Medicare Explained: Parts A, B, C and D, Medigap, and IRMAA

Last updated 2026-08-20

Medicare is not one programme. It is four, sold by two different kinds of organisation, with enrolment windows that punish lateness for the rest of your life. Most of the confusion comes from treating it as a single decision when it is really three.

The four parts, briefly

Part A covers inpatient hospital care, skilled nursing after a hospital stay, and hospice. For nearly everyone it is premium-free, because you already paid for it through payroll taxes — 40 quarters of covered work earns it outright.

Part B covers outpatient care: doctor visits, labs, imaging, durable equipment. It has a monthly premium, $202.90 in 2026 for most people, and it is the part that income can make more expensive.

Part C is not additional coverage. It is Medicare Advantage: a private plan that replaces Parts A and B and usually folds in drug coverage. You are still in Medicare, but a private insurer administers it.

Part D covers prescription drugs, sold separately by private insurers if you stay with Original Medicare. Since 2025 there is a hard annual cap on what a Part D plan can make you pay out of pocket — $2,100 in 2026. That cap is new and genuinely significant for anyone on expensive medication.

The real decision: Original Medicare or Advantage

This is the choice that matters, and it is not simply about premiums.

Original Medicare (Parts A and B, usually plus a Part D plan and a Medigap policy) works with any provider in the country that accepts Medicare, which is most of them. No networks, no referrals, no prior authorisation for most services. On its own it has no out-of-pocket maximum, which is why Medigap exists — a supplemental policy that covers the coinsurance and deductibles Original Medicare leaves behind. Add it up and you are paying three premiums: Part B, Part D, and Medigap.

Medicare Advantage often costs little or nothing beyond the Part B premium, and typically bundles drug coverage plus extras Original Medicare does not touch — dental, vision, hearing, gym membership. In exchange you accept a network, referrals, and prior authorisation. Plans have an out-of-pocket maximum, which Original Medicare lacks, but you reach it through the plan's own cost sharing rather than a supplement.

The honest summary: Advantage usually costs less while you are healthy and can cost more, in money and in friction, when you are seriously ill. Original Medicare plus Medigap is the more expensive, more predictable option. Neither is universally right.

The trap nobody warns you about

You can switch from Original Medicare to Medicare Advantage every year during open enrolment. Going the other direction is where people get caught.

Medigap insurers are only required to sell you a policy without medical underwriting during your one-time six-month Medigap open enrolment window, which starts when you are 65 and enrolled in Part B. Miss it, and in most states an insurer can refuse you, or charge more, based on your health.

So someone who chooses Advantage at 65, develops a serious condition at 74, and then wants the freedom of Original Medicare may find that Medigap is unaffordable or simply unavailable — and Original Medicare without Medigap has no out-of-pocket ceiling. There is one narrow escape: a 12-month trial right if Advantage was your first-ever Medicare choice, letting you undo it and still buy Medigap without underwriting.

Treat the age-65 decision as far more consequential than it looks. It is reversible in one direction and, in practice, often not in the other.

IRMAA: the surcharge that looks back two years

If your income is above a threshold, you pay more for Parts B and D. The adjustment is called IRMAA, and two features of it drive nearly every planning mistake.

It uses income from two years ago. Your 2026 premiums are set by your 2024 tax return. A Roth conversion at 63 raises your premiums at 65. Selling a rental, realising a large capital gain, or taking a pension lump sum all echo forward two years.

It is a cliff, not a slope. One dollar over a threshold moves you into the next tier for the entire year. Ordinary tax brackets tax only the dollars above the line; IRMAA re-prices every month of premiums. Crossing a threshold by a small amount is the single most avoidable expensive mistake in this area.

If your income has since dropped because of a life event Social Security recognises — retirement, the death of a spouse, divorce, loss of a pension — you can ask for the surcharge to be recalculated on current income using form SSA-44. Retirement itself counts, which many people do not realise.

Enrolment deadlines that are permanent

Your initial enrolment period runs seven months: the three before the month you turn 65, that month, and the three after. Late enrolment in Part B costs 10% more per year late, permanently — not once, but on every premium for the rest of your life.

If you are still working at 65 with employer coverage from a company of 20 or more people, you can generally delay Part B without penalty and enrol later through a special enrolment period. Smaller employers are different: Medicare usually becomes primary, and delaying can leave you badly exposed. Verify with the employer rather than assuming.

The HSA trap. You cannot contribute to a health savings account once you are enrolled in any part of Medicare. Worse, enrolling after 65 backdates Part A by up to six months, which can retroactively invalidate contributions you already made and trigger penalties. If you are contributing to an HSA and approaching 65, stop contributing at least six months before you enrol.

What Medicare does not cover

Routine dental, vision, and hearing are not covered by Original Medicare — and dental work in particular can run into thousands of dollars a year. Long-term custodial care is not covered by any part of Medicare, which is the single largest uninsured risk most retirees carry. Medicare pays for skilled nursing only after a qualifying hospital stay, and only for a limited period.

Budget for dental, vision, and hearing explicitly. They are ordinary, recurring, and entirely yours.

Where this fits in a plan

Medicare is not a single line item. It is a premium that starts at 65, a surcharge determined by decisions you make at 63, and a set of out-of-pocket costs that Original Medicare and Advantage distribute very differently. Modelling it as one number understates both the cost and the variability.

This is general information, not financial, tax, or legal advice. Rules change and individual circumstances differ; verify anything consequential against the official sources cited and consider speaking to a qualified adviser. Figures are the published values for the year stated.