Understanding Medicare is More Complicated Than Many Realize

Takeaways

• A recent survey found that most Medicare beneficiaries were unable to define the four types of coverage.

• Understanding Medicare coverage helps prevent unexpected medical bills, missed enrollment deadlines, and lasting late enrollment penalties.

• The State Health Insurance Assistance Program (SHIP) can help compare coverage options and understand enrollment rules.

Ask most people with Medicare whether they understand their coverage and the answer is usually yes. However, a new survey suggests that people’s knowledge of Medicare may fall short of their confidence.

In August, eHealth, an online health insurance marketplace, published results from a survey of more than 1,000 U.S. adults. Nearly nine in ten current Medicare beneficiaries (89 percent) said they felt confident about their coverage options. Yet only 13 percent could correctly define the four main types of Medicare coverage: Original Medicare, Medicare Advantage, Medigap, and Medicare Part D.

What the eHealth Survey Found

• Eighty-eight percent did not know that Original Medicare has no yearly limit on out-of-pocket costs.

• Forty-two percent weren’t aware that Original Medicare has a 20 percent coinsurance — or believed that number to be lower.

• Twenty-four percent of adults ages 55 to 64 not yet on Medicare felt confident about their coverage options.

• In the same age group, 88 percent did not know about the Part B late enrollment penalty. Eighty percent were not aware of potential Part D penalties. Seventy-one percent did not know they could be rejected or charged more for Medigap if they applied late.

Failing to understand your Medicare coverage can lead to unexpected bills or missed deadlines.

Medicare Terms People Often Misunderstand

The path to understanding Medicare begins with getting familiar with some of the basic terms that are often misunderstood.

• Original or Traditional Medicare. Consists of Part A (hospital care) and Part B (doctor visits and outpatient care). It does not include prescription drug coverage and generally does not cover routine dental, vision, or hearing care, or long-term custodial care.

• Coinsurance. This is the percentage of a bill you pay after the deductible is met ($283 in 2026). Typically, you pay 20 percent of the Medicare-approved amount for covered services. Many preventive services are an exception and do not carry a 20 percent charge.

• Out-of-pocket limit. This is the cap, or maximum, you have to pay each year for medical services. Original Medicare does not have an out-of-pocket limit, so 20 percent of medical bills can add up quickly. Medicare Advantage plans, by contrast, must set a yearly limit on what you pay for covered services.

• Part D. This is prescription drug coverage, bought as a separate plan alongside Original Medicare. Conversely, many Medicare Advantage plans include drug coverage.

• Late enrollment penalty. Signing up for Medicare late incurs extra costs, unless you had alternate, qualifying coverage. For Part B, 10 percent is added to your premium for each 12-month period you could have enrolled. Part D has its own penalty, as well. Each penalty lasts the duration of your coverage.

• Initial Enrollment Period. The seven-month window around your 65th birthday is your Initial Enrollment Period. It includes the three months before, the month of, and the three months after your 65th birthday. Missing it can lead to the penalties above.

Medicare Advantage and Medigap Are Not the Same Thing

These two are among the most confused Medicare terms. Although both are sold by private insurance companies and involve Medicare, they work differently. Put simply, Medicare Advantage replaces the way you get Original Medicare, while Medigap adds to it.

You cannot combine both plans. Medigap only works with Original Medicare — you cannot buy a Medigap policy if you have a Medicare Advantage plan.

Choosing the best option depends on your medical needs and budget. Medicare Advantage plans often have lower monthly premiums and extra benefits but come with network rules and possible approval requirements. Medigap policies tend to cost more each month, but they offer more predictable costs and a wider choice of providers.

Because there is only one Medigap enrollment window, you should fully understand both options before choosing.

Where to Get Help

Plans can change their costs, coverage, and networks every year, so it pays to review your plan each fall.  Medicare’s Annual Enrollment Period, when people can change their coverage for 2027, opens October 15.

Free, unbiased help is available from your State Health Insurance Assistance Program (SHIP). You can also contact Medicare directly by calling 1-800-MEDICARE (1-800-633-4227).

Additional Reading

For additional reading on issues related to Medicare, check out the following articles:

• Medicare Coverage Basics: What You Need to Know

• Medicare Advantage (Medicare Part C Coverage) Plans

• Do Medigap Plans Cover the Medicare Part B Deductible?

• Basics on Medicare Home Health Care Coverage