Medicare has four parts, two enrollment paths, and a set of penalties that quietly compound for the rest of your life if you miss a deadline. It also has one of the most consequential one-way doors in personal finance. Here's the map, in the order the choices actually arrive.
The four parts, briefly
Part A covers hospital stays, skilled nursing, and some home health. Most people pay nothing because they paid in through payroll taxes during their working years.
Part B covers doctors, outpatient care, preventive care, and durable medical equipment. It has a monthly premium — $206.50/month in 2026 for most retirees, higher for high earners via IRMAA (below).
Part C — Medicare Advantage — is not a separate benefit but a way of receiving A, B, and usually D through a private insurer under contract with Medicare. Often includes extras like dental, vision, or a gym membership.
Part D covers prescription drugs. Sold as a standalone plan alongside Original Medicare, or bundled inside a Medicare Advantage plan.
The big fork: Advantage vs. Original + Medigap
At 65 you effectively choose one of two paths. This is the single most important Medicare decision.
Path 1 — Original Medicare (Parts A + B) + a Medigap supplement + a standalone Part D drug plan. Higher monthly cost, but near-zero cost-sharing at the point of care, no networks, and any provider in the U.S. that takes Medicare (almost all of them). It's the choice for people who value predictability, travel, or expect complex care.
Path 2 — Medicare Advantage (Part C). Lower monthly premiums, often $0 above the Part B premium, with copays, networks, prior authorization, and referrals. It's the choice for people whose care is local, whose specialists are in-network, and whose budget favors lower monthly costs.
Neither is universally better. What matters is fit.
The one-way door
In most states, if you enroll in a Medigap plan during your six-month Medigap Open Enrollment Period at 65, insurers cannot underwrite you — they must accept you at the standard price regardless of health.
If you instead enroll in Medicare Advantage at 65 and later try to switch to Medigap, insurers can (in most states) medically underwrite you. If your health has changed — and by definition it usually has — you may be denied, or offered coverage at a much higher premium.
This asymmetry is why the 65th-birthday decision matters more than most people realize. Advantage is easy to enter and hard to leave. Medigap is expensive to enter and easy to keep. A handful of states (New York, Connecticut, Massachusetts, Maine, and others in limited form) provide guaranteed-issue Medigap year-round; if you're not in one, plan carefully.
IRMAA — the income surcharge no one warns you about
Above certain income thresholds, Medicare adds an Income-Related Monthly Adjustment Amount to Parts B and D. It is based on your Modified Adjusted Gross Income from two years earlier — so 2026 IRMAA looks at your 2024 tax return.
For 2026, the thresholds start around $109,000 (single) / $218,000 (MFJ). At the first tier, the Part B surcharge is roughly $82/month per person; at the top tier ($500k+ single / $750k+ MFJ), it exceeds $490/month per person, plus another $90+ on Part D.
IRMAA is a cliff, not a slope. One dollar over a threshold costs the full tier increase for a full year. Managing income to stay just under the next tier is a legitimate and important planning move, especially in years with Roth conversions, a home sale, capital gains harvesting, or a large bonus.
You can appeal an IRMAA determination after a 'life-changing event' (retirement, death of spouse, divorce). Filing Form SSA-44 with documentation is straightforward and often successful.
Enrollment deadlines and penalties
Initial Enrollment Period: three months before your 65th birthday month, your birthday month, and three months after. Seven months total.
Miss it without other qualifying coverage and Part B carries a lifetime late-enrollment penalty of 10% per full year you were eligible and not enrolled. It doesn't go away.
If you're still working past 65 with employer coverage from a company of 20 or more employees, that coverage is generally 'creditable' and you can defer Part B without penalty. Get this confirmed in writing from HR before deferring — losing this protection later is the most common Medicare mistake we see for working retirees.
Part D has its own separate late-enrollment penalty (1% per month uncovered) if you go 63+ days without creditable drug coverage.
Drug coverage after the 2025 changes
The Inflation Reduction Act capped out-of-pocket Part D drug costs at $2,000 per year starting in 2025 (indexed to $2,100 in 2026). This is a major change — the old catastrophic phase had no cap.
Beneficiaries can also opt into the Medicare Prescription Payment Plan, which spreads out-of-pocket costs across monthly installments through the year rather than concentrating them when a prescription is filled.
The annual review no one does
Medicare's Annual Enrollment Period runs October 15 to December 7. Part D plans and Medicare Advantage plans change their drug formularies, provider networks, and cost structures every year.
The plan that was best when you enrolled is probably not best today. Yet most beneficiaries never re-shop. Even a 15-minute annual review — running your current medication list through Medicare's Plan Finder — routinely uncovers $500–$2,000 in annual savings.
Medigap plans are different: they don't change year-over-year and rarely need re-shopping unless the premium is climbing faster than peers.
Medicare choices at 65 are largely locked in by the mechanics of underwriting and penalties. Plan the enrollment before the birthday, not after — and review Part D every fall.