Medicare Basics - The Four Parts of Medicare - A, B, C, D
Medicare Part A—Hospital Insurance—When you become eligible to join Medicare, you'll be enrolled in Part A. Most people don't pay an extra premium as you've been paying for Part A through paycheck deductions during your career. Part A covers inpatient hospital care, skilled nursing care, nursing home care, hospice care, and home health care.
Medicare Part B—Medical Insurance—Optional to join, Part B plans have a separate monthly premium, which can be deducted from Social Security. The premium you pay is determined by your adjusted gross income (AGI). High-income individuals ($103,000 +) and high-income couples ($206,000 +) are subject to higher Part B premiums referred to as IRMAA (Income Related Monthly Adjustment Amounts).
Part B covers doctor visits, lab tests, diagnostic screenings, medical equipment, ambulance, mental health, and other outpatient services. If you don't enroll in Part B when you retire but decide to enroll later, you'll pay a 10% late enrollment penalty for each 12-month period you could have had Part B. The late enrollment penalty will stay with you as long as you have Part B coverage.
Medicare Part C—Medicare Advantage (MA) Plans—Optional to join, Part C or Medicare Advantage (MA) plans are an alternative to original Medicare. MA plans are offered by private health insurers approved by Medicare. If you enroll in an MA plan, you still are enrolled in Medicare. MA plans package Parts A and B together and usually include Part D prescription drug coverage.
Besides the coverage that Parts A and B provide, MA plans typically offer additional coverage such as vision, dental, hearing, and wellness benefits. This coverage is not provided under original Medicare.
Also, importantly, MA plans have a most you can pay in a year limit. Traditional Medicare does not have such limits. If you face a high health expense year, a MA plan can help limit your exposure to unexpectedly high costs.
Medicare Part D—Prescription Drug Plans—Optional to join, Part D drug plans help pay for prescription drugs not covered by original Medicare. New for 2024, 17 FEHB plans will offer a Part D Prescription Drug Plan (PDP). Annuitants in those 17 plans with Medicare Part A or Parts A & B will be auto-enrolled in the PDP, except for BCBS plans where you must have Parts A & B. The PDP drug coverage will be as good or better than prescription drug coverage offered by the FEHB Plan. Your plan will notify you if you have been auto-enrolled and you'll have 30 days to disenroll, if you wish.
Like Part B, if you decide to not enroll in Part D when you're first eligible to join, there is a penalty to enroll later. But unlike Part B, FEHB retirees will never face it; FEHB plans are considered to have creditable prescription drug coverage, which never leaves a retiree without drug coverage thus never triggering the penalty. The decision to enroll or not enroll therefore becomes less urgent when you first retire.