Medicare Basics: Understanding the Core Rules

Understanding Original Medicare: The Dual Foundation

Original Medicare is a federal health insurance program administered by the Centers for Medicare & Medicaid Services (CMS). It was signed into law in 1965 to protect Americans age 65 and older from catastrophic healthcare costs. Today, it also serves individuals under 65 who qualify through long-term disability or specific health conditions.

The program is built on two primary components, which work in tandem to cover inpatient and outpatient medical services:

1. Part A (Hospital Insurance)

Part A covers inpatient care, meaning services received after you are formally admitted as a patient to a hospital or skilled nursing facility (SNF). It also funds hospice care for the terminally ill and limited home health services. Most beneficiaries do not pay a monthly premium for Part A because they, or their spouse, paid Medicare taxes during at least 10 years (40 quarters) of active employment. However, Part A is not entirely free; you must pay an inpatient deductible ($1,736 in 2026) for each benefit period before Medicare begins covering its share.

2. Part B (Medical Insurance)

Part B covers outpatient medical care. This includes physician services, diagnostic lab tests, X-rays, emergency room visits, physical therapy, and preventive services like annual wellness exams and cancer screenings. Unlike Part A, Part B requires a monthly premium from all beneficiaries ($202.90 standard in 2026). Higher-income individuals pay a larger premium through the Income-Related Monthly Adjustment Amount (IRMAA). Part B also has an annual deductible ($283 in 2026), after which you typically pay a 20% coinsurance for all Medicare-approved medical services.

Medicare vs. Medicaid: Key Distinctions

It is common to confuse Medicare and Medicaid, but they are fundamentally different programs with different administration, rules, and eligibility requirements:

If your monthly income and total financial assets fall below federal and state limits, you can qualify for both programs simultaneously. In these dual-eligible cases, Medicare serves as your primary health insurance, paying for medical services first. Medicaid acts as the secondary payer, covering your Medicare premiums, deductibles, and out-of-pocket costs, while also providing additional benefits like non-emergency medical transportation and long-term care services.

Transitioning from ACA (Obamacare) or Employer Insurance

Moving onto Medicare requires careful timing to avoid gaps in coverage or lifetime financial penalties. Depending on your current insurance type, different transition rules apply:

Transitioning from ACA Marketplace Plans

If you currently have health insurance through the Affordable Care Act (ACA) marketplace, you must transition to Medicare when you turn 65. Under federal tax law, you lose eligibility for ACA premium tax credits (subsidies) the first month you become eligible for premium-free Medicare Part A. Continuing to collect ACA subsidies after your Medicare eligibility date will result in tax penalties where you must repay the subsidies to the IRS. You must manually cancel your marketplace plan once your Medicare coverage is active.

Transitioning from Employer Group Insurance

If you or your spouse are still working when you turn 65 and are covered by an employer group health plan, you do not have to transition immediately if the employer has 20 or more employees. In this scenario, you can delay enrolling in Medicare Part B without penalty. However, if the employer has fewer than 20 employees, Medicare is legally the primary payer. This means you must sign up for Part A and Part B at age 65, as your employer's insurance will not pay claims until Medicare has processed its portion first.