Medicare explained: what it is, what it covers, and what it costs in 2026

The program is funded by payroll taxes, premiums, and general federal revenue. Most people who worked at least 40 quarters (about 10 years) in Medicare-taxed employment owe no premium for Part A hospital coverage. Everyone pays a monthly premium for Part B (medical coverage), and that premium depends on income.

Medicare is organized into four lettered parts, each covering a different category of care.

Part A: hospital insurance

Part A covers inpatient hospital stays, care in a skilled nursing facility (SNF), hospice, and some home health services. In 2026, Part A is premium-free for people with 40 or more quarters of Medicare-taxed work. People with 30 to 39 quarters pay $311 per month; those with fewer than 30 quarters pay $565 per month.

When you are admitted to a hospital, Part A applies a deductible of $1,736 per benefit period (not per year; a new benefit period begins after you have been out of a hospital or SNF for 60 consecutive days, so two hospitalizations in a year can each trigger the deductible). Days 1 to 60 of a hospital stay have no coinsurance beyond that deductible. Days 61 to 90 cost $434 per day in 2026. Beyond 90 days, you draw from 60 lifetime reserve days at $868 per day in 2026; once those are gone, you pay all costs.

For SNF care, days 1 to 20 are fully covered after a qualifying 3-day inpatient hospital admission. Note that observation status is billed under Part B and does not count toward the required 3 days. Days 21 to 100 carry a coinsurance of $217 per day in 2026; after day 100, Medicare pays nothing.

Part B: medical insurance

Part B covers outpatient services: doctor visits, preventive care, lab work, durable medical equipment, mental health services, and some home health care. In 2026, the standard monthly premium is $202.90 and the annual deductible is $283. After the deductible, Medicare pays 80% of the approved amount and you pay 20%, with no annual cap on that 20% under Original Medicare alone.

Providers who do not accept Medicare assignment (called non-participating providers) may charge up to 15% above the Medicare-approved amount; some states ban these excess charges entirely.

Higher earners pay more through a system called the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA uses a two-year lookback, so 2026 premiums are based on your 2024 modified adjusted gross income (MAGI). Surcharges begin above $109,000 for single filers and $218,000 for joint filers, with higher tiers for higher incomes. A parallel IRMAA surcharge applies to Part D as well.

Part C: Medicare Advantage

Part C, also called Medicare Advantage (MA), is a way to receive all your Part A and Part B benefits through a private plan approved by CMS. MA plans often include Part D drug coverage and may add benefits such as dental, vision, or hearing, though those extras vary by plan. In 2026, the federal cap on in-network out-of-pocket costs (MOOP) for MA plans is $9,250; the combined in-network plus out-of-network cap is $13,900. According to KFF, the 2026 enrollment-weighted average in-network MOOP is $5,421.

If an MA plan requires prior authorization for a service, standard decisions must arrive within 7 calendar days and expedited decisions within 72 hours under CMS-0057-F, effective 2026.

To find out more about specific plan coverage in your area, please contact us to discuss plan options.

Part D: prescription drug coverage

Part D is optional stand-alone drug coverage available to anyone enrolled in Part A or Part B. In 2026, the maximum allowable deductible is $615, though many plans set lower or no deductible. The annual out-of-pocket cap on covered drugs is $2,100; once you reach that threshold, covered drugs cost $0 for the rest of the year.

If you go 63 or more days without creditable drug coverage after your Initial Enrollment Period (IEP), you owe a permanent late-enrollment penalty. That penalty equals 1% of the 2026 national base beneficiary premium ($38.99) for each full month you went without coverage, added to your monthly premium indefinitely.

Your IEP is a seven-month window: the three months before your 65th birthday month, your birthday month itself, and the three months after. Missing this window without qualifying coverage triggers permanent premium penalties for both Part B and Part D.

If you are still working at 65 and covered by an employer group plan, you may delay Medicare without penalty, but only while you hold active employer coverage through a firm with 20 or more employees. COBRA and retiree coverage never count as active employer coverage for this purpose. When that employment or active coverage ends, an eight-month Special Enrollment Period (SEP) opens. If you contribute to a Health Savings Account (HSA), be aware that any Medicare enrollment, including premium-free Part A, ends your eligibility for new HSA contributions, and Part A can backdate up to 6 months.

Each fall, the Annual Enrollment Period (AEP) runs October 15 to December 7, letting anyone with Medicare join, switch, or drop MA and Part D plans for the coming year. If you are already in an MA plan, the MA Open Enrollment Period (OEP) from January 1 to March 31 lets you switch plans or return to Original Medicare once.

Original Medicare has no annual out-of-pocket cap. Many people pair it with a Medigap (Medicare Supplement) policy, a private plan that pays some or all of the cost-sharing gaps. The guaranteed-issue Medigap window is 6 months, starting the month you turn 65 and are enrolled in Part B. Outside that window, medical underwriting generally applies, though some states offer additional protections, including states with year-round guaranteed issue (such as New York and Connecticut), states that allow plan-to-plan switching (such as Washington), and birthday-rule states such as California and Oregon.

In 2026, the high-deductible threshold for Plans G and F is $2,950.

Low-income beneficiaries may qualify for Extra Help (also called the Low Income Subsidy, or LIS) to reduce Part D costs, or for a Medicare Savings Program (MSP) that covers some or all of the Part B premium. Eligibility limits for these programs are indexed annually and vary by state.