What are Medicare A, B, C, and D? An All-in-One Resource

Medicare is a US federal health insurance for individuals over 65, people with disabilities, and patients facing certain diseases. It consists of four parts: Part A, Part B, Part C, and Part D. Understanding what each part covers will help you navigate costs, limitations, timelines, and different options.

With this knowledge, you can design competitive and compliant employee benefits packages that meet the key concerns and needs of your workforce. Deel PEO can provide your employees with top-tier benefit packages, ensure state-specific compliance, and streamline US hiring and benefits admin process, all in one platform.

In this article, we cover Medicare Part A, B, C, and D in detail, as well as Medicare eligibility, enrollment and penalties.

Overview of Medicare Parts A, B, C, and D

Different parts of Medicare cover different types of services. They are designed to work together to provide comprehensive coverage that helps individuals with their various medical expenses.

Who is eligible for Medicare?

To be eligible for Medicare, at least one of the following criteria needs to be met:

• You are at least 65 years old
• You have received SSDI for at least 24 months
• You have certain qualifying diseases

You also need to be a US citizen or have been a legal resident in the US for at least five years.

How is Medicare funded?

Medicare is funded through two trust funds: the HI Trust Fund (Hospital Insurance Trust Fund) and the SMI (Supplementary Medical Insurance) Trust Fund.

Medicare Part A is predominantly paid by the HI Trust Fund, which is supplied through payroll taxes. These taxes sit at 2.9%, split equally between employer and employee (or covered completely by self-employed individuals), with 0.9% Additional Medicare tax for those with wages exceeding $200,000 USD.

Medicare Part B and Plan D are paid for by the SMI fund. SMI is financed through Congress-approved capital, premiums paid by Medicare beneficiaries, and investment interest.

Medicare Part C, offered by private insurers, combines Part A and Part B with some additional benefits, so it's funded by both HI and SMI trust funds, in addition to some additional premiums (if any).

A summary of the Medicare parts and funding sources can be found in the table below.

Part A: Hospital Insurance

Medicare Part A is the earliest and primary component of Medicare. Together with part B, it forms ‘Original Medicare’ and remains the most widely used form of the program.

Part A is entirely managed by the Federal Government and covers inpatient hospital and hospice care, skilled nursing, and some home care.

Who is entitled to free Medicare Part A?

If you or your spouse have worked and paid Medicare tax for 10+ years, you are eligible to receive Medicare Part A for free when you turn 65. However, if you don’t qualify for free Part A, you will need to pay a premium, which will depend on how long you’ve worked and paid for your Medicare.

A breakdown of the costs to Plan A premiums in 2025, based on years worked, is summarized in the table below.

How does Medicare deductible and cost sharing work?

Medicare Part A covers your stay at a hospital, skilled nursing facility (SNF), hospice, and some home healthcare. It works as follows.

When you are admitted as an inpatient in a hospital or an SNF, benefit period commences. The benefit period ends when you have not received any inpatient hospital care for 60 consecutive days or any skilled care in an SNF for up to 100 consecutive days.

You pay a Part A $1,676 deductible for each such benefit period before your Medicare starts covering your costs.

After your deductible is paid, cost sharing commences, as shown below:

• Days 1-60: $0 after you pay your Part A deductible
• Days 61-90: $419/day
• Days 91-150: $838/day while using your 60 lifetime reserve days
• After day 150: You pay all costs

Your lifetime reserve days are additional medical coverage days available under Medicare Part A, which can be used to extend your hospital stay, but, as the name suggests, can be utilized only once in a lifetime.

Part B: Medical Insurance

Part B Medicare covers doctors’ visits, screening and preventive care, durable equipment, and other outpatient care.

Unlike Part A, Medicare Part B is not free, and most beneficiaries pay a monthly premium.

How much do I need to pay for Medicare Part B?

In 2025, the standard premium is $185 / month. Higher-income individuals pay an Income-Related Monthly Adjustment Amount (IRMAA), which begins at an individual tax return of $106,000 for single filers and $212,000 for joint (see: full table below).

How do Part B deductibles and coinsurance work?

Medicare Part B also has a deductible amount that needs to be paid before the insurance coverage starts. Unlike Part A, however, the deductible is paid once per annum, at $257.

Once the deductible is paid, services are paid based on a coinsurance scheme, where Medicare covers 80% while the patient covers the remaining 20%.

Some clinical laboratory tests, certain home care services, and yearly depression screenings are also covered by Part B and cost $0. A full list of outpatient care available in Part B can be found on the Medicare.gov website.

Part C: Medicare Advantage

Medicare Part C is known as Medicare Advantage, and it combines Part A and B (and often D) with additional benefits like dental care, vision care, wellness programs, and more. It’s offered by private providers and approved and subsidized by Medicare. With this option, you still need to enroll in Part A and Part B, and pay the associated costs, including any additional premiums for the plan.

Medicare Part C varies plan by plan in price, scope, and out-of-pocket costs, with the different private insurers determining their own rules.

While Original Medicare will cover the majority of doctors, Part C often sets requirements for in-network professionals and hospitals.

The Medicare government website allows you to check the different private healthcare providers available in your area. Medicare Part C is known as Medicare Advantage, and it combines Part A and B (and often D) with additional benefits like dental care, vision care, wellness programs, and more. It’s offered by private providers and approved and subsidized by Medicare. With this option, you still need to enroll in Part A and Part B, and pay the associated costs, including any additional premiums for the plan.

What types of Medicare Part C Advantage plans are there?

Medicare Advantage plans fall under several categories:

Health Maintenance Organization (HMO)

These types of plans are generally cheaper than Original Medicare, but require you to use network doctors (except in emergencies). Patients have to choose a Primary Care Physician (PCP) who is their primary point of contact for referrals to specialists. These plans include an annual out-of-pocket maximum.

Preferred Provider Organization (PPO)

This is a more flexible option, which comes at a higher cost than HMOs. You can visit medical professionals outside of the network, but at a higher cost than within-network doctors. Unlike HMOs, this plan requires no referrals for specialists.

Private Fee-for-Service (PFFS) Plan

With this option, patients are not restricted to a network. However, healthcare providers have to agree to the PFFS plan’s payment structure, which might not always be the case. Like PPO, there is no need for referral. These plans are generally more expensive than Original Medicare and HMOs.

Special Needs Plan (SNP)

These plans are designed to cater to the more specific needs of individuals with chronic conditions. SNPs include Part D Medicare (coverage for prescription drugs). Not everyone is eligible for this type of plan. You need to have a specific chronic condition (C-SNP), be dual-eligible (D-SNP), i.e., be eligible for both Medicare and Medicaid, or live in a nursing home (I-SNP). Learn more about the coverage options under SNP.

Medicare Savings Account (MSA)

This plan has lower monthly premiums compared to other Advanced plans and Original Medicare. However, this option has a high deductible threshold that needs to be met before the plan starts to apply. That means you’ll need to pay a large amount out-of-pocket first in order to take advantage of the plan. Because of this, MSAs can become costly if you need regular care.

An at-a-glance summary of Medicare Advantage Plans can be found on the government website.

Pros and cons of Original vs Advanced Medicare

Whether an Advanced plan or Original Medicare is more appropriate for you will depend on several factors, such as your overall health, costs, and specific plan offerings. The table below summarizes some of the key considerations you might take into account:

Part D: Prescription Drug Coverage

Medicare Part D is the newest part of Medicare, introduced in 2003 and made available to beneficiaries in 2006. This plan helps pay for prescription medications. Anyone eligible for Original Medicare can also enroll in Part D, but you need to have enrolled in Parts A and B first. Part D plans are managed by private providers, but have to be approved by Medicare.

Which drugs are covered by Medicare Part D?

The list of medications covered by Part D is called a “formulary”.

All plans need to meet certain regulatory requirements and account for a wide range of prescription drugs, including certain protected classes of medications such as drugs for cancer, seizures, HIV/AIDs, psychosis, depression, and organ transplant immunosuppressants.

However, beyond this, each plan has its own specific list of medications.

To find out what is covered, you will need to consult your provider.

What are drug tiers?

Providers divide their formulary into categories called “tiers”, which stipulate how much of the drug cost is covered by the individual and how much by the Part D plan. Generally speaking, the tiers are determined by the cost and type of drug, with higher tier drugs requiring higher co-pays.

Each plan is different, but the below distribution is generally true:

• Tier 1: Generic drugs—least expensive and with lowest co-pay
• Tier 2: Preferred brand-name drugs—with medium / higher than Tier 1 co-pay
• Tier 3: Non-preferred brand name drugs—higher co-pay than Tier 2
• Tier 4: Speciality drugs—most expensive of the lot, with highest co-pay

If your doctor considers a particular drug more beneficial than a cheaper/lower-tier alternative, they can contact your provider to advocate for a lower co-pay for you. Keep in mind that formularies can change at any point, with providers being required to communicate any alterations that impact drugs you take.

Has the coverage gap (“donut hole”) been eliminated in 2025?

Prior to January 2025, Part D plans covered their portion of prescription drug costs for beneficiaries (following a deductible amount) up to a specific dollar cap.

After that threshold was exceeded, beneficiaries would need to pay a higher percentage of medication costs out of pocket (they would enter the “donut hole” or coverage gap) until a second threshold (known as “catastrophic coverage”) was reached.

Once the catastrophic coverage phase is reached, patients would need to pay a very small co-payment cost for drugs while Pard D covers the majority.

From the beginning of 2025, this “gap” has been effectively closed as part of the Inflation Reduction Act of 2022. A universal $2,000 annual cap has been introduced before the catastrophic coverage starts, at which point beneficiaries no longer pay for drugs for the remainder of the year.

How do I choose a Part D plan?

Different plans cover different formularies, and you can only use one plan at a time, so it’s important to consider carefully what would work best for you.

You can use the government’s Plan Finder to check what plans are available in your area. This tool will allow you to submit the drugs you take regularly, at what dosages, how often, and pharmacies you use, bringing up possible packages and their prices (based on the premium cost and the drug expenses you’d be incurring).

Medicare also offers an Extra Help program to help low-income individuals with their Plan D expenses.

Medicare enrollment timeline

There are several time restrictions you’ll need to be aware of when it comes to Medicare enrollment and plan changes.

When can I enroll in Medicare?

The Initial Enrollment Period (IEP)—the first time you can enroll in Medicare—is a seven-month period, which begins three months before the month you turn 65, and up to three months after. This is your Initial Enrollment Period, and you can join any plan during this time, including signing up for an Advanced plan of your choosing. Your plan will start the first day of the month following your 65th birthday.

Enrollment can be done online through the Medicare website.

When can I change my plan?

Enrolling and switching Medicare plans can only happen yearly during specific periods:

October 15 - December 7th (Open Enrollment Period)

During this period:

• You can change from Original Medicare (Part A and B) to Part C and/or add Part D
• You can change your Part C plan to another one
• You can drop your Part C plan to return to Original Medicate (Part A and B)

Your plan will come into effect on the following January 1.

January 1- March 31 (Advantage Open Enrollment Period)

During this period:

• You can change your Part C plan if you are already on one
• You can return to Original Medicare (Part A and B) and/or add Part D
• You can't change from Original Medicare (Part A and B) to Part C

Your plan will start the first day of the month following your requested change.

Special Enrollment Periods (SEPs)

These apply if large life-changing events occur. In these cases, you will be able to change your plan regardless of the time of the year.

Some events that could trigger this option could include qualifying for Medicaid or Extra Help, moving to a new area that your provider does not cover, or losing employer coverage.

Your plan will start the day can be more varied, but generally starts the first day of the month after you apply.

Would I incur penalties if I don’t enroll during the initial enrollment period?

If you don’t enroll in Medicare during the initial enrollment period, you may face penalties. These are substantial and not a one-time fee: instead, they are added to your monthly premium. They also increase in size the longer you wait to enroll in Medicare. Here is how these penalties work:

Part A enrollment penalty

If you or your spouse have worked for 10+ years and paid Medicare taxes, you will be automatically enrolled in premium-free Medicare Part A.

If you do not qualify for premium-free Part A, you will need to enroll manually and pay a premium for Medicare. Failure to enroll during the IEP will result in a 10% increase in owed monthly premiums for twice as many years as every year you delayed your enrollment.

Part B enrollment penalty

If you qualify for premium-free Part A enrollment, you will be automatically enrolled into Part B as well. Unlike Part A, this is not free and you do need to pay a premium once you are enrolled.

As with Part A, if you have not worked and paid your Medicare taxes long enough, you will need to enroll yourself. Penalties for late enrollment are also based on a 10% surcharge on premiums for double the number of years you failed to sign up.

Part D enrollment penalty

You are not automatically enrolled in Part D.

You need to have Part D or another credible drug coverage. If you do not enroll in Part D or have an alternative, after 63 days, you will face a 1% penalty for every month without such a drug plan. Unlike the other penalties, this one is lifelong.

Do I need to enroll in Medicare if I’m still working?

If you are still working at the point when you reach 65 and become eligible for Medicare, you will typically not be subject to penalties if you have an employer-sponsored plan. This has to be at least as comprehensive as Medicare’s standard coverage and include drug coverage (otherwise you will need at least a Part D enrollment).

Get seamless compliance and high-quality benefits packages with Deel PEO

Receiving the right employer-sponsored health plans is essential for US-based teams. With Deel PEO, you can offer your employees Fortune 500-caliber benefits, regardless of the size and revenue of your business. The value of our offering speaks for itself, with 85% of our clients’ employees reporting higher satisfaction with their Deel-facilitated benefits package.

With our all-in-one platform and PEO solution, you can leave state-by-state payroll compliance, benefit management, and HR admin to us.

Curious to find out more? Book a quick 30-minute demo with our team.

See also: Our Guide to HR Outsourcing