Medicare and Medicare Supplement Policies in Practice

Medicare is a federal program with four parts, and what a beneficiary pays depends on which parts they hold, when they enrolled and what other coverage they carry. Worked examples carry the subject here. They run a hospital claim and an outpatient claim through Original Medicare and two Medicare supplement plans. They compute the penalties for enrolling late, lay out the calendar for changing plans, and sort out who pays first when other coverage exists. The last section covers the part Medicaid plays beside Medicare. Medicare resets its dollar amounts every year. Where a real figure appears it is the 2026 amount and is labeled as such. Every other amount, and every person and employer, is invented for the example. Michigan’s rules for Medicare supplement policies are pointed to where they change the answer.

Who Runs Medicare and Who Pays for It

The Centers for Medicare & Medicaid Services (CMS) administers Medicare and announces its premiums, deductibles and coinsurance each fall for the next year. The Social Security Administration takes most enrollments. Anyone already receiving Social Security or Railroad Retirement Board benefits is signed up automatically at 65.

The parts are financed differently, and the difference explains who pays what:

• Part A (hospital insurance) is financed by Medicare payroll taxes paid by workers and employers. A person pays no Part A premium when they or a spouse paid Medicare taxes long enough, which CMS puts at 40 quarters of covered employment.
• Part B (medical insurance) is financed by the monthly premiums beneficiaries pay and by general federal revenue.
• Part C (Medicare Advantage) is delivered by private plans that Medicare pays a fixed monthly amount for each enrollee.
• Part D (drug coverage) is delivered by private plans, either on their own or inside a Medicare Advantage plan.

Eligibility follows four paths. A person is eligible at 65. A person under 65 becomes eligible after 24 months of Social Security or certain Railroad Retirement disability benefits, and gets Part A and Part B automatically at that point. A person with amyotrophic lateral sclerosis is eligible the month disability benefits begin. A person with end-stage renal disease (ESRD), permanent kidney failure needing dialysis or a transplant, can be eligible at any age, and applies rather than being enrolled automatically.

A Part A Claim, Worked

Part A cost sharing is counted by benefit period, not by calendar year. A benefit period begins on admission and ends after 60 days with no inpatient hospital or skilled nursing care. Medicare restates Part A amounts every year, so the amounts below are invented. They keep Part A’s real structure: a deductible for the first 60 days, a daily coinsurance for days 61 through 90, and a smaller daily coinsurance for skilled nursing days 21 through 100.

Part A cost	Invented amount
Inpatient deductible, days 1 to 60	$1,500
Hospital coinsurance, days 61 to 90	$375 a day
Skilled nursing coinsurance, days 21 to 100	$187.50 a day

Ellen is hospitalized for 72 days, then moves to a skilled nursing facility for 30 days. Skilled nursing care is covered because her inpatient stay lasted at least 3 days. Original Medicare leaves her these costs:

1. Days 1 to 60: the $1,500 deductible.
2. Days 61 to 72: 12 days at $375 is $4,500.
3. Skilled nursing days 1 to 20: nothing. Days 21 to 30 are 10 days at $187.50, or $1,875.
4. Her total is $1,500 + $4,500 + $1,875 = $7,875.

Standardized Medicare supplement plans divide those three costs differently.

Who pays	Deductible $1,500	Days 61 to 72, $4,500	Skilled nursing, $1,875	Ellen pays
Original Medicare only	Ellen	Ellen	Ellen	$7,875
Plan A	Ellen	Plan A	Ellen	$3,375
Plan B	Plan B	Plan B	Ellen	$1,875
Plan G	Plan G	Plan G	Plan G	$0

Plan A is the core. It pays hospital coinsurance but leaves the deductible and skilled nursing coinsurance with the beneficiary. Plan B adds the deductible. Plan G adds skilled nursing coinsurance. Plan D has the same Part A pattern as Plan G. The Part A deductible is also why a second admission 61 or more days after discharge costs a fresh $1,500: a new benefit period has begun.

A Part B Claim, Worked

Part B pays for physicians, outpatient hospital care and equipment. For 2026, CMS set the annual Part B deductible at $283. After it is met, Medicare pays 80 percent of the Medicare-approved amount and the beneficiary owes 20 percent, when the provider accepts assignment, meaning the provider agrees to take the approved amount as payment in full. Original Medicare has no yearly limit on what a beneficiary pays.

Ray has Original Medicare in 2026. Two claims arrive in order. First, an outpatient surgery with an approved amount of $4,000. Second, a specialist office visit with an approved amount of $300.

Surgery, with the deductible still unmet:

1. The deductible takes the first $283.
2. The remaining approved amount is $4,000 minus $283, or $3,717.
3. Medicare pays 80 percent of $3,717, which is $2,973.60.
4. Coinsurance is 20 percent of $3,717, which is $743.40.
5. Ray owes $283 + $743.40 = $1,026.40 under Original Medicare alone.

Office visit, with the deductible already met: Medicare pays 80 percent of $300, or $240, and the coinsurance is $60.

Now add Medicare supplement coverage. Plan G pays Part B coinsurance but not the Part B deductible. Plan N pays Part B coinsurance except a copayment of up to $20 for an office visit and up to $50 for an emergency room visit that does not end in admission. The surgery is not an emergency room visit and has no copayment.

	Original Medicare only	Plan G	Plan N
Surgery: deductible	Ray, $283.00	Ray, $283.00	Ray, $283.00
Surgery: 20% coinsurance	Ray, $743.40	Plan, $743.40	Plan, $743.40
Visit: 20% coinsurance	Ray, $60.00	Plan, $60.00	Ray $20.00, plan $40.00
Ray pays for the year’s two claims	$1,086.40	$283.00	$303.00

The totals reconcile. The two approved amounts add to $4,300, Medicare pays $2,973.60 + $240 = $3,213.60, and $4,300 minus $3,213.60 is the $1,086.40 Ray owes without supplement coverage.

A provider that does not accept assignment may bill more than the approved amount, up to 15 percent more. Suppose the specialist did not accept assignment. The limit on a $300 approved visit is 1.15 x $300 = $345, so the excess charge is $45. Ray pays $60 + $45 = $105 under Original Medicare. Plan G covers Part B excess charges, so he pays $0. Plan N does not, so he pays his $20 copayment plus the $45, or $65. Among the standardized plans, only F and G pay the excess.

Michigan’s Medicare supplement chapter controls which of these plans an insurer may sell in the state and what each must contain (MCL 500.3811a).

Reading the Plan Grid

Standardized plans give the same benefits whichever insurer sells them, so the grid below is what a producer compares. A check means the plan pays 100 percent. A percentage is the share the plan pays. X means the plan pays nothing for that item.

Benefit	A	B	C	D	F	G	K	L	M	N
Part A coinsurance and 365 added hospital days	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Part B coinsurance or copayment	Yes	Yes	Yes	Yes	Yes	Yes	50%	75%	Yes	Yes, less copays
First 3 pints of blood	Yes	Yes	Yes	Yes	Yes	Yes	50%	75%	Yes	Yes
Part A hospice coinsurance	Yes	Yes	Yes	Yes	Yes	Yes	50%	75%	Yes	Yes
Skilled nursing coinsurance	X	X	Yes	Yes	Yes	Yes	50%	75%	Yes	Yes
Part A deductible	X	Yes	Yes	Yes	Yes	Yes	50%	75%	50%	Yes
Part B deductible	X	X	Yes	X	Yes	X	X	X	X	X
Part B excess charges	X	X	X	X	Yes	Yes	X	X	X	X
Foreign travel emergency	X	X	80%	80%	80%	80%	X	X	80%	80%

Plans K and L pay 100 percent of covered services for the rest of the calendar year once the buyer reaches an annual out-of-pocket limit and the yearly Part B deductible. The limit is reset each year, so it is not memorized as a figure. Plans F and G also come in a high-deductible version in some states, where the buyer pays covered costs up to a set deductible before the plan pays anything.

Three decisions follow from the grid.

• A person new to Medicare on or after January 1, 2020 cannot buy Plan C or Plan F, because those plans pay the Part B deductible. They can buy D or G instead, which have the same benefits except the Part B deductible. Michigan applies the same rule (MCL 500.3811b(2)). A person eligible before 2020 who has not yet enrolled may still buy C or F.
• The step from G to N is a bet that copayments will cost less than the premium saved. The step from A to G buys protection against a long hospital stay. Plan A leaves Ellen $3,375 in the claim above, and Plan G leaves none.
• A producer who sells Medicare supplement coverage may not tell a buyer that the policy is sold by Medicare or by any government agency.

How the Premium Is Priced

Plans with the same letter differ only in price, and an insurer prices them one of three ways. A community-rated plan charges everyone the same premium, whatever their age. An issue-age-rated plan sets the premium by the age at purchase and does not rise because the buyer grows older. An attained-age-rated plan sets the premium by current age and rises as the buyer ages. Inflation and other factors can raise premiums under any method.

Compare two invented Plan G offers for a buyer at 65. One is issue-age-rated at $155 a month. The other is attained-age-rated, starting at $130 a month and rising $7 a month each year of age.

Age	Attained-age monthly	Attained-age year	Issue-age year	Attained-age running total	Issue-age running total
65	$130	$1,560	$1,860	$1,560	$1,860
68	$151	$1,812	$1,860	$6,744	$7,440
69	$158	$1,896	$1,860	$8,640	$9,300
72	$179	$2,148	$1,860	$14,832	$14,880
73	$186	$2,232	$1,860	$17,064	$16,740

The attained-age policy costs less each year until age 68 and less in total until age 72. At 73 its running total passes the issue-age policy and keeps widening. The comparison assumes no other increases, which is not realistic, so it shows the direction of the difference and not a forecast. A buyer who expects to keep the policy for a decade or more has a reason to weigh the issue-age method.

Enrollment Periods and Late Penalties

The Initial Enrollment Period

A person’s initial enrollment period for Parts A and B is seven months: the three months before the month they turn 65, the birthday month and the three months after. Someone who turns 65 on August 14 has May through November. Someone whose birthday is the first of the month has the period shifted a month earlier, so a birthday on August 1 gives April through October.

Timing changes the start of coverage. Signing up in the first three months of the period starts coverage on the first day of the birthday month, here August 1. Signing up in the birthday month or the last three months starts coverage on the first day of the following month.

The General and Special Enrollment Periods

A person who misses the initial period and has no special enrollment right can sign up for Part B from January 1 through March 31 each year. Coverage then begins the first day of the month after enrollment.

A special enrollment period applies to a person who delayed Part B because of group health coverage based on current employment, their own or a spouse’s. They can sign up at any time while the coverage continues, and during the eight months after the employment or the coverage ends, whichever comes first. Usually no penalty applies. COBRA coverage and retiree coverage do not count as current-employment coverage, so a person who leaves work and relies on COBRA is using up the eight months.

Part B, Part A and Part D Penalties

Late penalties are permanent, and each is a percentage of a premium that changes. Examples use invented premiums.

• Part B: the premium rises 10 percent for each full 12-month period the person could have had Part B and did not enroll. Nonenrollment for 11 months costs nothing. Dan’s initial period ended September 30, 2023, and he signed up in January 2026 for coverage starting February 1. October 2023 through January 2026 is 3 + 12 + 12 + 1 = 28 months, which holds 2 full periods, so his penalty is 20 percent. With an invented standard premium of $180, the penalty is $36 a month and he pays $216. If next year’s standard premium is $190, the penalty becomes $38. It follows the premium for as long as he has Part B.
• Part A: this applies only to a person who must buy Part A. The premium rises 10 percent for twice the number of years the person could have enrolled and did not. A person who delayed 2 years pays the higher premium for 4 years. At an invented $400 premium, the extra is $40 a month, so the cost is $40 x 48 = $1,920.
• Part D: the penalty is 1 percent of the national base beneficiary premium for each full month the person went without Part D or other creditable drug coverage, rounded to the nearest $0.10 and added to the monthly premium. Drug coverage from an employer, a union, TRICARE or the Department of Veterans Affairs is creditable when the plan’s annual notice says it is, and a break of 63 days or more in a row without creditable coverage starts the count. With an invented base premium of $41.25 and 23 uncovered months, the penalty is 0.23 x $41.25 = $9.4875, which rounds to $9.50 a month.

A person who qualified for a special enrollment period, or who has a Medicare Savings Program, may owe no Part B penalty. A person who receives Extra Help pays no Part D penalty.

Original Medicare, Medicare Advantage and Drug Plans

A Medicare Advantage plan is an alternative to Original Medicare. The enrollee must have Parts A and B, keeps paying the Part B premium, and receives Medicare-covered care through the plan, usually from its network and often with prior approval. The plan sets its own cost sharing and carries a yearly limit on out-of-pocket costs, which Original Medicare does not. Medicare supplement coverage does not work with it, because the plan’s copayments replace Original Medicare’s 20 percent. Selling a Medicare supplement policy to a person who is enrolled in Medicare Advantage is illegal unless the buyer is going back to Original Medicare.

A person who drops a Medicare supplement policy to join Medicare Advantage for the first time has a single 12-month trial period to return to Original Medicare and get a supplement policy back. Michigan’s chapter on Medicare supplement policies sets its own open enrollment and guaranteed-issue rules for these buyers (MCL 500.3829, 500.3830).

Part D is open to anyone with Part A or Part B. It comes as a separate drug plan added to Original Medicare or inside a Medicare Advantage plan. The enrollment calendar for a calendar year runs this way.

Dates	What happens
By September 30	A Medicare Advantage plan sends its Annual Notice of Change for the next January
By October 15	The plan sends its Evidence of Coverage
October 15 to December 7	Annual election period: join, switch or drop a Medicare Advantage or drug plan, or return to Original Medicare. Changes start January 1
January 1 to March 31	Medicare Advantage open enrollment: a Medicare Advantage enrollee can switch to another Medicare Advantage plan or to Original Medicare with a drug plan. Nobody can move from Original Medicare into Medicare Advantage or change drug plans in this period
Special enrollment periods	Examples: involuntarily losing creditable drug coverage, a plan ending or leaving the area, a move, or a change in Medicaid or Extra Help status

A producer who sells Medicare Advantage or drug plans must be licensed and appointed under state law, trained and tested every year with a score of at least 85 percent, and must obtain a documented scope of appointment before a personal marketing appointment (42 CFR 422.2274(b)). The training is annual, so a producer certified last year is not certified this year until the new test is passed.

Who Pays First When There Is Other Coverage

Medicare and other coverage coordinate, and the first payer pays up to its limits before the second pays anything. The order depends on the situation.

Situation	Pays first
Medicaid	Medicare
Retiree coverage from a former employer	Medicare
65 or older, covered through current work, employer has 20 or more employees	The employer plan
65 or older, covered through current work, employer has fewer than 20 employees	Medicare
Under 65 with a disability, current employer coverage, 100 or more employees	The employer plan
Under 65 with a disability, current employer coverage, fewer than 100 employees	Medicare
ESRD with employer group coverage, first 30 months of eligibility	The employer plan
ESRD with employer group coverage, after 30 months	Medicare

A multi-employer plan counts as large if the plans’ employers total 20 or more, or 100 or more for a person with a disability, even if the person’s own employer is small.

Priya is 66 and works for a company with 35 employees. Her employer plan pays first and Medicare second. She can delay Part B without a penalty and sign up during the eight months after her job or coverage ends. Tomas is 67 and works for a company with 12 employees. Medicare pays first for him, and the employer plan is the second payer. A second payer likely will not pay until the person has signed up for Part B, so Tomas should enroll in Part B during his initial enrollment period and ask his employer how the plan coordinates with Medicare.

For ESRD, the period when the employer plan pays first is called the coordination period, and a federal statute sets its length (42 U.S.C. 1395y(b)(1)(C)). During the 30 months that begin with the first month the person is entitled to Part A on the basis of ESRD, or the first month the person would have been entitled had they applied, if that is earlier, a group health plan may not take Medicare entitlement into account. It may also not treat people with ESRD differently from other members in the benefits it provides. After the 30 months, the plan may pay second to Medicare. Because the period starts with the month the person could have been entitled, putting off the application does not extend it.

Consider a person with employer coverage who starts regular dialysis on January 10, 2026 and does not begin home dialysis training. Entitlement to Medicare on the basis of ESRD begins on April 1, 2026, the fourth month of dialysis. The employer plan pays first for 30 months, April 2026 through September 2028, and Medicare becomes primary on October 1, 2028. The period applies regardless of the employer’s size or whether the person is still working. If the person later has another period of ESRD eligibility, a new coordination period is computed.

Medicaid Beside Medicare

Medicaid is a joint federal and state program. Each state sets its own income and resource limits within federal rules, so a producer sends a Michigan client to the state agency for current limits. People qualify by category (such as age 65 or older, blindness or disability) and by income and resources. Its benefits are broad, and Medicaid is the largest payer of long-term care in the country. Medicare pays first for someone who has both.

Four Medicare Savings Programs, run by the states, pay part of Medicare’s costs for people with limited income and resources:

• Qualified Medicare Beneficiary (QMB): pays Part A premiums if the person has to buy Part A, and Part B premiums. A Medicare provider cannot bill a QMB for Medicare deductibles, coinsurance or copayments.
• Specified Low-Income Medicare Beneficiary (SLMB): pays the Part B premium only.
• Qualifying Individual (QI): pays the Part B premium only, for people with no other Medicaid.
• Qualified Disabled and Working Individual (QDWI): pays the Part A premium only, for working people who lost premium-free Part A when they returned to work.

A person in QMB, SLMB or QI also qualifies automatically for Extra Help with drug costs.

Medicaid eligibility for nursing facility care turns on assets, so federal law looks back at transfers. A person who gives away assets for less than fair market value during the 60 months before applying is ineligible for nursing facility and similar care for a period of months. The period equals the total value transferred divided by the average monthly private cost of a nursing facility in the state. If Walter gave his daughter $90,000 and the state’s average monthly cost is $9,000 (an invented amount), the period is $90,000 / $9,000 = 10 months. A gift of $63,000 would produce 7 months. The state does not round fractions down. The period begins when Walter would otherwise be eligible and receiving institutional care. Federal law also bars long-term care coverage when home equity exceeds a federal cap, indexed each year, unless a spouse or a dependent child lives in the home.

Spend-down is the practical effect. A person whose resources exceed the limit generally pays for care from them until they fall to the limit, and then qualifies. After the person dies, the state is required to seek recovery from the estate of a person who received nursing facility and home and community-based services at 55 or older. Long-term care insurance interacts with these rules through partnership policies, which are covered with long-term care insurance itself.

Lesson summary

• CMS administers Medicare. Part A is financed by payroll taxes, Part B by premiums and general revenue, and Parts C and D are delivered by private plans.
• Part A cost sharing is counted by benefit period. In a worked claim, Plan A leaves the deductible and skilled nursing coinsurance with the beneficiary, Plan B adds the deductible, and Plan G pays all three.
• For 2026, the Part B deductible is $283, after which Medicare pays 80 percent. Plan G pays Part B coinsurance and excess charges but not the deductible. Plan N pays coinsurance less copayments of up to $20 and $50 and does not pay excess charges.
• Buyers new to Medicare on or after January 1, 2020 cannot buy Plan C or F and can buy D or G. Attained-age pricing starts lower and can cost more in total over a long ownership.
• The initial enrollment period is seven months around the 65th birthday. The general enrollment period runs January 1 to March 31. Part B, Part A and Part D penalties are permanent and computed from a premium that changes.
• Medicare Advantage replaces Original Medicare’s cost sharing, so a Medicare supplement policy cannot be sold alongside it. The annual election period runs October 15 to December 7.
• An employer plan pays first for a person 65 or older when the employer has 20 or more employees. For ESRD, the employer plan pays first for 30 months.
• Medicaid pays last. Transfers within 60 months of applying create a period of ineligibility equal to the amount transferred divided by the state’s average monthly nursing facility cost.