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How Medicare Works

Medicare Parts A and B

Medicare's publicly funded health insurance was originally modeled after private health insurance plans offered at the time and was introduced as a two-part program. Those parts are Medicare Part A, which is hospital insurance coverage, and Medicare Part B, which is an elective health insurance plan. When it was rolled out, Plan A beneficiaries were responsible for a $40 annual deductible, and those who chose to enroll in the Plan B program paid a $3-per-month premium [source: Stanton].

Today, Medicare Part A and Part B are called "Original Medicare." Medicare Part A is also known as hospital insurance, and its beneficiaries can expect inpatient hospital stays in a semi-private room to be covered (a private room is not covered unless it is deemed medically necessary). In addition, rehabilitation and other skilled nursing services are also covered. Home health care is covered as well, but only if it's medically necessary, and then only on a part-time, intermittent basis. This care includes physical, occupational and speech therapies when conducted by a Medicare-approved health agency. Durable medical equipment (DME) such as walkers and wheelchairs are covered, as are other medical supplies. Finally, Part A covers hospice care for terminally ill patients and includes drugs and support services for treating symptoms and relieving pain.

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Medicare Part B offers optional medical insurance, and those who elect coverage pay a monthly insurance premium. Part B covers medically necessary health care appointments, including doctors' appointments, outpatient medical and surgical services, diagnostic tests and some coverage for home health care. It also covers preventive services. In 2020, the majority of people enrolled in Part B paid a monthly premium of $144.60, with coverage beginning after they met an annual deductible of $198 [source: Medicare.gov].

Medicare won't cover everything, though. You'll have to look elsewhere for some common services that aren't covered under Medicare programs, including long-term care, most dental care (including dentures), cosmetic surgery, acupuncture, routine foot care, hearing aids and fittings, and eye exams related to prescribing glasses [source: Medicare.gov].

Those who are enrolled in Original Medicare may also apply for Medicare Supplement Insurance, also known as Medigap. Medigap policies, sold and administered by private insurers with federal government oversight, are intended to help cover expenses not covered by Part A and Part B, such as copays, coinsurance costs and deductibles. Some plans offer additional coverage, too, such as the cost of overseas medical care while traveling. No Medigap policies cover prescription drugs, however, and policyholders may not pay their Medigap premiums with funds from a health savings account. In 2018, more than 14 million Americans carried Medigap insurance.

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