Part A

Most seniors automatically receive free Part A coverage when they retire. Also known as hospital insurance, this coverage helps pay for hospital care, some care administered at home or at skilled nursing facilities, and hospice care.

U.S. workers and employers' payroll taxes primarily fund this coverage. The taxes paid each year are mainly used to pay for those currently receiving Medicare. Remaining funds are put into the Medicare Part A fund, the Hospital Insurance Trust Fund.

Part A covers inpatient hospital costs for stays of 60 days or less after the patient pays an $840 deductible. For the next 30 days, patients must pay $210 a day. That figure rises to $420 for stays of 91 to 150 days. After 150 days, Medicare no longer helps pay hospital bills. Once a beneficiary has been out of the hospital for 60 days, a new benefit period begins -- meaning that a patient would essentially start over and repay the $840 deductible for the first 60 days of coverage.

Medicare Part A also helps cover the cost of some types of short-term home care. When ordered by a doctor, Medicare will cover short-term stays in nursing homes. The program does not cover long-term nursing home care. Patients usually use personal savings, long-term care insurance or Medicaid to fund that type of care.

Part B

Medicare Part B, or supplementary medical insurance, helps cover the cost of doctor visits and outpatient hospital care.

Those who sign up for Medicare Part B pay a monthly premium that covers roughly 25 percent of Part B's program costs, with the government providing the rest of the funding through federal budget spending. The premium was set at $58.70 a month for 2003 and is usually taken out of beneficiaries' Social Security checks.

Patients pay the first $100 of services and supplies covered under Part B. After that deductible is paid, Medicare covers part of approved medical costs. Part B pays 80 percent of the cost of "medically necessary" doctor appointments, with beneficiaries paying the other 20 percent. It does not cover routine check-ups.

Medicare also helps pay for outpatient hospital services -- such as X-rays, emergency room visits, getting stitches and other services that do not keep patients in the hospital longer than 24 hours.

Some preventative care -- including colorectal cancer screening, mammograms, prostate cancer screening and flu shots -- is covered under Medicare. For the covered preventative services, Medicare usually either picks up 80 percent of the costs or pays the full amount.

Medicare helps pay for a very limited selection of prescription drugs, including some oral cancer drugs, and drugs administered by doctors. When these drugs are covered, beneficiaries are responsible for 20 percent of the Medicare-approved drug cost.

The lack of prescription drug coverage is a common cause of complaints among Medicare beneficiaries. Lawmakers on Capitol Hill continue to debate whether to add this benefit to Medicare and how best to structure any possible prescription drug coverage.

-- By Karyn Schwartz, Online NewsHour