How Medicare Works
Learning the Medicare lingo is the first step in understanding how Medicare works. There are lots of letters, plan names and new terms to understand.
We want you to feel like you have a good grasp on Medicare so you can choose a plan that's right for you. This page will help you understand the common terms and how the different types of Medicare plans on the market compare to each other.
Defining Parts A, B, C and D
Medicare has four parts. Parts A and B are called Original Medicare. They're run by the federal government. Medicare Part C is called Medicare Advantage. You buy Medicare Advantage plans from private health insurance companies that contract with the government. They work with Original Medicare coverage. Part D covers prescription drugs. Many Medicare Advantage plans combine Parts A, B and D in one plan. And each Medicare plan only covers one person.
Here's an overview of some of the things each part covers. Each of these triangles represents a different part of Medicare. Part C shows a full triangle because it covers A, B and D on one card, with some extra benefits, too.
Original Medicare vs. Medicare Advantage
Medicare Advantage plans are popular because of their convenience. Most plans combine medical and prescription coverage on one card. Some offer dental and vision coverage, too. And you're able to predict your out-of-pocket costs better than you can with Original Medicare.
When you have Original Medicare, you pay 20 percent of the cost, or 20 percent coinsurance, for most medical services covered under Part B. Medicare Advantage plans use copays more than coinsurance. Which means you pay a fixed cost. You might have a $15 copay for doctor office visits, for example.
And with Medicare Advantage plans, you have an out-of-pocket maximum. That means once you spend a certain amount of money on health care each year, your plan pays 100 percent of the cost of services it covers. Original Medicare doesn't have this cap. So if you get really sick, you'll end up paying a lot.
You can read even more about the difference between Original Medicare and Medicare Advantage in our Help Center.
Medigap vs. Medicare Advantage
Medicare supplement, or Medigap, plans are another option. In a way, Medicare Advantage replaces Original Medicare and connects all the pieces together on one plan. Medigap doesn't replace Original Medicare. It's more like an extra you can add on top of Original Medicare.
Medigap helps pay some of the out-of-pocket costs you have with Original Medicare. For example, it might pay the 20 percent coinsurance for doctor office visits.
But if you go this route, you'll need to make sure you have prescription drug coverage. That means that if you don't have a Part D plan through an employer or union, you'll need to buy one on your own. And Medigap plans don't come with the extra benefits you often get with Medicare Advantage, like dental and vision coverage.
The triangles to the right show how Medigap sits on top of Medicare Parts A, B and D. You can get complete coverage, but you still have to coordinate all those pieces on your own. Medicare Advantage Part C gives you all the pieces with one cohesive plan.
See more differences between Medicare supplement plans and Medicare Advantage in our Help Center.
How does Medicare Part D prescription coverage work?
Medicare Part D covers prescription drugs. You get it through a Part D prescription drug plan or through a Medicare Advantage plan. But it works differently from prescription coverage that comes with other health insurance plans.
Medicare Part D prescription coverage has something called the coverage gap, or donut hole. The coverage gap is a stage in which you pay much more out of pocket for your prescription drugs. It's not based on a time period. It's based on how much you spend.
You can find out more about the donut hole and how Medicare part D works in our Help Center.