Medicare 101: The Good, The Bad & The Gotcha
Introduction
About a decade ago, I stopped by to see my aging parents. It was January. It was cold. They were snowbirds and ready to be out of the Northeast.
I opened the door to a tempest in a teapot. Mom was slamming doors and cabinets, muttering to herself. Dad was openly skittish and made a break for his basement woodshop by the time I got my coat off. Ok, I could do this.
“Hi, Mom! What’s up?” I asked innocently.
“Nothing. I’m fine.” SLAM!
My mother comes up to my shoulder, and I am designed low to the ground. That kind of noise was impressive. “Ok, what happened?” More slamming. Finally:
“I went into the pharmacy to pick up my prescriptions.” BANG! “They charged me $500 for one of them. It’s a generic drug.” CRASH! “They said it wasn’t covered by the plan.” SLAM!
“Ok, did your plan send you a letter about this late last year?”
BANG! “They sent things. It didn’t make sense.” THUD! My mother is a retired registered nurse who spent years doing medical billing. She understands the jargon.
“Did you talk to your insurance agent?”
“Yes, we talked to him.”
“Recently?”
“When we signed up.” My parents were both pushing 80.
My parents also knew what I did for a living. I worked for and consulted with national healthcare insurance companies for decades. At the time I was running large parts of national Medicare Prescription Drug Plans. We had not discussed their healthcare coverage, beyond them assuring me they were good. Oh well.
After some more crashing loud things in the kitchen, I calmed Mom down enough to get information out of her. Her plan had changed. Her agent never called her, ever. She didn’t read the letter. I got on the phone. We got the prescription fixed. They headed off to Florida.
But I insisted I check their benefits the next year. After much complaint and delaying, they grudgingly let me. I saved them between $7,000 and $8,000 in about 45 minutes. They were speechless.
That’s why this book is here.
As we get ready to retire and start looking at Medicare, we’re desperate to do the right things. We talk to friends. We ask our medical providers. We get dozens of invitations to free meals to hear about retirement planning. Insurance agents call us out of the blue. We do more Google searches than is reasonable. And yet…
And yet, we still wonder if we got this right.
Even if we think we’re well informed about the American healthcare system, we probably have questions we’re embarrassed to ask.
We’re worried we missed the critical fine print.
This book starts at the beginning, in plain language. You’re going to hear about:
-
What Medicare covers and the insurance products you can add to it.
-
Tips to make the right choice between Original Medicare, Medicare Advantage and Medicare Supplements.
-
A countdown and “how to” for enrolling in Medicare.
-
How to avoid common mistakes that cost you money and security.
-
A checklist of what you should look at every year to avoid “Mom” moments.
I’ll also touch on Long Term Care, which can be the Great Gotcha of Retirement. I don’t want you facing unpleasant choices as you age.
​
I hope this book sees you through enrollment and into many easy years beyond. But if you have questions or suggestions for improvement, I’d love to hear from you.
With gratitude,
Lynn
Chapter 1: The Basics of Medicare
There are three official parts of Medicare coordinated through the Federal Government. These are referred to as “Original Medicare.”
-
Medicare Part A is hospital and inpatient insurance.
-
Medicare Part B is medical provider and outpatient insurance.
-
Medicare Part D covers prescription drugs.
Medicare usually doesn’t cover care needed outside of the United States.
Generally, Medicare puts caps on how much various services can cost and pays 80% of that. Under Original Medicare, you pay the remaining 20%. There is no cap on how much you can pay in a year.
​
There are two approaches you can use to put caps on your costs.
-
Medicare Supplement plans, also known as Medigap plans, cover some or most of what you pay for care out of pocket.
-
Medicare Advantage plans, sometimes called “Part C,” cover everything Parts A and B cover, usually include Part D, and may add some extras. But Medicare Advantage also uses limited networks and prior certification to control costs.
You are required to maintain “creditable” (actuarial-speak for mathematically comprehensive) prescription drug coverage while you’re on Medicare. If you select Original Medicare or Medicare Supplements, you also need to buy a Part D prescription drug plan or equivalent. If you select Medicare Advantage, prescription drug coverage is usually included.
Let’s talk about all these approaches in depth.
​
Medicare Part A
Medicare Part A covers your care while you’re in a hospital or skilled nursing facility, for both medical and mental health care. It covers hospice care and some home health care. Your cost and coverage vary, depending on whether you have a Medicare Advantage Plan or a Medicare Supplement plan.
Medicare usually covers 80% of your treatment while you’re in the hospital. That includes semi-private rooms, meals, and care. Medicare doesn’t cover the extras, like a private room and personal items. Hint: bring a toothbrush from home!
Usually there’s a $1,736 deductible (2026 value) for each “benefit period,” days in a row where you get care across the healthcare spectrum. You have to have a 60 day window without care associated with your stay in the hospital before you start a new benefit period with a new deductible.
Medicare covers 90 days of inpatient hospital coverage per benefit coverage. You have an additional 60 lifetime days you can use until gone. After 150 days, you pay all the costs.
Skilled nursing is covered under Medicare if you’ve been inpatient at a hospital for at least 3 days. You get therapy to improve your condition (rehab services) or maintain your condition from deteriorating. The benefit covers a semi-private room, meals, skilled nursing care and therapy (physical, occupational, speech, etc.). The coverage extends for 100 days. If you need skilled nursing beyond 100 days, you pay for it yourself.
Medicare DOESN’T cover long term custodial or memory care! If you’re in a nursing home, you’re on your own for your daily expenses of living. Medicare continues to pay for your medical treatment.
Hospice is available when your doctor certifies you have a terminal illness, with a 6 month prognosis. You stop treatment to cure the disease and sign up to receive palliative care. In other words, you get care to keep you out of pain and comfortable, but the doctors will stop trying to cure you.
Medicare pays for palliative care but won’t pay for room and board. You can receive hospice care at home. Hospice care can also be used for respite care, where Medicare pays for you at a facility while your caregiver rests.
​
Medicare Part B
Medicare Part B covers your doctors and care that happens outside of a facility. Think of things like medical appointments, lab work and other tests, outpatient procedures, durable medical equipment (DME) and mental health care. This is care your doctor orders for you that doesn’t take place overnight in a hospital.
Part B covers prescription drugs you get administered in a doctor’s office, like infusions. It covers some vaccines like flu shots. It also covers prescription drugs you need for DME like an insulin pump or a nebulizer.
Part B has an annual $283 deductible (in 2026) that you pay before Medicare pays its 80% of charges.
You will also need to pay a monthly premium for Part B. In 2026 the basic premium is $202.90 per month. You can have it taken from your social security benefit automatically.
If you make more money, you will pay an Income Related Monthly Adjustment Amount (IRMAA). The threshold is $109,000 annually as a single person or $218,000 annually as a couple. When you start Medicare, they look at your income two years before retirement. For example, if you plan to take Medicare in 2027, they will look at your 2025 tax returns to determine your IRMAA. See Chapter 7 to learn more about IRMAAs and how to manage them.
​
Medicare “Part C”
Medicare “Part C” is another name for Medicare Advantage plans. Hop ahead to Chapter 2 to learn more.
Medicare Part D
If you get prescriptions while at a hospital or skilled nursing facility, Part A pays. If you get prescriptions in your doctor’s office or to be used with durable medical equipment (DME) like as an infusion, Part B pays. Part D pays for medicine you take at home.
You are required to have prescription coverage once you enroll in Medicare. Usually, you get coverage by signing up for an insurance plan that covers your drugs. You may also get prescription coverage through the VA, a union or trust, or through a former employer. Make sure you verify it’s “creditable coverage,” Medicare’s term for the minimum you must carry. The person signing you up will know that immediately what the term means. Just ask.
By law Part D plans have to cover at least one brand name drug and at least one generic drug (if available) for a long list of medical conditions. A plan is not allowed to skip drugs for expensive conditions, like cancer, HIV or mental health care. The Centers for Medicare & Medicaid Services (CMS) that run the Medicare program review the plans each month for compliance.
Likewise, Part D plans aren’t allowed to cover over the counter or non-essential drugs. So, plans can’t cover vitamins, common pain killers like aspirin, common antihistamines and the like. They can’t cover fertility or erectile dysfunction drugs. They can’t cover cosmetic or weight loss drugs. It’s the law.​​
The list of prescription drugs a plan covers is called a formulary. Drugs are grouped according to tiers within the formulary. Generally, the higher the tier, the more you’ll pay out of pocket.
In 2026, you will never pay more than $2,100, between deductibles, copays and coinsurance, for Part D covered drugs.
The insurance plan may have rules about when you can get a prescription.
-
Prior authorization means that the plan needs to approve the prescription before you can pick it up at the pharmacy. A standard approval takes three calendar days, but you can ask for an expedited decision. That takes 24 hours.
-
Quantity limits may be in place on some medicines. I think of this as the “let’s not kill you” rule. Some drugs can be very helpful in certain dosages, but can damage your liver, kidneys or heart if you take too much.
-
Step therapy asks you to try inexpensive, often generic, drugs before you try an expensive drug for the same condition. If you have failed the lower cost drugs at any point in the past, you can be approved for the more expensive drug.
Usually, your medical provider will work through these rules with your pharmacy and insurance plan.
Like Part B, Part D is also subject to an IRMAA for those who earn more. For information on how IRMAAs work, see Chapter 7.
Original Medicare’s Gotcha: your out of pocket costs
As we discussed, Original Medicare doesn’t cap your annual costs. It pays 80%, you pay 20%. That can get expensive and hard to plan for. Medicare Advantage and Medicare Supplements provide security around your maximum costs. We’ll take a closer look at each now.
​
Ready to read more?