What Medicare actually is
Medicare is a federal health insurance program for people 65 and older, plus certain younger people with disabilities and end-stage renal disease. It is run by the Centers for Medicare & Medicaid Services (CMS), an agency inside the Department of Health and Human Services. Funding comes from a mix of your payroll taxes (FICA), the federal general fund, and the premiums you pay once you're enrolled.
Most people qualify for Medicare based on either their own work history or their spouse's work history. If you (or your spouse) worked at least 40 quarters — about 10 years — paying Medicare taxes, you qualify for premium-free Part A at 65. If you have fewer quarters, you can still buy in, but you'll pay a monthly premium.
Medicare is not the same as Medicaid. Medicaid is a state-administered safety-net program for low-income people. Many people qualify for both — that's called being 'dual-eligible' — but they're separate programs with separate rules.
Why Medicare has four parts
When Medicare was created in 1965, it had two parts: Part A (hospital) and Part B (doctor visits). That's why they're called 'Original Medicare' — they're the original program. The decision to split hospital and outpatient care into separate parts had nothing to do with medical logic; it was political. Hospital insurance was funded through payroll taxes, and outpatient was funded by general revenue plus premiums. Splitting them let Congress price them separately.
Part C, Medicare Advantage, didn't exist as a real option until 1997 (created by the Balanced Budget Act). The idea: let private insurers offer a bundled alternative to Original Medicare and compete on price and benefits. Today about half of all Medicare beneficiaries are in Part C.
Part D, prescription drug coverage, was added in 2003 (Medicare Modernization Act) and went live in 2006. Before Part D, Medicare didn't cover outpatient drugs at all — a huge gap. Today every standalone drug plan and most Medicare Advantage plans include Part D.
So the four parts aren't a unified design — they're a layer cake of decades of legislation. That's why the rules feel inconsistent.
Part A — hospital insurance
Part A pays for inpatient hospital stays, skilled nursing facility care after a qualifying hospital stay, hospice, and some home health. It does NOT pay for long-term custodial care (nursing homes for ongoing personal care).
For 2026, Part A has a $1,676 deductible per benefit period (a benefit period starts when you're admitted and ends after you've been out for 60 consecutive days). Days 1-60: $0 coinsurance after deductible. Days 61-90: $419/day. Days 91+: $838/day for up to 60 'lifetime reserve days,' then 100% on you.
Most people pay $0 monthly premium for Part A because they (or their spouse) earned it through 40+ quarters of Medicare-taxed work. If you have fewer quarters, the 2026 premium is $278/month (30-39 quarters) or $505/month (under 30 quarters).
Part B — medical insurance
Part B covers doctor visits, outpatient hospital services, durable medical equipment, ambulance, and most preventive services. It also covers some drugs administered in a clinical setting (chemotherapy infusions, for example).
Part B has a 2026 standard premium of $202.90/month. Higher-income beneficiaries pay more under IRMAA (Income-Related Monthly Adjustment Amount) — we cover IRMAA in detail in Module 10. Part B has a $257 annual deductible and then 20% coinsurance with no out-of-pocket cap. That last part — no cap — is the single most important reason most people pair Original Medicare with Medigap.
Part B is voluntary. You can refuse it. But if you don't have other 'creditable' coverage when you're first eligible, you can be hit with a permanent late-enrollment penalty (10% per year of delay) when you eventually do enroll.
Part C — Medicare Advantage
Part C is a private alternative to Original Medicare. You enroll in a plan from UnitedHealthcare, Humana, Aetna, BlueCross, or another carrier, and Medicare pays them a fixed monthly amount per enrollee to deliver your benefits. The plan must cover everything Original Medicare covers, but it can structure cost-sharing differently and add extras (dental, vision, hearing, gym, OTC).
Most MA plans have low or $0 premiums (you still pay your Part B premium). The trade-off: networks. MA plans use HMO or PPO structures with provider networks, and many use prior authorization gates that Original Medicare doesn't have. About 70% of MA plans require prior authorization for at least some services.
MA plans have an annual in-network out-of-pocket max — typically $4,000 to $8,000. So unlike Original Medicare alone, MA gives you a hard cap on what you'll spend in a really bad year.
Part D — prescription drug coverage
Part D is private prescription drug insurance. You can buy a standalone Part D plan to pair with Original Medicare, or your drug coverage may be bundled inside a Part C (MA-PD) plan.
Part D plans have premiums (averaging ~$45/month in 2026), deductibles (up to $590 in 2026), and tiered copays. The big change from the Inflation Reduction Act: starting 2025, there's a $2,000 annual out-of-pocket maximum on covered drugs, indexed for inflation. In 2026 that's $2,100. Before this cap existed, people on expensive drugs could spend $10,000+ per year out of pocket.
Each Part D plan has its OWN formulary — the list of drugs it covers and what tier they're on. The same drug can be a $5 copay on one plan and a $200 copay on another — or not covered at all. That's why we built the comparison tool: you can't pick a Part D plan rationally without checking it against your specific medications.
How the four parts fit together
There are three combinations that make sense:
(1) Original Medicare (Parts A + B) + Medigap supplement + Standalone Part D. This is the 'maximum freedom' path — any doctor accepting Medicare, no networks, predictable costs. Highest monthly premium, most flexibility.
(2) Medicare Advantage with prescription drugs (MA-PD) — Part C plan that bundles A + B + D into one. Often $0 premium, but network restrictions and prior auth.
(3) Medicare Advantage without drugs (MA-only) + Standalone Part D. Uncommon — applies if you have a specific MA plan that doesn't include drugs (typically a Medical Savings Account plan).
What you can't do: have an MA-PD plan AND a standalone Part D at the same time. Medicare auto-disenrolls you from the MA plan if you do. We've seen this trip up many seniors who thought a separate Part D would 'add a layer.' It doesn't.