Medicare is a federal government program that helps older folks and some disabled people pay their medical bills and prescription drug costs. The program is divided into three parts: Part A, Part B, and Part D. Part A is called hospital insurance and covers most hospital stay costs, as well as some follow-up costs. Part B, medical insurance, pays some doctor and outpatient medical care costs. Part D covers some prescription drug costs.

Anyone age 65 or over is eligible for Medicare. Most people age 65 and over are covered under Medicare Part A for free, based on their work records or on their spouse's work records.

People over 65 who are not eligible for free Medicare Part A coverage can enroll in it and pay a monthly fee for the same coverage. The premium base rate depends on the number of work credits you've earned. However, this rate increases by 10% for each year after your 65th birthday that you wait to enroll. If you enroll in paid Part A hospital insurance, you must also enroll in Part B medical insurance, for which you pay an additional monthly premium.

All rules about how much Medicare Part A pays depend on how many days of inpatient care you have during what is called a "benefit period," or spell of illness. The benefit period begins the day you enter the hospital or skilled nursing facility as an inpatient and continues until you have been out for 60 consecutive days. If you are in and out of the hospital or nursing facility several times but have not stayed out completely for 60 consecutive days, all of your inpatient bills for that time will be figured as part of the same benefit period.

Medicare Part A pays only certain amounts of a hospital bill for any one benefit period -- and the rules are slightly different depending on whether the care facility is a hospital, psychiatric hospital, or skilled nursing facility, or whether care is received at home or through a hospice.

All people covered by Medicare Part A must pay an initial amount before Medicare will pay anything. This is called the hospital insurance deductible. The deductible is increased every January 1.

For gaps in what Medicare Part A covers, including deductibles and co-insurance amounts, see Medigap: Covering the Gaps in Medicare.

The rules of eligibility for Part B medical insurance are simpler than for Part A: If you are age 65 or over and are either a U.S. citizen or a permanent resident who has been here lawfully for five consecutive years, you are eligible to enroll in Medicare Part B medical insurance. This is true whether or not you are eligible for Part A hospital insurance.

Part B medical insurance is intended to help pay doctor bills for treatment in or out of the hospital. It also covers many medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment, and tests and services provided by clinics and laboratories.

The lists of services specifically covered and not covered are long and do not always make a lot of sense, but making the effort to learn what is and is not covered can be important. You may get the most benefits by fitting your medical treatments into the covered categories whenever possible.

Part B insurance pays for:

• doctor services (including surgery) provided at a hospital, a doctor's office, or your home
• mammograms, pelvic exams, bone density tests, and PAP smears for women
• an annual flu shot
• a one-time physical exam (called a "wellness exam") done within six months of when you enroll in Medicare Part B
• medical services provided by nurses, surgical assistants, or laboratory or X-ray technicians
• outpatient hospital treatment, such as emergency room or clinic charges, X-rays, injections, and lab work
• an ambulance, if required for a trip to or from a hospital or skilled nursing facility
• drugs or other medicine administered to you at a hospital or doctor's office (for prescription drug benefits, consider enrolling in Medicare Part D, discussed below)
• medical equipment and supplies, such as splints, casts, prosthetic devices, body braces, heart pacemakers, corrective lenses after a cataract operation, glucose monitoring equipment, and therapeutic shoes for diabetics, and equipment such as ventilators, wheelchairs, and hospital beds
• some kinds of oral surgery
• some of the cost of outpatient physical and speech therapy
• a limited number of services by podiatrists and optometrists
• some care and counseling by psychologists, social workers, and daycare personnel
• some preventative screening exams, such as for cancer, glaucoma, and osteoporosis; as well as diabetes and heart disease, but only if your doctor says you're at risk for them
• manual manipulation of out-of-place vertebrae by a chiropractor
• Alzheimer's-related treatments
• scientifically proven obesity therapies and treatments, and
• part-time skilled nursing care, physical therapy, and speech therapy provided in your home.

When all of your medical bills are added up, you will see that Medicare pays, on average, only about half the total. There are three major reasons why it pays so little.

First, Medicare does not cover a number of major medical expenses, such as routine physical examinations, medications, glasses, hearing aids, dentures, and a number of other costly medical services.

Second, Medicare pays only a portion of what it decides is the proper amount -- called the approved charges -- for medical services. When Medicare decides that a particular service is covered, it determines the approved charges for it. Part B medical insurance then usually pays only 80% of those approved charges; you are responsible for the remaining 20%.

Note, however, that there are now several types of treatments and medical providers for which Medicare Part B pays 100% of the approved charges rather than the usual 80%. These categories of care include home health care, clinical laboratory services, and flu and pneumonia vaccines.

Finally, the approved amount may seem reasonable to Medicare, but it is often considerably less than what doctors actually charge. If your doctor or other medical provider does not accept assignment of the Medicare charges, you are personally responsible for the difference.

Anyone entitled to Medicare Part A (whether actually enrolled or not) or who is currently enrolled in Medicare Part B may join Medicare Part D to get help paying prescription drug costs. Enrollment is voluntary except for people who also receive benefits from Medicaid (Medi-Cal in California). If you qualify for Medicaid, the government automatically enrolls you in a Medicare Part D plan through which you will receive your prescription drug coverage. For more information about Part D, see Medicare Part D Prescription Drug Coverage: The Basics. For help choosing a Part D plan, see Medicare Part D: Choosing a Prescription Drug Plan.

There are four types of costs associated with Medicare Part D prescription drug coverage: premiums, deductibles, copayments, and a coverage gap during which period you must pay the full cost of your medications. People with low incomes may apply for a subsidy from the Social Security Administration to reduce these costs.

In 2008, Part D premiums range from $0-$50 per month (depending on the plans available in your town and on the partiular plan you choose). The deductible -- the amount you must pay out-of-pocket before Medicare will contribute to your prescription costs -- for most plans in 2008 is $275. After you meet the deductible, Medicare will pay roughly 75% of your prescription costs. However, after you and your plan together pay a certain amount for covered prescription drugs ($2,510 in 2008), your plan stops paying anything and you must pay the full cost of the prescription. The plan begins to pay again -- and pays more of the cost than before you fell into the coverage gap -- when total expenditures reach a "catastrophic" level ($4,050 in 2008).