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

Medicare is the federal health insurance program that covers most Americans beginning at age 65. Despite its importance, the program’s structure — divided into four distinct parts, each covering different services with different costs — can be genuinely confusing. Many people approaching Medicare eligibility feel overwhelmed by the alphabet soup of Parts A, B, C, and D, along with supplemental Medigap policies.

This guide breaks down each component of Medicare so you can understand what is covered, what it costs, and how the pieces fit together to form your overall healthcare coverage in retirement.

Medicare at a Glance

Medicare was established in 1965 and now covers over 65 million Americans. You become eligible at age 65 if you are a U.S. citizen or permanent resident who has lived in the country for at least five consecutive years. If you or your spouse paid Medicare taxes for at least 40 quarters (10 years) during your working career, you qualify for premium-free Part A.

The program is divided into four parts, each serving a different purpose. Parts A and B are known as “Original Medicare” and are administered directly by the federal government. Parts C and D are offered through private insurance companies that contract with Medicare. Understanding what each part does — and does not — cover is the first step toward making informed decisions about your healthcare in retirement.

Medicare Parts Comparison

The following table provides a side-by-side comparison of all four Medicare parts, including 2025 cost figures.

Part A: Hospital Insurance

Medicare Part A is sometimes called “hospital insurance” because it primarily covers inpatient care. When you are admitted to a hospital as an inpatient, Part A pays for your room, meals, nursing care, drugs administered during your stay, and other hospital services. It also covers:

• Skilled Nursing Facility (SNF) Care: Up to 100 days per benefit period following a qualifying 3-day hospital stay. Days 1 through 20 are fully covered. Days 21 through 100 require a daily coinsurance payment of $209.50 in 2025.
• Home Health Services: Part-time skilled nursing care and therapy services when you are homebound and need intermittent care.
• Hospice Care: Comfort care for terminally ill patients with a life expectancy of six months or less, including medications for symptom management.

For most people, Part A is premium-free because they (or their spouse) paid Medicare taxes during their working years. If you have fewer than 30 quarters of Medicare-covered employment, you may pay a monthly premium of up to $518 in 2025. It is also important to understand the concept of a “benefit period.” A benefit period begins when you are admitted to a hospital and ends when you have been out of the hospital or skilled nursing facility for 60 consecutive days. The Part A deductible of $1,676 applies per benefit period, not per calendar year — meaning you could pay it more than once in a year if you have multiple hospital stays separated by 60 or more days.

Part B: Medical Insurance

Medicare Part B covers a wide range of outpatient medical services, including:

• Doctor office visits and specialist consultations
• Outpatient surgeries and procedures
• Diagnostic tests, lab work, and imaging (X-rays, MRIs, CT scans)
• Preventive services (annual wellness visits, screenings, flu shots, and many vaccines)
• Durable medical equipment (wheelchairs, walkers, oxygen equipment)
• Mental health services (therapy, psychiatric evaluations)
• Ambulance services when medically necessary

The standard Part B premium for 2025 is $185.00 per month, deducted from your Social Security check. Higher-income beneficiaries pay more through the Income-Related Monthly Adjustment Amount (IRMAA), which we cover in detail in our companion article on Medicare enrollment timing and IRMAA surcharges.

After you meet the annual deductible of $257, Part B generally covers 80% of approved charges, leaving you responsible for the remaining 20%. There is no out-of-pocket maximum in Original Medicare, which is one reason many beneficiaries also purchase a Medigap supplemental policy or choose a Medicare Advantage plan instead.

Most preventive services are covered at 100% with no deductible or coinsurance, including your annual wellness visit, certain cancer screenings, cardiovascular screenings, and diabetes screenings. Taking advantage of these preventive benefits can help identify health issues early when they are most treatable.

Part C: Medicare Advantage

Medicare Advantage (Part C) plans are offered by private insurance companies approved by Medicare. These plans must cover everything that Original Medicare (Parts A and B) covers, and most also include Part D prescription drug coverage. Many plans offer additional benefits not available through Original Medicare, such as dental care, vision exams, hearing aids, fitness memberships, and even meal delivery after a hospital discharge.

Medicare Advantage plans come in several types:

• HMO (Health Maintenance Organization): Requires you to use in-network providers and get referrals for specialists.
• PPO (Preferred Provider Organization): Allows you to see out-of-network providers at a higher cost, without referrals.
• PFFS (Private Fee-for-Service): Determines what it will pay providers and what you will owe on a claim-by-claim basis.
• SNP (Special Needs Plans): Tailored for people with specific diseases or characteristics.

Many Medicare Advantage plans have $0 monthly premiums (beyond the Part B premium you continue to pay). The trade-off is typically a more limited provider network and the need for prior authorizations for certain services. Advantage plans also have annual out-of-pocket maximums, which Original Medicare does not, providing a cap on your total healthcare spending for the year.

Part D: Prescription Drug Coverage

Medicare Part D provides prescription drug coverage through private insurance plans that contract with Medicare. You can get Part D coverage either through a standalone Prescription Drug Plan (PDP) that supplements Original Medicare, or through a Medicare Advantage plan that includes drug coverage (MA-PD).

Each Part D plan has a formulary — a list of covered drugs organized into tiers. Lower tiers (generics) typically have the lowest copays, while higher tiers (brand-name and specialty drugs) cost more. Before choosing a plan, you should compare formularies to ensure your current medications are covered and check which tier they fall into.

Part D plans have several cost-sharing phases:

1. Annual Deductible: Up to $590 in 2025, though many plans have lower or no deductible for preferred generics.
2. Initial Coverage: After your deductible, you pay copays or coinsurance for each prescription until total drug costs reach the coverage threshold ($5,030 in 2025).
3. Coverage Gap: Thanks to the Inflation Reduction Act, beginning in 2025, total out-of-pocket prescription costs are capped at $2,000 per year for Part D enrollees, effectively eliminating the “donut hole” that previously caused significant financial hardship.
4. Catastrophic Coverage: With the new $2,000 cap, once you reach this limit, you pay nothing for the rest of the year.

It is important to review your Part D plan annually during the Annual Election Period (October 15 through December 7), as formularies, premiums, and pharmacy networks can change from year to year. A plan that was the best value last year may not be this year.

Medigap: Supplemental Insurance

Medigap (Medicare Supplement Insurance) policies are sold by private insurance companies to help fill the “gaps” in Original Medicare coverage — specifically the deductibles, copayments, and coinsurance that Part A and Part B leave you to pay out of pocket. Medigap policies are standardized by the federal government, meaning that a Plan G from one insurer covers exactly the same benefits as a Plan G from another insurer. The only differences between insurers are the premium, customer service, and financial stability.

The most popular Medigap plans in 2025 are:

• Plan G: Covers all Medicare cost-sharing except the Part B annual deductible ($257 in 2025). This is the most comprehensive plan available to new enrollees.
• Plan N: Similar to Plan G but with lower premiums. You pay the Part B deductible, up to $20 for some doctor visits, and up to $50 for emergency room visits that do not result in admission.

Medigap policies do not cover prescription drugs, dental, vision, or hearing. If you choose Original Medicare with a Medigap policy, you will also need a standalone Part D plan for drug coverage.

Choosing between a Medicare Advantage plan and Original Medicare with Medigap is one of the most consequential decisions in retirement healthcare planning. Each approach has advantages depending on your health needs, provider preferences, budget, and risk tolerance. A financial advisor or Medicare specialist can help you evaluate the trade-offs based on your specific situation.

This article is for informational purposes only and does not constitute investment advice. All information should be discussed with a qualified financial advisor before implementation.