A Guide to Commonly Misunderstood Medicare Terms
For those new to Medicare, it helps to first get up to speed on some of the basic terms. Understanding these definitions will make it easier to compare plans and choose the coverage that best fits your needs.
What’s the difference between Medicare and Medicaid?
Medicare is the federal health insurance program for people age 65 and older, as well as younger individuals with certain disabilities.
Medicaid is a joint federal and state program providing health coverage for people with limited incomes.
What’s the difference between Medicare Part C and Medicare Advantage?
Both terms refer to the same thing. Medicare Advantage (Part C) plans are offered by private insurance companies instead of Original Medicare. These plans include all the benefits of Parts A and B, and may also offer:
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Prescription drug coverage
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Extra benefits such as vision, dental, hearing, and fitness memberships
What’s the difference between Parts A and B, and Original Medicare?
Original Medicare consists of two parts:
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Part A: Hospital coverage (inpatient care, skilled nursing facility care, some home health care).
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Part B: Medical coverage (doctor visits, preventive services).
These two parts together are known as Original Medicare.
What’s the difference between
Medicare Supplement and Medigap?
Don’t be confused by these terms — they mean the same thing. For those on Original Medicare, you can buy additional coverage through private insurance companies. This coverage can help pay for costs that are not covered, such as copayments, coinsurance and deductibles.
What’s the difference between an HMO and PPO plan?
Medicare Advantage HMO Plans:
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Require you to stay within a provider network
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Are typically more affordable
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Offer coordinated care across a narrower network
Medicare Advantage PPO Plans:
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Provide more flexibility and a larger network
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Allow out-of-network visits (often at a higher cost)
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May include a higher monthly premium
What is a formulary?
A formulary is the list of prescription drugs that a plan covers. Drugs are placed into pricing tiers — the lower the tier, the lower the cost. Plans may organize their tiers differently, but tiers always impact what you pay.
We’ve also included some basic health insurance terms that are helpful for understanding your Medicare coverage.
- Premium: Monthly amount you pay for coverage.
- Deductible: Amount you pay before Medicare or your plan begins paying.
- Coinsurance: The percentage of costs you pay (e.g., 20%).
- Copayment (Copay): A set dollar amount you pay (e.g., $40).
- Out-of-Pocket Maximum: The most you will pay in a year for covered services. After reaching this amount, your plan pays 100% of covered services.
Now that you’re familiar with the basics, you’re better prepared to compare Medicare plans and make informed decisions that support your health goals.