Medicare 101: What You Need to Know

Nearly 1.5 million Americans are projected to enroll in Medicare this year. If you’re among them — or one of the millions of other new retirees expected to sign up by the end of this decade — you probably have questions.

What types of coverage will you need? When’s the right time to enroll? What will Medicare cost?

Medicare covers Americans 65 and older, and people receiving Social Security disability benefits. You can also qualify if you have certain health conditions. The program consistently earns high marks from enrollees for its broad coverage that is guaranteed through a beneficiary’s life.

The enrollment process, however, is complex. While many think of Medicare as a single government program, Congress has incorporated private insurance options since the program was signed into law in 1965. Private insurers now sell Medicare Advantage plans, prescription drug plans and supplemental Medigap policies alongside the core federal program. Enrollees must navigate online marketplaces, brokers and commission-earning agents — and some coverage decisions need to be revisited annually.

Let’s walk through Medicare enrollment step by step, and consider the most important decisions you’ll need to make — and pitfalls to avoid.

The basics: What are you signing up for?

Medicare has two “parts” you will need to cover the basics. Part A covers hospitalizations, skilled nursing facility services, hospice care and some home health care. Most people don’t pay a premium for Part A, since it is funded mainly by the Medicare payroll taxes we pay throughout our working years. Part B covers a wide range of preventive services, outpatient hospital and physician services, and drugs administered by doctors. Many people are surprised to learn that Part B carries a monthly premium, according to Frederic Riccardi, president of the nonprofit Medicare Rights Center. “People often don’t understand how costly Medicare can be,” he said.

Start at the Social Security Administration, which reviews applications for Part A and Part B; this also kicks off the process of issuing your Medicare identification number, which you will need before you can enroll in any other coverage.

The easiest way to begin is online with an account at the Social Security Administration. You can also call the S.S.A. toll-free line (800-772-1213) to sign up, or make an appointment at your local Social Security office.

Get an early start on enrollment. The S.S.A. has long faced customer service challenges because of understaffing and budget constraints, and those problems have worsened since staff cuts and restructuring under the Trump administration’s Department of Government Efficiency initiative last year. You can apply for Medicare up to three months ahead of your intended coverage start date.

“People really need to start early because there seem to be longer wait times even for the phone appointments, let alone the in-person appointment,” said Samantha Morales, senior policy advocate at Justice in Aging, a group that focuses on senior poverty.

Enrollment timing

For most people, it’s critical to enroll in Medicare during the seven-month Initial Enrollment Period, which includes the three months before, the month of and the three months after your 65th birthday. Missing that window sets off late-enrollment penalties for Part B and Part D, which covers prescription drugs, that continue for life. (If you are taking Social Security benefits before age 65, generally you will be automatically enrolled.)

There are a couple of important exceptions to this requirement. People who are actively employed at age 65 may delay enrollment as long as they have employer-provided insurance — so can their covered spouses. And there’s an exception to the “still working” rule: If your employer has fewer than 20 employees, Medicare generally becomes the primary payer at age 65, meaning you usually need to enroll in Part B when first eligible.

Common errors here include thinking you can stay on a former employer’s COBRA coverage or an Affordable Care Act plan after the Initial Enrollment Period; neither of those situations allows you to delay.

For people transitioning from employer coverage at other ages, a Special Enrollment Period is available for eight months after other insurance ends, and coverage begins the first month after you enroll.

The late enrollment premium penalty for Part B is substantial — 10 percent of the standard premium amount for each 12 months of delay. These are lifetime penalties, and they escalate along with the cost of Medicare premiums.

The late-enrollment rules for the Part D prescription drug program are different. You can postpone enrollment as long as you have other “creditable coverage,” even if it is not based on current, active employment. And if you do make a mistake, the late-enrollment penalty is less onerous than the Part B penalty — it is equal to 1 percent of average premiums for each month of delay.

Missing your enrollment window isn’t only expensive — it can mean gaps in coverage while you wait for it to begin. “The coverage gaps and higher premiums can have really devastating consequences,” Mr. Riccardi said.

Signing up for only Part A doesn’t protect you from these late penalties. If you sign up outside your Initial Enrollment Period, you’ll need to submit documentation showing that you have had employer-provided coverage. Use this Medicare form, which will require your employer’s signature.

Traditional or Advantage?

With your Medicare number in hand, you have a couple more choices to make. If you choose traditional Medicare, you’ll want to add a Part D prescription drug plan and supplemental coverage for deductibles and cost sharing. Some retirees get this coverage from former employers, unions or Medicaid, but most often it means buying Medigap — a policy offered by private insurance companies. Your other option is a Medicare Advantage plan, the managed-care commercial insurance alternative that can be substituted for the traditional program.

Advantage plans cover all Part A and Part B benefits (you’ll still pay your Part B premium), and often include prescription drug coverage. You won’t need a Medigap plan, because Advantage plans come with caps on out-of-pocket costs.

This year, Medicare Advantage plans cannot exceed an in-network out-of-pocket limit of $9,250, although many plans set lower limits. On average, Advantage plans capped in-network out-of-pocket costs at $5,421, and $9,825 for in-network and out-of-network combined, according to KFF.

Advantage plans can save you money upfront on prescription drug and Medigap premiums. The trade-offs include higher risk that care won’t be covered, and limits on the health care providers you can use — most Advantage plans are either H.M.O.s or P.P.O.s — and the possibility that your current doctors or hospitals may leave your network. “There’s less stability, because plans change every year, networks change, benefits change,” said Tricia Neuman, who recently retired as senior vice president of KFF.

Traditional Medicare paired with Medigap coverage may provide more predictable long-term costs. A KFF analysis found that 12 percent of people enrolled in traditional Medicare with a Medigap reported cost-related problems, compared with 19 percent of Advantage enrollees.

Keep in mind that choosing Advantage at the outset can be difficult to reverse.

When you first sign up for Part B, Medigap plans are required to accept you — and can’t charge more — even if you have pre-existing conditions. This “guaranteed issue” right applies during your six-month Medigap Open Enrollment Period, which begins the first day of the month you are enrolled in Part B. That could be when you turn 65, or later if you delay enrollment.

After that window closes, most states allow Medigap plans to reject applicants or charge higher premiums based on pre-existing conditions. Four states offer ongoing Medigap enrollment rights: Connecticut, Maine, Massachusetts and New York.

Selecting plans

Whether you choose traditional Medicare or Advantage, shop plan options after enrolling in Parts A and B. The government-sponsored Medicare Plan Finder lets you compare drug and Advantage plans that are good matches with the medications you take. Pay attention not only to premiums but also to deductibles and your share of prescription costs.

For unbiased guidance, contact your state’s SHIP (State Health Insurance Assistance Program). Many people enroll with the help of insurance brokers, who generally are knowledgeable about the insurance products they sell. But they don’t represent every plan available in your area.

When you’ll pay more

Most Medicare enrollees pay the standard Part B premium ($202.90 this year), but people with higher incomes pay surcharges known as Income-Related Monthly Adjustment Amounts. IRMAA is common among people who have recently retired or enrolled in Medicare while still working. The Social Security Administration determines whether you must pay these surcharges using your tax returns — usually the one you filed two years earlier.

There are five IRMAA surcharge brackets, defined by a formula (modified adjusted gross income) that includes the total adjusted gross income on your income tax return plus tax-exempt interest income. For example, the Part B premium for enrollees in the second IRMAA bracket this year would be double the standard amount of $202.90. IRMAA also is applied to Part D premiums, but those amounts are much smaller.

Sheryl Rowling, an accountant and an editorial director for Morningstar, said these brackets catch people by surprise. “The increases happen if your modified adjusted gross income is over the limit by even $1,” she said.

IRMAA can be difficult to avoid entirely, but Ms. Rowling recommends careful planning on when you’ll take various types of income to blunt the impact — avoiding large spikes from Roth conversions or recognizing capital gains. “Look for ways to manage your taxable income intentionally,” she said.

Despite the paperwork lag on your tax returns, you can file an appeal if a “life-changing” event — such as retirement — has reduced your MAGI. To file an appeal, use Form SSA-44.

When you’ll pay less

Seniors with very low income can get help paying for Part B and Part D benefits. Medicare Savings Programs, which are administered by state Medicaid programs, help cover Part B premiums and other costs. Under the Extra Help program, the federal government subsidizes premiums, deductibles and your share of prescription costs for Part D drug benefits.

Eligibility for these programs is tied to definitions of poverty that include both income and assets. The rules are complicated, but the National Council on Aging offers helpful charts summarizing the M.S.P. and Extra Help requirements.

These programs can be lifesavers for low-income seniors — the M.S.P.s alone can save $8,000 per year, according to the Medicare Rights Center. But less than 60 percent of eligible beneficiaries are enrolled. That reflects a lack of awareness, as well as complex application and annual renewal requirements.

The Trump administration’s 2025 budget bill suspended until 2034 a requirement that states adopt a Biden-era plan to increase enrollment by reducing M.S.P. paperwork and automating enrollment. “It doesn’t exactly take away the benefit, but it’s hidden behind more and more red tape,” said Jane Tavares, a gerontologist at the LeadingAge LTSS Center at the University of Massachusetts, Boston.

Rinse and repeat

The initial sign-up is the big task — but there’s one more annual chore to keep in mind.

You should review your stand-alone prescription drug and Medicare Advantage coverage during the annual fall enrollment, which runs from Oct. 15 to Dec. 7. Drug plans often revise premiums and the terms for coverage of specific medications from year to year; Advantage plans also can revise drug coverage and their lists of in-network health care providers.

“Comparing the nitty-gritty of Medicare plans is not fun,” Dr. Neuman said. “But it beats finding out too late that your doctor is no longer in network or your drug is no longer covered.”