Medicare explained: Parts A, B, C, and D

Medicare is the federal health insurance program for people 65 and older, along with certain younger people with disabilities, ALS, or end-stage renal disease. It is not one plan — it is a collection of parts that cover different things, cost different amounts, and require different decisions at different points in your life.^[1] Getting the basics right matters for your health coverage and for your retirement budget: Medicare premiums are not flat fees. They can rise sharply based on your income, and the choices you make at enrollment can lock in penalties that follow you for the rest of your life. This guide walks through what each part covers, what it costs in 2026, when to enroll, what Medicare does not cover, and how Medicare decisions intersect with the rest of your retirement plan.

Who qualifies for Medicare

Most people become eligible for Medicare the month they turn 65. You also qualify earlier if you have received Social Security Disability Insurance for 24 months, if you have amyotrophic lateral sclerosis (ALS), or if you have end-stage renal disease requiring dialysis or a transplant. If you are already collecting Social Security retirement benefits when you turn 65, Medicare Part A and Part B enrollment happens automatically — your card arrives roughly three months before your birthday month. If you have not yet claimed Social Security, you need to actively enroll yourself, usually online through the Social Security Administration.^[1]

Part A: hospital insurance

Part A covers inpatient hospital stays, skilled nursing facility care (with time limits), hospice care, and some home health services. Most people pay $0 in Part A premiums because they (or a spouse) paid Medicare payroll taxes for at least 40 quarters — about 10 years — of work.^[1] If you have fewer than 40 quarters, you can still buy into Part A, but the premium is substantial (over $500/month for those with fewer than 30 quarters).

Even with a $0 premium, Part A is not free at the point of use. For 2026, the Part A inpatient hospital deductible is $1,676 per benefit period — not per year. A benefit period starts the day you are admitted as an inpatient and ends after you have gone 60 consecutive days without inpatient care, so a single year with two separate hospitalizations spaced far apart can trigger the deductible twice.^[1] Part A does not use income-related surcharges — unlike Parts B and D, a high income does not raise your Part A premium or deductible.

Part B: medical insurance

Part B covers outpatient care — doctor visits, preventive screenings, lab work, outpatient surgery, durable medical equipment, and many home health services that fall outside Part A. Almost everyone who enrolls pays a monthly premium; there is no work-history exemption the way there is for Part A. The standard Part B premium for 2026 is $202.90/month, and it is typically deducted directly from your Social Security check.^[2]

Higher earners pay more. If your modified adjusted gross income (MAGI) from two years prior exceeded roughly $106,000 as a single filer (or about double that for married couples filing jointly), you owe an Income-Related Monthly Adjustment Amount (IRMAA) on top of the standard premium — and the same surcharge structure applies to Part D. The surcharge is assessed in cliffs, not gradually, so crossing a threshold by even $1 can add hundreds of dollars a month. The full mechanics, current-year tier tables, and how to appeal a surcharge after a life-changing event are covered in Medicare IRMAA explained. You can estimate your own exposure with the IRMAA calculator.

Part C: Medicare Advantage

Part C, better known as Medicare Advantage, is an alternative way to receive your Part A and Part B benefits through a private insurance company that contracts with Medicare. Most Advantage plans also bundle Part D drug coverage and add extras that Original Medicare does not cover, such as dental, vision, and hearing benefits.^[3] To enroll in Medicare Advantage, you must already be entitled to Part A and enrolled in Part B — Part C is layered on top of, not a replacement for, your underlying Medicare entitlement.

Advantage plans typically use networks (HMOs or PPOs) and require prior authorization for many services, in exchange for lower or sometimes $0 plan premiums and an annual out-of-pocket maximum that Original Medicare alone does not have. IRMAA still applies to your underlying Part B (and Part D, if bundled) even if you choose Medicare Advantage — switching to Part C does not shelter you from income-related surcharges.

Part D: prescription drug coverage

Part D covers prescription drugs, either as a standalone plan alongside Original Medicare or bundled into many Medicare Advantage plans. Premiums and covered drug lists (formularies) vary significantly by carrier and plan, so comparing options during open enrollment matters more for Part D than for almost any other part of Medicare.

A major structural change took effect with the Part D redesign: starting in 2025, there is a hard $2,000 annual cap on out-of-pocket prescription drug costs under Part D, and that cap continues in 2026.^[4] Once your out-of-pocket spending on covered drugs hits the cap, you owe nothing further for the rest of the plan year. Medicare also offers an optional payment plan that lets you spread that $2,000 across monthly installments rather than paying large amounts at the pharmacy counter early in the year. Like Part B, Part D carries its own IRMAA surcharge for higher earners, billed separately from your plan premium.

Medigap: filling the gaps in Original Medicare

Medicare Supplement insurance, commonly called Medigap, is sold by private insurers to cover costs that Original Medicare (Parts A and B) leaves behind — deductibles, coinsurance, and copayments. Medigap plans are standardized by letter (Plan G and Plan N are common choices), so the benefits for a given letter are identical across insurers; only the premium differs. One important restriction: you cannot pair Medigap with Medicare Advantage. It is designed to work alongside Original Medicare only, so the Medigap vs. Advantage decision is one of the biggest choices you make at enrollment.

Enrollment windows and late penalties

Your Initial Enrollment Period runs for seven months: three months before the month you turn 65, your birthday month, and three months after.^[1] Enroll within this window (or qualify for a Special Enrollment Period, described below) and you avoid late penalties entirely.

If you miss your window and do not qualify for an exception, the penalties are permanent — they are added to your premium for as long as you have Medicare, not just for a limited period. The Part B late enrollment penalty adds 10% to your premium for each full 12-month period you were eligible but not enrolled. The Part D late enrollment penalty is roughly 1% of the national base beneficiary premium for each month you went without Part D or other creditable drug coverage after becoming eligible. Over 10 or 20 years of retirement, these penalties compound into thousands of dollars in avoidable lifetime cost.

The most common exception is the Special Enrollment Period for people who are still working past 65 and covered by a qualifying employer group health plan (generally, an employer with 20 or more employees). You can delay Part B and Part D without penalty while that coverage continues, then enroll within eight months of losing the employer coverage or stopping work — whichever comes first. Confirm with your employer or HR benefits team whether your plan counts as creditable coverage before you decide to delay; small-employer plans and retiree coverage do not always qualify. Outside of your initial window and special enrollment exceptions, the annual General Enrollment Period (January 1 – March 31) lets you enroll in Part A and/or Part B, with coverage starting the month after you sign up — but the late penalty still applies if you were not covered by an exception. The annual Open Enrollment Period (October 15 – December 7) is different: it is for switching Advantage and Part D plans for the following year, not for first-time enrollment.

What Medicare does not cover

Original Medicare has real gaps that surprise many new enrollees. It does not cover routine dental care, most vision care (including eyeglasses), hearing aids, or most long-term custodial care in a nursing home. It also generally does not cover care outside the United States, cosmetic procedures, or most alternative medicine. Some Medicare Advantage plans add limited dental, vision, and hearing benefits, and long-term care insurance or Medicaid (for those who qualify based on income and assets) are the primary ways people cover extended custodial care. Planning for these gaps — particularly long-term care — is a separate but essential piece of a complete retirement plan.

How Medicare fits into retirement income planning

Medicare decisions do not exist in isolation from the rest of your retirement finances. Three connections are worth planning around well before you turn 65.

1. IRMAA income cliffs. Because Part B and Part D surcharges are based on MAGI from two years earlier, a large Roth conversion, business sale, or capital gains harvest in your early 60s can raise your Medicare premiums well after you have already spent the money. If you are planning Roth conversions or asset sales in the years leading up to 65, model the IRMAA impact alongside the tax impact — see Medicare IRMAA explained for the tier tables and appeal process.

2. HSA contributions stop once you enroll in Medicare. Health Savings Accounts require you to be covered by a qualifying high-deductible health plan and nothing else — enrolling in any part of Medicare, including Part A, makes you ineligible to contribute further. Because Part A enrollment is often automatic once you claim Social Security, people who delay Social Security but still want to keep contributing to an HSA need to actively delay Part A enrollment too. Review how HSAs work and use the HSA calculator to see how much runway you have left to contribute before Medicare enrollment closes that door. Once enrolled, you can still spend down existing HSA funds tax-free on qualified medical expenses, including Medicare premiums — you simply cannot add new contributions.

3. Social Security claiming age and Medicare are not the same decision. You become Medicare-eligible at 65 regardless of when you claim Social Security, which now ranges from 62 to 70 for retirement benefits. Many people claim Medicare at 65 while delaying Social Security to grow their eventual benefit, which means paying Part B premiums directly (by mail or online) rather than having them deducted from a Social Security check. Coordinate the two decisions using Social Security claiming ages explained and the retirement projection calculator to see how premiums, surcharges, and claiming timing fit into your overall retirement income picture.

Frequently asked questions