover

By default, Original Medicare doesn’t cover:

• long-term custodial care, such as help with daily living in a nursing home over a long period;
• most dental care;
• routine vision and hearing care, including glasses and hearing aids.

Advantage plans often add some of these as extra benefits. Medicaid covers long-term care for people who also qualify for it, which is one reason dual-eligible members matter so much.

Enrollment windows

Medicare has fixed enrollment periods, and missing them can cost you.

• Initial Enrollment Period: seven months around your 65th birthday. That’s the three months before your birthday month, the birthday month itself, and the three months after.
• General Enrollment Period: January 1 to March 31 each year, for people who missed their initial window. Coverage starts the month after you sign up, and you may owe a late-enrollment penalty on Part B.
• Special Enrollment Periods: for people who delayed Part B because they had coverage through their own or their spouse’s current job.
• Open Enrollment: October 15 to December 7 each year, when people can switch between Original Medicare and Advantage or change Part D plans.

Many people already collecting Social Security are enrolled in Parts A and B automatically.

Common misunderstandings

• “Medicare is free.” Part A usually is. Part B has a premium, and both have deductibles and coinsurance.
• “Medicare covers nursing homes.” Only short skilled-nursing stays after a hospital stay, not long-term custodial care.
• “Medicare Advantage is a supplement.” It replaces Original Medicare; it doesn’t add to it. Medigap is the supplement.
• “Everyone on Medicare is over 65.” Millions qualify through disability or ESRD.

Conclusion

Medicare is federal, based on age or disability rather than income, and split into parts: A for hospital care, B for medical care, D for drugs, and C as a private all-in-one alternative. The Original-vs-Advantage split decides who processes claims and whether prior authorisation and networks apply.

Next, compare it with the need-based program: Medicaid and CHIP.

Further watching

From the HealthTech Decoded channel:

• Medicare and Medicaid overview and their differences

References

• Medicare.gov: Parts of Medicare
• Medicare.gov: When does Medicare coverage start?

Where this fits

Level 1 · Foundations › Government programs

• Previous: Employer Coverage, ERISA and the ACA Marketplace
• Next: Medicaid and CHIP Explained