Medicare is the federal health insurance program for Americans aged 65 and older, certain younger people with disabilities, and people with End-Stage Renal Disease. The program covered 67 million Americans in 2025 and is the single largest source of health insurance in the United States after employer-sponsored coverage. Yet despite its size and importance, Medicare's structure confuses nearly everyone who encounters it for the first time. The program is divided into four parts — A, B, C, and D — each covering different services, each with its own premiums, deductibles, and enrollment rules. Getting any part wrong can mean lifelong premium penalties, gaps in coverage, or thousands of dollars in unexpected medical bills.
This guide covers all four parts of Medicare with 2025 figures, including premiums, deductibles, copayments, and the income-related surcharge known as IRMAA. We also cover the enrollment windows — Initial Enrollment Period, General Enrollment Period, and Special Enrollment Periods — and the late penalties that apply if you miss them. The decisions you make during your seven-month Initial Enrollment Period around age 65 affect the rest of your life, so it is worth understanding the system before you enter it.
The four parts at a glance
Medicare's structure can be summarized in a single table. Part A covers inpatient hospital care, skilled nursing facility care, hospice, and some home health care. Part B covers outpatient medical services — doctor visits, preventive care, durable medical equipment, and some home health care. Part C, also called Medicare Advantage, is an alternative way to receive Parts A and B through a private insurance company, often with Part D prescription drug coverage bundled in. Part D covers prescription drugs and is delivered exclusively through private insurance companies.
| Part | Covers | 2025 Premium | 2025 Deductible |
|---|---|---|---|
| A | Hospital, SNF, hospice | $0 (most people) | $1,676 per benefit period |
| B | Medical, doctor visits, preventive | $185.00/mo (standard) | $257 per year |
| C | Medicare Advantage (private) | $17/mo average (in addition to B) | Varies by plan |
| D | Prescription drugs | $34.70/mo average | Up to $590 per year |
The table makes the system look simpler than it is. Parts A and B together are called Original Medicare, and they leave significant gaps — no annual out-of-pocket cap, no prescription drug coverage, no dental, vision, or hearing. Most beneficiaries fill those gaps with a Medigap policy (also called Medicare Supplement Insurance) plus a standalone Part D plan, or by switching to a Medicare Advantage plan that bundles everything together. Each path has trade-offs that we cover in the sections below.
Part A: Hospital insurance
Part A covers inpatient hospital stays, skilled nursing facility care following a hospital stay, hospice care, and limited home health care. Most people pay no premium for Part A because they (or a spouse) paid Medicare taxes for at least 40 quarters — about 10 years — of work. Those with fewer than 40 quarters can buy into Part A: in 2025, the premium is $285 per month for 30-39 quarters, and $518 per month for fewer than 30 quarters.
Part A is not free even when the premium is zero. The 2025 inpatient hospital deductible is $1,676 per "benefit period" — a concept unique to Medicare that begins the day you are admitted to a hospital and ends when you have been out of the hospital (or skilled nursing facility) for 60 consecutive days. A single illness involving multiple hospitalizations can trigger multiple benefit periods and multiple deductibles. After the deductible, Part A pays full hospital costs for days 1-60, then a $419.50 per day copay for days 61-90, then $839 per day for "lifetime reserve days" (60 days total that can be used once in a lifetime). Skilled nursing facility care is fully covered for days 1-20 after a 3-day hospital stay, then $209.50 per day for days 21-100, and nothing after day 100.
Part B: Medical insurance
Part B covers outpatient medical services: doctor visits, preventive care, lab tests, durable medical equipment, ambulance services, and some home health care. Unlike Part A, Part B is optional — but declining it (without other credible coverage) triggers a permanent late enrollment penalty of 10% for each full 12-month period you were eligible but did not enroll. The 2025 standard monthly premium is $185.00, but higher-income beneficiaries pay more through IRMAA (covered below). The annual deductible is $257, after which Part B typically pays 80% of the Medicare-approved amount, leaving the beneficiary responsible for the remaining 20% with no annual cap.
The lack of an out-of-pocket cap in Original Medicare is the single most important reason to buy a Medigap policy or switch to Medicare Advantage. A 20% coinsurance on a $100,000 cancer treatment is $20,000 — a sum that can devastate a fixed-income retiree. Medigap plans C, F, G, and N cover most or all of this cost. Plan G, the most popular Medigap plan sold to new Medicare beneficiaries (Plan F is no longer available to those who became eligible for Medicare after January 1, 2020), covers the Part A deductible, Part A copays, Part B coinsurance, and the first three pints of blood each year.
Part C: Medicare Advantage
Medicare Advantage (Part C) is an alternative to Original Medicare. Instead of receiving benefits directly from the federal government, you enroll in a private insurance plan that contracts with Medicare to provide all Part A and Part B benefits, and usually Part D as well. In 2025, 51% of Medicare beneficiaries — about 34 million people — are enrolled in Medicare Advantage. The average monthly premium for an MA plan in 2025 is $17, in addition to the Part B premium that beneficiaries must continue to pay.
Medicare Advantage plans typically offer benefits that Original Medicare does not, including annual out-of-pocket maximums (capped at about $8,850 in 2025 for in-network services), dental, vision, hearing, and sometimes gym memberships or transportation. The trade-offs are significant: MA plans use provider networks (HMOs or PPOs), require referrals and prior authorizations, and can change their benefits, premiums, and provider networks annually. Original Medicare, by contrast, allows you to see any doctor who accepts Medicare without referrals. The decision between Original Medicare plus Medigap and Medicare Advantage is the single most consequential choice a new Medicare beneficiary makes, and it is difficult to switch from MA back to Medigap later because Medigap plans can medically underwrite applicants outside the initial enrollment window.
Part D: Prescription drugs
Part D covers outpatient prescription drugs and is delivered exclusively through private insurance companies. The 2025 average monthly premium is $34.70, and the maximum annual deductible is $590. The benefit structure changed dramatically in 2025 because of the Inflation Reduction Act of 2022. The notorious "donut hole" coverage gap has been eliminated, and the catastrophic phase — where beneficiaries previously paid 5% of drug costs with no cap — has been replaced by a $2,000 annual out-of-pocket cap on covered Part D drugs.
The $2,000 cap, effective January 1, 2025, is one of the most significant changes to Medicare in a decade. A beneficiary taking a $10,000-per-month cancer drug now faces a maximum of $2,000 out of pocket for the entire year. Beneficiaries can also opt into the Medicare Prescription Payment Plan, which spreads the out-of-pocket costs across the year rather than requiring large upfront payments at the pharmacy. The new cap does not apply to drugs not covered by the plan's formulary or to drugs purchased outside the Part D system.
IRMAA: the high-income surcharge
The Income-Related Monthly Adjustment Amount (IRMAA) adds surcharges to Part B and Part D premiums for beneficiaries whose modified adjusted gross income (MAGI) from two years prior exceeds certain thresholds. For 2025, the IRMAA tiers are based on 2023 MAGI and begin at $106,000 for single filers and $212,000 for married filing jointly. The surcharges escalate through five tiers, reaching an additional $506.90 per month on Part B for the highest earners (MAGI above $500,000 single or $750,000 joint).
| MAGI (single) | MAGI (joint) | Part B monthly premium | Part D surcharge |
|---|---|---|---|
| ≤ $106,000 | ≤ $212,000 | $185.00 | $0 |
| $106,001-$133,000 | $212,001-$266,000 | $259.00 | + $74.00 |
| $133,001-$167,000 | $266,001-$334,000 | $370.00 | + $185.00 |
| $167,001-$200,000 | $334,001-$400,000 | $480.90 | + $295.90 |
| $200,001-$500,000 | $400,001-$750,000 | $591.90 | + $406.90 |
| ≥ $500,001 | ≥ $750,001 | $691.90 | + $506.90 |
Because IRMAA is based on two-year-prior income, large one-time events like a Roth conversion, a business sale, or a large capital gain can trigger IRMAA for two years running. A retiree who converts $300,000 from a traditional IRA to a Roth at age 63 will see MAGI spike in that year, then face IRMAA surcharges at age 65 — when they first enroll in Medicare. The Form SSA-44 life-changing event appeal can reset IRMAA mid-cycle for qualifying events like retirement, work reduction, marriage, or death of a spouse, but only for specific circumstances.
Enrollment periods and late penalties
The Initial Enrollment Period (IEP) is the seven-month window surrounding your 65th birthday: the three months before, the month of, and the three months after. Enrolling in the first three months ensures coverage starts the first day of your birthday month. If you delay past your IEP without credible coverage (typically from active employment with 20+ employees), you face permanent late penalties: 10% per 12-month period for Part B, and 1% per month for Part D.
The General Enrollment Period runs January 1 to March 31 each year, with coverage starting July 1. This is the fallback for those who missed their IEP. Special Enrollment Periods (SEPs) are available for specific situations — most commonly, the 8-month SEP after you stop working or lose employer coverage, which lets you enroll in Part B without penalty. Medigap has its own 6-month Medigap Open Enrollment Period that begins the month you turn 65 and enroll in Part B — this is the only time Medigap plans must accept you without medical underwriting, making it a critical window that should not be missed.
Case studies
A 65-year-old single retiree with $120,000 of MAGI in 2023 (the lookback year) enrolls in Medicare in 2025. Because her income falls in the second IRMAA tier ($106,001 to $133,000), her Part B premium is $259 per month instead of $185 — an additional $888 per year. She also pays a $74 monthly surcharge on her Part D premium, adding another $888 annually. Total IRMAA cost: $1,776 per year, or about $148 per month, on top of standard premiums.
A 67-year-old still working full-time with employer coverage (20+ employees) delays Part B at 65. When she retires at 67, she enrolls in Part B during the 8-month Special Enrollment Period after losing employer coverage. No late penalty applies because she had credible coverage. Her Part B coverage begins the month after she enrolls. If she had fewer than 20 employees at her employer, the SEP would not apply, and she would face the 10% per year penalty for two years of delay.
A 66-year-old enrolled in Medicare Advantage at 65 decides to switch back to Original Medicare plus Medigap at age 66. Because she is outside her 6-month Medigap Open Enrollment Period, the Medigap insurer can medically underwrite her application. Her type 2 diabetes and prior cardiac stent result in denial from three insurers before she finds one willing to issue a policy at 50% higher premium. Had she enrolled in Medigap during her open enrollment window at 65, she would have paid standard rates with no medical questions asked.
Common mistakes
- Missing the 7-month Initial Enrollment Period — The most common and most expensive mistake. Enrolling late triggers permanent late penalties (10% per year for Part B, 1% per month for Part D) that compound for life.
- Not understanding Medicare Advantage network restrictions — MA plans use HMO or PPO networks. If your doctor is out of network, you may pay full price or be denied coverage. Original Medicare has no networks.
- Ignoring IRMAA when planning retirement income — A Roth conversion or large capital gain at age 63 can push you into a higher IRMAA tier at age 65, adding thousands of dollars per year to Medicare premiums.
- Missing the 6-month Medigap Open Enrollment window — Outside this window, Medigap insurers can medically underwrite your application. Pre-existing conditions can mean denial or much higher premiums.
- Assuming Medicare covers long-term care — Medicare covers only skilled care after a hospitalization (up to 100 days in a skilled nursing facility). Custodial long-term care — the kind most people actually need — is not covered at all.
- Not enrolling in Part D when first eligible — Even if you take no prescription drugs, declining Part D without other credible coverage triggers a permanent 1% per month penalty when you finally enroll.
- Not reviewing Medicare Advantage plans annually — MA plans can change premiums, benefits, formularies, and provider networks every year. A plan that was best-in-class last year may no longer be the right choice.
When to consult a professional
The Medicare landscape is complex enough that many beneficiaries benefit from working with a licensed insurance broker who specializes in Medicare. A good broker can compare Original Medicare plus Medigap against Medicare Advantage plans in your area, help you choose a Part D plan that covers your specific medications at the lowest cost, and explain the IRMAA implications of retirement income decisions. Brokers are paid by the insurance companies, not by you, so their services are typically free. The State Health Insurance Assistance Program (SHIP) is a free, unbiased counseling service available in every state for beneficiaries who want objective guidance without a sales pitch. For complex situations — high income triggering IRMAA, employer coordination, or disability-based Medicare — consulting a fee-only financial planner who understands Medicare can prevent costly mistakes.
Frequently asked questions
No. Part A is premium-free for most people (those with 40+ quarters of Medicare-taxable work), but Part B has a monthly premium of $185 in 2025, Part D averages $34.70 per month, and Medigap or Medicare Advantage plans add further costs. The 2025 Part A deductible is $1,676 per hospital benefit period, and Part B has a $257 annual deductible plus 20% coinsurance. Most beneficiaries pay $250-$500 per month in total Medicare-related premiums.
Yes. If you are 65 or older and still working with employer coverage (20+ employees), the employer plan is primary and Medicare is secondary. You can delay Part B without penalty under the Special Enrollment Period. If your employer has fewer than 20 employees, Medicare is typically primary, and you should enroll in Part B at 65 to avoid coverage gaps. COBRA is not considered credible coverage for delaying Part B.
Medigap is supplemental insurance that fills the gaps in Original Medicare (deductibles, coinsurance, foreign travel). You keep Original Medicare and add a Medigap policy — you can see any doctor who accepts Medicare. Medicare Advantage replaces Original Medicare with a private plan that has networks, referrals, and annual benefit changes, but typically includes Part D and an out-of-pocket cap. You cannot have both Medigap and Medicare Advantage at the same time.
Last reviewed July 6, 2026. This article is informational and does not constitute legal, tax, or financial advice. Consult a qualified professional for guidance specific to your situation.