Intermediate Planning
Medicare Basics: What's Covered and What Isn't
A clear breakdown of Medicare's parts, enrollment windows, costs, and how to choose between Original Medicare and Medicare Advantage — without the government jargon.
Medicare Basics: What's Covered and What Isn't
Medicare is one of the most valuable benefits available to retirees — and one of the most confusing. Parts A, B, C, D. Medigap. IRMAA. Open enrollment windows. The terminology alone is enough to make your eyes glaze over.
But Medicare is worth understanding carefully, because the choices you make when you first enroll have lasting financial consequences. Miss an enrollment window and you may pay higher premiums for life. Choose the wrong plan type and you may find your preferred doctors out of network. Get it right and Medicare becomes a powerful, cost-effective foundation for your healthcare in retirement.
Let's cut through the alphabet soup.
The Four Parts of Medicare
Medicare is divided into four parts, each covering a different aspect of healthcare.
Part A — Hospital Insurance
Part A covers inpatient hospital care, skilled nursing facility stays (after a qualifying hospital stay), hospice care, and some home health services.
Cost: Most people pay $0 in premiums for Part A — if you or your spouse worked and paid Medicare taxes for at least 10 years (40 quarters), you've already paid for it. If you haven't, you can buy into Part A for up to $518/month in 2025.
What it doesn't cover: It does not cover doctors' fees while you're in the hospital — that's Part B.
Key cost-sharing to know:
- Hospital deductible: ~$1,632 per benefit period in 2025 (not per year — per hospital stay)
- Days 1–60: $0 coinsurance after deductible
- Days 61–90: ~$408/day coinsurance
- Beyond 90 days: limited "lifetime reserve days" apply
💡 Insight
Original Medicare has no out-of-pocket maximum. A long hospital stay or serious illness can result in very large costs without supplemental coverage. This is the main reason Medigap exists.
Part B — Medical Insurance
Part B covers outpatient care: doctor visits, preventive services, lab work, durable medical equipment, outpatient surgery, and some home health services.
Cost: The standard Part B premium is ~$185/month per person in 2025. Higher-income retirees pay more through a surcharge called IRMAA (more on that below).
Key cost-sharing:
- Annual deductible: ~$257 in 2025
- After deductible: you pay 20% of covered services — with no cap
The uncapped 20% coinsurance is the main reason many people add Medigap supplement coverage.
Part C — Medicare Advantage
Part C, also called Medicare Advantage, is an alternative way to get your Medicare benefits through a private insurer instead of the federal government. Medicare Advantage plans must cover everything Original Medicare covers, but they typically bundle in Part D (drug coverage) and often include extras like dental, vision, and hearing.
Cost: Many Medicare Advantage plans advertise $0 monthly premiums, but you still pay your Part B premium. The tradeoff: these plans use networks (HMO or PPO structure), and may require referrals or prior authorization.
We'll compare Original Medicare vs. Medicare Advantage more closely below.
Part D — Prescription Drug Coverage
Part D covers prescription drugs. It's provided by private insurers and is optional — but if you skip it and later want to enroll, you'll pay a late enrollment penalty.
Cost: Varies significantly by plan and drugs covered; typically $20–$80/month, with additional cost-sharing for prescriptions. In 2025, the Inflation Reduction Act capped annual out-of-pocket drug costs under Medicare at $2,000.
✏️ Tip
Even if you take few medications now, enrolling in a low-cost Part D plan when you first become eligible protects you from late penalties and ensures coverage is in place when you need it.
When to Enroll: The Windows That Matter
Medicare enrollment has specific windows. Missing them can mean paying permanent premium penalties or going months without coverage.
Initial Enrollment Period (IEP)
Your first opportunity to enroll is a 7-month window centered on your 65th birthday:
- 3 months before the month you turn 65
- The month you turn 65
- 3 months after the month you turn 65
Enroll during the first 3 months of this window to ensure coverage starts the month you turn 65.
Special Enrollment Period (SEP)
If you're still working at 65 and covered by an employer plan (or a spouse's employer plan), you can delay Medicare enrollment without penalty. You get a Special Enrollment Period when that coverage ends — typically 8 months to enroll in Part B without penalty.
💡 Insight
COBRA coverage and retiree health benefits do not count as "employer coverage" that lets you delay Medicare without penalty. If you're relying on COBRA at 65, enroll in Medicare on time.
General Enrollment Period (GEP)
If you missed your IEP and don't qualify for an SEP, you can enroll during the General Enrollment Period: January 1–March 31 each year, with coverage beginning July 1. You'll also pay a permanent late enrollment penalty.
The Late Enrollment Penalty
Missing Part B enrollment when you should have enrolled costs you 10% added to your Part B premium for each 12-month period you were eligible but didn't enroll. That penalty is permanent — you pay it for as long as you have Part B.
For Part D, the penalty is 1% of the national base premium for each month you went without coverage.
Original Medicare vs. Medicare Advantage: The Core Tradeoff
This is the most consequential Medicare decision most people make. There's no universally right answer, but understanding the tradeoffs helps.
| Original Medicare + Medigap | Medicare Advantage | |
|---|---|---|
| Networks | Any doctor/hospital that accepts Medicare nationwide | Typically limited to plan network (HMO or PPO) |
| Monthly cost | Part B ( | Part B (~$185) + plan premium ($0–$100) |
| Out-of-pocket exposure | Very low with Medigap Plan G | Annual out-of-pocket maximum (varies; up to $8,000–$9,000) |
| Predictability | Very predictable costs | Costs vary by utilization |
| Extra benefits | Minimal | Often includes dental, vision, hearing |
| Prior authorization | Rarely required | Common for certain procedures |
| Best for | People who want freedom and predictability | People who want lower premiums and bundled benefits |
The catch with Medicare Advantage: Low premiums look attractive, but out-of-pocket maximums can be substantial if you have a serious illness. And if you later want to switch back to Original Medicare and add Medigap, insurers in most states can deny you coverage or charge higher premiums based on health history.
✏️ Tip
If you're healthy at 65 and cost-conscious, Medicare Advantage can work well. But many financial advisors suggest that for people who want long-term predictability and the flexibility to see any specialist nationwide, Original Medicare + Medigap Plan G is worth the higher monthly premium.
IRMAA: The High-Income Medicare Surcharge
Higher-income retirees pay more for Medicare Parts B and D through the Income-Related Monthly Adjustment Amount (IRMAA). It's calculated based on your income from two years prior.
In 2025, the standard Part B premium (~$185/month) applies to individuals with income up to $106,000. Above that, surcharges apply:
| Individual Income | Monthly Part B Premium |
|---|---|
| Up to $106,000 | ~$185 |
| $106,001–$133,000 | ~$259 |
| $133,001–$167,000 | ~$370 |
| $167,001–$200,000 | ~$480 |
| Above $200,000 | ~$591 |
This matters for Roth conversion planning. A large taxable income event in one year (like a big Roth conversion or selling a business) can push you into a higher IRMAA bracket two years later. Smooth, planned conversions are usually preferable to large spikes.
Medigap: The Gap-Filler Worth Understanding
Medigap (Medicare Supplement Insurance) is private insurance that covers what Original Medicare leaves unpaid — primarily the 20% Part B coinsurance and hospital cost-sharing.
The most popular Medigap plans:
- Plan G: Covers nearly everything after the Part B deductible. The most comprehensive option for new enrollees. Typical cost: $120–$200/month depending on age and location.
- Plan N: Similar to Plan G but with small copays for some visits. Lower premium in exchange for slightly more cost-sharing.
The key window: you have a six-month Medigap Open Enrollment Period starting when you're both 65 and enrolled in Part B. During this period, insurers cannot deny coverage or charge more due to pre-existing conditions. After it closes, they can — and most states allow them to.
Key Takeaways
- Medicare has four parts: A (hospital), B (medical), C (Medicare Advantage), D (prescriptions)
- Most people pay $0 for Part A if they've worked 10+ years; ~$185/month for Part B in 2025
- Original Medicare has no out-of-pocket maximum — Medigap supplements fix this
- Medicare does not cover dental, vision, hearing, or long-term care — plan for these separately
- Miss your enrollment window and you may pay permanent premium penalties
- COBRA does not count as employer coverage for delaying Medicare without penalty
- Higher-income retirees pay more through IRMAA — a factor in Roth conversion planning
- The Medigap Open Enrollment Period (age 65 + Part B enrollment) is the window you don't want to miss
Next up — Article 21: Required Minimum Distributions (RMDs). You've spent decades putting money into tax-deferred accounts. The IRS eventually wants its cut — and forces you to take it. Here's what RMDs are, when they kick in, and how to plan around them.
Quick Check
What is the late enrollment penalty for Part B if you miss your enrollment window without a qualifying exception?