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GUIDE: How Medicare Works

Medicare is a federal health insurance plan meant for those who are 65 years or older, young people with certain disabilities, and people who are diagnosed with end-stage renal disease. If this is your first time enrolling for Medicare, it’s understandable that you may be feeling overwhelmed about choosing the right Medicare plan, and figuring out how it works. That’s why we’ve put together a guide explaining the meaning and benefits of different Medicare plans.

Defining Parts A, B, C, and D of Medicare

Medicare has four parts. Part A and Part B are together called Original Medicare – this is offered by the federal government. Medicare Part C is known as Medicare Advantage – this is offered by private health insurance firms that have a contract with the government. Medicare Part D covers prescription drugs. A number of Medicare Advantage Plans combine all parts in a single plan. 

Original Medicare vs. Medicare Advantage – What’s the Difference?

Medicare Advantage plans are popular among Americans due to the convenience they offer. Many of these plans even cover vision and dental costs, thus providing you more comprehensive coverage. Unlike Original Medicare, Medical Advantage plans also help you predict your out-of-pocket expenses a lot better. 

With Original Medicare, you are required to pay 20% coinsurance for many medical services that are covered under Part B. Medicare Advantage plans, on the other hand, use co-pays rather than coinsurance, which means you can pay a fixed cost. 

Another benefit of Medicare Advantage is that you have a specific out-of-pocket maximum. This means you are required to pay only a particular amount of money each year, after which your plan will cover 100% of your healthcare expenses. 

How Does Medicare Part D Work?

You can get Medicare Part D, which offers prescription coverage, either by directly purchasing a Part D plan or by way of a Medicare Advantage plan. However, this plan works differently from the prescription coverage that’s offered with regular health insurance plans. 

Medicare Part D has something called a donut hole or coverage gap. This refers to a stage when your coverage may be limited for a temporary period. During this stage, you may have to pay more for prescription drugs, in comparison to what you paid earlier. However, not everyone who signs up for Medicare Part D will enter this stage. You only enter the donut hole stage after you and your plan have covered a certain amount of expenses for prescription drugs in one year.