Medicare is the backbone of retirement healthcare in the United States, yet it remains one of the most confusing systems to navigate. With major changes taking effect in 2026—including new caps on prescription drug costs and updated premium amounts—understanding your coverage is more critical than ever.
This guide breaks down the four parts of Medicare, the difference between “Original Medicare” and “Medicare Advantage,” and the specific costs you can expect this year.
Part A: Hospital Insurance
Medicare Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. Think of Part A as “Room and Board” for when you are admitted to a hospital.
- Who Qualifies? You generally qualify at age 65. If you (or your spouse) worked and paid Medicare taxes for at least 10 years (40 quarters), you are eligible for premium-free Part A.
- 2026 Costs to Know:
- Premium: $0 for most people. (If you don’t qualify for premium-free, the full monthly premium is $565 in 2026).
- Deductible: $1,736 per benefit period.
- Important Note: The deductible is not annual. It applies to each “benefit period.” If you are hospitalized, released, and then readmitted 60 days later, you must pay the deductible again.
Part B: Medical Insurance
Medicare Part B covers outpatient care. This includes doctor visits, preventive screenings, lab tests, X-rays, and durable medical equipment (like wheelchairs).
- Who Qualifies? Anyone eligible for Part A is eligible for Part B. However, Part B is optional (though highly recommended to avoid lifelong penalties).
- 2026 Costs to Know:
- Standard Monthly Premium: $202.90. (High earners may pay more due to IRMAA surcharges).
- Annual Deductible: $283.
- Coinsurance: After you meet your deductible, you typically pay 20% of the Medicare-approved amount for services. There is no cap on this 20% under Original Medicare, which is why many people buy supplemental coverage.
Part C: Medicare Advantage
Medicare Part C, commonly known as Medicare Advantage, is a private alternative to Original Medicare. Instead of the government paying your bills, a private insurance company (like UnitedHealthcare, Humana, or Aetna) manages your care.
- How it Works: By law, these plans must cover everything Part A and Part B cover. Most plans also bundle Part D (prescription drugs) and extra perks like dental, vision, and gym memberships.
- The Trade-off:
- Pros: Lower premiums (often $0/month) and an annual cap on out-of-pocket spending.
- Cons: You generally must use a restricted network of doctors (HMO/PPO) and may require prior authorization for treatments.
- Eligibility: You must be enrolled in both Part A and Part B to join a Medicare Advantage plan.
Part D: Prescription Drug Coverage
Medicare Part D helps cover the cost of brand-name and generic medications. You can get this coverage through a standalone plan (if you have Original Medicare) or built into a Medicare Advantage plan.
- Major 2026 Update: The Inflation Reduction Act has significantly lowered drug costs.
- The $2,100 Cap: Starting in 2026, your out-of-pocket costs for covered prescription drugs are capped at approximately $2,100 per year. Once you reach this amount, you pay $0 for covered drugs for the rest of the year.
- The “Donut Hole”: The coverage gap (or “donut hole”) has been eliminated.
Supplemental Coverage: Medigap
Medicare Supplement Insurance, or Medigap, is private insurance designed to work alongside Original Medicare.
- What it Does: It pays the “gaps” that Medicare leaves behind, such as the 20% coinsurance for doctor visits and the Part A hospital deductible.
- Key Rule: You generally cannot have both Medicare Advantage and Medigap. You must choose one path:
- Original Medicare + Medigap + Part D (Higher monthly premiums, but no networks and very low medical bills).
- Medicare Advantage (Lower monthly premiums, but higher copays and restricted networks).
Summary of 2026 Costs
| Medicare Part | What it Covers | 2026 Standard Cost to You |
| Part A | Hospital / Inpatient | $0 premium (for most); $1,736 deductible per stay. |
| Part B | Doctors / Outpatient | $202.90 premium (monthly); $283 deductible (annual). |
| Part C | All-in-one Alternative | Varies by plan (Avg. ~$18.50, many are $0). |
| Part D | Prescriptions | Varies by plan; OOP Cap is ~$2,100. |
Frequently Asked Questions
Do I have to sign up for Medicare at 65 if I’m still working?
If you have “creditable coverage” from a large employer (20+ employees), you can usually delay Part B and Part D without penalty. However, most people should still sign up for Part A as it is free.
What is the difference between Medigap and Medicare Advantage?
Medigap pays your bills after Medicare pays its share. Medicare Advantage replaces your Medicare billing with a private network. You cannot have both.
Next Step
Review your current “Annual Notice of Change” letter or check your online Medicare account. If your prescriptions are expensive, verify that your current Part D plan covers your specific medications under the new 2026 formularies to take advantage of the $2,100 cap.
