A guide to the most commonly misunderstood Medicare terms

As you approach retirement age, you may be starting to think ahead to the future. What are your health coverage options? For those new to Medicare, it helps to first get up-to-speed on some of the basic terms. That way, when it’s time to make these important health care decisions, you’ll be better prepared to choose a plan that fits your needs. 

Read on to decode some of the more commonly misunderstood Medicare terms. (You might even be surprised to realize how much you already know!)   

What’s the difference between Medicare and Medicaid?

Medicare is the federal health insurance program for people 65 and older and younger people with certain disabilities. Read more on getting Medicare when you have a disability. Medicaid is a joint federal and state program that provides health coverage for people with limited incomes. 

What’s the difference between Original Medicare and Parts A and B?

They mean the same thing. Original Medicare, the federal health program, includes two parts: Part A (hospital coverage) and Part B (medical care). Part A typically covers inpatient care in a hospital or skilled nursing facility, and home health care. Part B usually covers doctor visits and preventive services. Visit “Unpacking the Parts of Medicare” to learn more.

What’s the difference between Medicare Part C and Medicare Advantage?

Both terms refer to the same thing. Instead of Original Medicare from the federal government, you can choose a Medicare Advantage plan (Part C) offered by a private insurance company. These plans include all of the benefits and services of Parts A and B. They may include prescription drug coverage as part of the plan. In addition, Medicare Advantage plans may offer extra benefits and services, such as vision, dental and hearing coverage, and fitness memberships. Visit “Unpacking Medicare Advantage” for more info.  

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 to 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 usually require you to stay within a network. It’s an affordable option for people who are working with a variety of physicians and would benefit from coordinated care across a network of local providers. The choice of specialists is narrowed to keep costs lower.

Medicare Advantage PPO plans offer more flexibility and choice in a wide network of providers. You may visit doctors, specialists or hospitals out of network, but it may cost more. Some PPO plans may have a higher monthly premium than HMO plans.

What is the donut hole in Medicare?

The donut hole refers to a gap in coverage, during which you may have to pay more for your prescription drugs. Here’s how it works:

What is a formulary?

This is a list of prescription drugs that’s covered by the plan. To lower costs, many plans place drugs into different tiers — or pricing categories — on their formularies. Drugs on each tier cost a different amount, and plans can structure their tiers in different ways. Generally, the lower the tier, the less you pay.

We’ve also included some basic health insurance terms that are helpful for understanding your Medicare coverage.