Navigating the world of Medicare can be overwhelming due to its complex terminology. Whether you’re new to Medicare or helping someone make sense of their coverage options, understanding common Medicare terms will be helpful on your journey. Knowing these terms can help you make informed decisions about your healthcare, ensuring you get the coverage you need while avoiding unexpected costs. Let’s go through some of the most important Medicare terms you should know.
Medicare Basics
Original Medicare: Consists of Part A and Part B
- Part A (Hospital Insurance): This helps cover inpatient hospital stays, skilled nursing facility care, hospice care, and some home healthcare.
- Part B (Medical Insurance): This helps cover outpatient care, such as doctor’s visits, preventive services, and durable medical equipment.
Both Part A and Part B are provided by the federal government. Together, they cover many basic healthcare services but not everything, which is why many beneficiaries turn to additional coverage like Medicare Advantage or Medigap.
Medicare Advantage (Part C): Medicare Advantage is an alternative to Original Medicare, offered by private insurance companies approved by Medicare. It includes all benefits from Part A and Part B, and often provides additional coverage such as vision, dental, and prescription drugs (Part D). Depending on the plan, there may be different costs and rules.
Medicare Part D: Medicare Part D provides prescription drug coverage. Like Medicare Advantage, Part D plans are offered by private insurance companies. These plans can help cover the cost of medications, but it’s important to check the formulary (list of covered drugs) to ensure your medications are included.
Medicare Supplement (Medigap): Medigap plans are sold by private insurers and help cover some of the out-of-pocket costs not covered by Original Medicare, such as deductibles, coinsurance, and copayments. Medigap plans don’t cover prescription drugs, so you may need a Part D plan if you’re on Original Medicare.
Enrollment-Related Terms
Initial Enrollment Period (IEP): The Initial Enrollment Period is the first opportunity you have to enroll in Medicare. It spans seven months: three months before your 65th birthday, the month of your birthday, and three months after your birthday. This is your window to enroll in Part A and Part B, and if desired, a Part D or Medigap plan.
Annual Enrollment Period (AEP): The Annual Enrollment Period runs from October 15 to December 7 each year. During this time, you can make changes to your Medicare Advantage or Part D plans. You can switch from Original Medicare to a Medicare Advantage plan, change from one Medicare Advantage plan to another, or enroll in or change Part D plans.
Medicare Advantage Open Enrollment Period (MA OEP): The Medicare Advantage Open Enrollment Period runs from January 1 to March 31 each year. If you are already enrolled in a Medicare Advantage plan, you can switch to a different Medicare Advantage plan or revert to Original Medicare with or without a standalone Part D plan.
Special Enrollment Period (SEP): A Special Enrollment Period allows you to enroll in Medicare or make changes to your plan outside the usual enrollment windows. SEPs are triggered by certain qualifying life events, such as moving to a new area, losing other health coverage, or qualifying for Medicaid.
Guaranteed Issue Rights: These rights protect you from being denied a Medigap policy due to health conditions. Certain situations, like losing employer-sponsored coverage or changing from a Medicare Advantage plan to Original Medicare, guarantee that you can purchase a Medigap plan without medical underwriting.
Cost-Related Terms
Premium: The premium is the amount you pay each month for Medicare coverage. For Part A, most people don’t pay a premium if they or their spouse worked and paid Medicare taxes for at least 40 quarters. Part B and Part D generally have a monthly premium that varies based on your income.
Deductible: The deductible is the amount you must pay out-of-pocket before Medicare starts paying its share. For example, in 2025, the Part A deductible is $1,600 per benefit period, and the Part B deductible is $226 for the year.
Copayment (Copay): A copayment is a fixed amount you pay for a covered healthcare service, typically when you receive care. For example, you might pay a copay for a doctor’s visit or a prescription. Copays can vary depending on your plan.
Coinsurance: Coinsurance is a percentage of the cost of a healthcare service that you’re responsible for paying after meeting your deductible. For instance, you may need to pay 20% of the cost for outpatient services under Part B, while Medicare covers the remaining 80%.
Out-of-Pocket Maximum: The out-of-pocket maximum is the most you’ll have to pay for covered services in a year. After you reach this limit, your plan will cover all additional costs for the remainder of the year. This only applies to Medicare Advantage plans, not Original Medicare.
Medicare Coverage & Benefits Terms
Formulary: A formulary is a list of prescription drugs that a Medicare Part D plan covers. It’s essential to check a plan’s formulary to ensure your medications are included and to understand any restrictions (such as prior authorization or step therapy).
Medically Necessary: Medically necessary refers to services or supplies required to diagnose or treat an illness or condition. Medicare only covers services that are deemed medically necessary, and a doctor’s recommendation typically helps determine what qualifies.
Prior Authorization: Prior authorization is a requirement that your doctor or provider gets approval from Medicare or your insurance company before certain services or medications are covered. This is often required for expensive or specialized treatments.
Step Therapy: Step therapy is a process used in Part D drug plans, where you must try a less expensive drug first before being approved for a more expensive one, if medically appropriate. This helps control costs for both you and Medicare.
Network: In Medicare Advantage plans, the network refers to the doctors, hospitals, and other healthcare providers that participate in the plan. Plans can be Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), or other types, each with different rules about seeing providers inside or outside the network.
Extra Help (Low-Income Subsidy): Extra Help is a program that helps people with limited income and resources pay for Medicare Part D prescription drug costs, including premiums, deductibles, and copayments. To qualify, your income and resources must fall below a certain threshold.
Claims & Appeals Terms
Assignment: When a doctor accepts assignment, it means they agree to accept Medicare’s approved amount as full payment for services. This helps ensure that you won’t be charged more than what Medicare allows.
Advance Beneficiary Notice (ABN): An ABN is a notice that a healthcare provider gives you when they believe Medicare may not cover a service. It informs you of your potential financial responsibility if Medicare denies coverage.
Medicare Summary Notice (MSN): The MSN is a statement Medicare sends you every three months that explains the services you received, the amount Medicare paid, and what you may owe. It helps you review claims and spot any errors.
Appeal: If Medicare denies a claim, you have the right to appeal the decision. There are five levels of appeal, ranging from a redetermination by your plan to a review by an administrative law judge.
Special Medicare Programs
Medicare Savings Programs (MSPs): Medicare Savings Programs help low-income individuals pay for some of their Medicare costs, including premiums, deductibles, and coinsurance. There are different types of MSPs based on income and resources.
PACE (Program of All-Inclusive Care for the Elderly): PACE is a comprehensive healthcare program for seniors who are eligible for both Medicare and Medicaid. It provides all needed services, including medical care, social services, and long-term care, in one coordinated program.
Skilled Nursing Facility (SNF) Care: Medicare covers care in a skilled nursing facility after a qualifying hospital stay of at least three days. However, it only covers a limited number of days, with increasing costs after day 20.
Hospice Care: Hospice care is covered by Medicare for individuals with a terminal illness who have a life expectancy of six months or less. It focuses on comfort and support rather than curative treatments.
Telehealth Services: Telehealth services, including virtual doctor visits and consultations, are increasingly covered by Medicare, especially after the COVID-19 pandemic. Check with your plan to see what types of telehealth services are covered.
