Medicare 101: How Medicare Works in 2026
By Tyler Dalton, PharmD, Licensed Medicare Agent Published Updated
Medicare has four parts: A covers hospital stays, B covers doctors and outpatient care, D covers prescriptions, and C bundles everything through a private plan. Nearly every new enrollee ends up choosing between two paths, Original Medicare with a Medigap supplement and a drug plan, or an all-in-one Medicare Advantage plan. This guide explains both, with real 2026 costs.
What Medicare is and who gets it
Medicare is the federal health insurance program for Americans 65 and older, plus some younger people with qualifying disabilities or End-Stage Renal Disease. It is not free, and it is not one single plan. It is a set of building blocks, and the decisions you make when you first enroll shape what you pay and which doctors you can see for years afterward.
You qualify at 65 if you are a U.S. citizen or a permanent resident who has lived here at least five consecutive years. Whether you pay a premium for Part A depends on your work history: 40 quarters, roughly 10 years, of Medicare-taxed work makes Part A premium-free, which is true for about 99% of beneficiaries.
The four parts of Medicare in plain English
| Part | What it covers | How you get it |
|---|---|---|
| Part A (hospital) | Inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice, some home health | Federal government; premium-free for most |
| Part B (medical) | Doctor visits, outpatient care, preventive services, lab work, medical equipment | Federal government; monthly premium |
| Part C (Medicare Advantage) | A private plan that replaces how you receive A and B, usually including D and extras like dental and vision | Private insurers; optional alternative path |
| Part D (drugs) | Prescription drug coverage through a standalone plan or built into an Advantage plan | Private insurers; monthly premium varies by plan |
Parts A and B together are called Original Medicare. Everything else, Medigap, Part D, and Medicare Advantage, is sold by private companies and layers onto or replaces the way you receive that federal foundation. Our Part D guide covers the drug side in detail.
What Original Medicare covers, and what it does not
Original Medicare covers the big categories well: hospital care, surgery, doctor visits, outpatient treatment, lab tests, imaging, and preventive care. After you meet the Part B deductible, Medicare pays 80% of the approved amount for most Part B services and you pay the remaining 20%.
That 20% is the catch. There is no annual cap on it under Original Medicare alone. A serious illness with months of chemotherapy, dialysis, or specialist care can generate a 20% share with no ceiling. Original Medicare also generally excludes routine dental, vision, hearing aids, long-term custodial care, and prescription drugs you take at home. Those gaps are exactly why almost nobody stops at Parts A and B by themselves.
What Medicare costs in 2026
| Cost item | 2026 amount |
|---|---|
| Part A monthly premium | $0 for most; $311 with 30-39 work quarters; $565 with fewer than 30 |
| Part A hospital deductible | $1,736 per benefit period, covering days 1-60 |
| Part A hospital coinsurance, days 61-90 | $434 per day |
| Part A lifetime reserve days | $868 per day, up to 60 days ever |
| Skilled nursing facility, days 21-100 | $217 per day |
| Part B standard monthly premium | $202.90 (higher earners pay more through IRMAA) |
| Part B annual deductible | $283, then typically 20% coinsurance |
| Part D maximum deductible | $615 (many plans charge less) |
| Part D annual out-of-pocket cap | $2,100 on covered drugs |
Two of these numbers deserve a second look. The Part A deductible is per benefit period, not per year, so two separate hospital stays months apart can each trigger a fresh $1,736. And the Part D cap at $2,100 is a genuine hard ceiling: once your out-of-pocket spending on covered drugs reaches it, you pay nothing more for covered prescriptions the rest of the year.
The two coverage paths
Because of the gaps above, most people add private coverage in one of two ways. You cannot meaningfully mix them, so this is the central Medicare decision.
Path 1: Original Medicare + Medigap + Part D
You keep Original Medicare as your primary coverage, add a Medicare Supplement (Medigap) plan that pays most or all of your share of Medicare-covered costs, and add a standalone Part D plan for prescriptions. You can see any doctor in the country who accepts Medicare, no networks and no referrals. The cost profile is a higher fixed monthly premium in exchange for very few bills when you actually use care.
Path 2: Medicare Advantage
You enroll in a private Medicare Advantage plan that delivers your Part A and B benefits, usually includes drug coverage, and often adds dental, vision, and hearing extras. Premiums are low, sometimes nothing beyond your Part B premium. In exchange, you use the plan's provider network, may need referrals and prior authorizations, and pay copays or coinsurance as you go, up to an annual out-of-pocket maximum set by the plan.
The honest tradeoffs between the two, including the underwriting trap that can make switching hard later, are covered in our Medicare Advantage vs Medigap comparison.
Enrollment windows, briefly
- Initial Enrollment Period: 7 months around your 65th birthday, starting 3 months before your birthday month. This is when you sign up for A and B and pick your path.
- Medigap open enrollment: 6 months from the day you are 65 or older and have Part B. During this window carriers must sell you any Medigap plan with no health questions. In Alabama, this window matters enormously because underwriting applies afterward.
- Annual Enrollment Period: October 15 to December 7 every year, for switching Advantage and Part D plans effective January 1.
- MA Open Enrollment: January 1 to March 31, one switch allowed if you are already in an Advantage plan.
- Special Enrollment Periods: triggered by events like retiring from a job with group coverage or moving out of a plan's service area.
Deadlines carry real penalties. The Part B late penalty is 10% of the standard premium for every full 12-month period you were late, permanently. The Part D penalty is 1% of the national base premium per month without creditable drug coverage. Our enrollment checklist lays out the full timeline step by step.
Common mistakes new enrollees make
- Assuming COBRA or retiree coverage delays the Part B deadline. COBRA does not count as active employer coverage. People who ride COBRA past 65 without Part B can face coverage gaps and lifetime penalties.
- Picking a plan without running the drug list. Two plans with similar premiums can differ by thousands of dollars a year on the same prescriptions. Checking your exact medications against each plan's formulary is the highest-value hour in this whole process.
- Choosing by premium alone. A low premium with high cost-sharing can cost far more in a bad health year than a higher premium with full gap coverage. Compare worst-case annual exposure, not just the monthly number.
- Missing the 6-month Medigap window. Many people try an Advantage plan first, then want Medigap years later and discover they must pass medical underwriting to get it.
- Skipping Part D because you take no medications. The late penalty accrues every month you go without creditable coverage, and it follows you when you eventually do need a drug plan.
- Never reviewing coverage again. Plans change premiums, drug lists, and networks every single year. An annual review each October catches changes before they cost you.
Where to go from here
If you are approaching 65, start with the enrollment checklist so no deadline slips. If you are weighing the two paths, read the Advantage vs Medigap comparison next. And if you live in our part of the state, the Alabama Medicare guide covers what the choices look like locally. Dalton Insurance Agency walks people through this decision every week, and we are happy to do the same for you.
Frequently asked questions
- Do I have to pay for Medicare?
- Most people pay nothing for Part A because they or a spouse paid Medicare taxes for at least 10 years of work. Part B costs $202.90 per month at the standard 2026 rate, plus a $283 annual deductible. Part D drug plans and Medigap plans each carry their own premiums, which vary by plan and carrier.
- What is the difference between Medicare and Medicare Advantage?
- Original Medicare is the federal program itself, Parts A and B, where you can see any provider that accepts Medicare. Medicare Advantage is Part C, a private plan that replaces how you receive those benefits, usually bundling drug coverage and extras but using a provider network. You are still in the Medicare program either way, but the plans work very differently day to day.
- Does Medicare cover dental, vision, or hearing?
- Original Medicare generally does not cover routine dental care, eyeglasses, or hearing aids. Many Medicare Advantage plans add some level of these benefits, which is one of their main selling points. If you stay with Original Medicare, you can buy standalone dental or vision coverage separately.
- What happens if I do nothing when I turn 65?
- If you are already drawing Social Security, you are enrolled in Parts A and B automatically and your card arrives in the mail. If you are not, you must apply, and missing your 7-month Initial Enrollment Period can trigger late penalties that last as long as you have Medicare. The Part B penalty adds 10% of the standard premium for every full 12-month period you were late.
- Is Medicare Advantage cheaper than Medigap?
- Advantage plans usually cost less per month, and some charge no premium beyond Part B. The tradeoff is that you pay copays and coinsurance as you use care, up to the plan's annual out-of-pocket maximum, while Medigap charges more monthly but leaves you with few bills afterward. Which one costs less over a year depends heavily on how much care you use.
- When can I change my Medicare coverage?
- The Annual Enrollment Period runs October 15 through December 7 each year, with changes effective January 1. People already in a Medicare Advantage plan get one additional switch during the MA Open Enrollment Period, January 1 through March 31. Medigap changes can happen any time of year but usually involve health underwriting after your first 6 months.
Want this explained for your specific situation?
Talk through your options with Tyler Dalton, PharmD, Licensed Medicare Agent. Consultations are free, and you keep the final say on every decision.