MEDICARE 101

Overview

Medicare is different than group health insurance (from your employers) in many regards. Most significantly, you have to piece together your own Medicare coverage - as opposed to an administrator providing you with one health plan option to enroll in.

CMS (Centers for Medicare and Medicaid Services), i.e. Medicare, is not an insurance company (like UHC, Humana, Cigna, Aetna, etc.). So, they group your medical expenses into buckets, which they call parts - Part A, B, C and D - based on the level of associated expense (among other factors). For example, Part A provides the most expensive services in hospitals. Part B provides medical services generally provided at outpatient facilities. Part D is your prescription drug coverage. You can see a descending trend of medical expenses that becomes less and less expensive.

Original Medicare

Original Medicare - what comes with your red, white, and blue card - is strictly Parts A and B. When your Original Medicare starts, you have to play the rules: meaning you must accept and start paying Medicare premiums and enroll in Part D drug coverage when you turn 65. Thankfully, there is an exception to the rules if you have creditable coverage that is as good as or better than Original Medicare. Employer group health coverage, military-based coverage (like Tricare for Life or VA coverage), and some coverage offered in retirement meets this qualification.

Original Medicare is quite expensive by itself. The specific costs associated with Original Medicare can be found here, but in general and on average, Medicare covers the first 80% of your hospital and medical bills (and remember, you only receive Part A and B services).

There are monthly premiums associated with each part of Original Medicare:

  • Part A is generally premium-free if you paid taxes for 40 calendar-quarters (~10 total years, not consecutive).

  • Everyone pays the Part B premium, which fluctuates each year. The Part B premium was $174.70/month in 2024, and rises to $185/month in 2025. Although there are many factors that affect the Part B Premium, it usually adjusts with the annual COLA (Cost of Living Adjustment) for social security benefits. A large increase in COLA typically indicates an increase in the Part B premium, a smaller increase in COLA indicates level or even decrease in the Part B premium.

  • Part C premiums - more on this later.

  • Part D premiums for standalone prescription drug plans range from almost $0 to $100+. The standard Part D premium is roughly $35/month (more on this later).

Supplementing Original Medicare

If a beneficiary does not have other creditable coverage, they often supplement Original Medicare. There are two paths to supplementing Original Medicare in this case:

Medigap Plans (Medicare Supplement)

Medigap plans act like pure insurance, meaning you pay a premium and it simply fills in the gaps. Medigap plans are standardized - meaning a Medigap Plan G with Mutual of Omaha pays the exact same as a Medigap Plan G with UnitedHealthcare. Here is a chart that explains the differences between Medigap Plans.

Plan G is widely considered the "gold-standard," and covers virtually all expenses that Original Medicare does not pay, excluding the Part B deductible (which is only $240 in 2024). For a 65-year old, Plan G premiums can range from $150 to 300 per month. In addition, you will need to purchase a stand-alone drug plan (remember the rules) in order to avoid a late enrollment penalty. Including your Part B premium, you should budget to pay about $4,000-5,000 per year in health insurance premiums if you elect the Medigap route. Expect premiums to increase by 5-15% each year, as premiums are partially based on age.

Beneficiaries must explore stand-alone plans for dental, vision, and other desired benefits.

In short, the Medigap path is a great option for beneficiaries who want peace of mind about medical bills throughout the year and can easily afford the premiums. It is also a great option for those with many health complications if you enroll during a guaranteed issue period.

Medicare Advantage Program

The Medicare Advantage Program is technically Part C of Medicare. For the time that a beneficiary is enrolled in a Medicare Advantage plan, all medical billing flows through one plan - in other words, Medicare Advantage plans provide all 4 parts of Medicare (A, B, C and D). Medicare Advantage plans are available with or without prescription drug coverage, but for this explanation I am only referring to MAPD plans; Medicare Advantage plans with Prescription Drug coverage.

In the Medicare Advantage Program, the same carriers that offer Medigap plans contract with CMS to provide your Medicare health coverage. In general, they receive their funding (i.e. premiums) from the premiums that you paid in taxes over the years (Remember that Medicare Part A tax on your paystub?) and also the Part B premium that you now or will pay each month. So, in most cases, you do not pay an additional premium. However, you must continue to pay your Part B premium whether you enroll in a Medicare Advantage or Medigap plan.

Medigap v. Medicare Advantage

Medigap and Medicare Advantage plans are simply two different ways to supplement Original Medicare, but because in either case you must continue to pay your Part B premium, I have found that the following explanation helps to provide a very clear, unbiased perspective about the two paths. Neither path is inherently better or worse, they are just different. 

As compared to a Medigap plan where you pay an upfront premium for peace of mind later, you do not pay additional premiums for an MAPD. You will likely incur copays and some medical bills throughout the year with an MAPD. However, with an MAPD you will be protected by a Maximum-out-of-Pocket (MOOP) threshold. These MOOPs can range from $800 to $10,000, but often land between $3,500 and $6,000 in my experience. Your service area will have a relatively standard MOOP range across all MAPD plans. 

Some examples of copays with MAPD plans:

- Primary care visits are often $0

- Preventive care (like annual wellness visits, screenings, etc.) are often $0

- Specialist doctor visits are $30 to 40 on average, but can be lower

- Urgent care visits are often $45 to $65

- Overnight hospital stays are often $150 to $350 per day for the first few days, but vary widely from plan to plan 

There is no mystery to the charges you will incur. If you choose to enroll in an MAPD, you will receive plan documents that provide your copays, MOOP and any other associated costs with using the plan.

So, comparing the two routes, you can pay upfront for peace of mind, or you can save the upfront premiums for medical costs that you may incur later in the year. With the Medigap path you will have at least 3 separate insurance cards - your red, white, and blue Medicare card, Medigap card, and prescription drug card. In the Medicare Advantage Program, all of your medical and prescription drug benefits are provided through one card, though you may receive an additional card for extra benefits. There are pros and cons to both, BUT those pros and cons depend on your specific situation. So, be sure to complete a thorough Needs Analysis with a qualified, competent, licensed insurance agent.