Like it or not, you need to embrace this convoluted health-care program. Here's a guide to how it works.

Do yourself a favor and don't ignore that Medicare handbook you receive in the mail right before your 65th birthday. It won't read like a John Grisham thriller, but it will provide you with important information on how your health-care coverage is about to change.

And consider yourself warned: Dump this in your "I'll deal with it later" pile of paperwork, and you could miss crucial deadlines, leaving yourself without comprehensive health insurance and ultimately paying much more for your health benefits than necessary.

The key to maximizing Medicare is understanding the system and the options it presents. Unfortunately, this is easier said than done. "(Medicare) can leave people bewildered and perplexed about their choices," says Ron Pollack, executive director of Families USA, a consumer advocacy group. "And it is only getting more complex." These days, retirees have little choice but to keep abreast of continual changes in coverage, reimbursement rates and the revolving Medicare-endorsed private managed care plans called Medicare Advantage available in their area.

Seniors can also bet their Social Security checks that Medicare is only going to get more convoluted now that President Bush has signed new Medicare legislation. The good news is that seniors will finally get a drug benefit. The bad news is that the majority of changes under Medicare reform won't be implemented until 2006. That leaves those nearing age 65 little choice but to take a wait-and-see approach, basing decisions on the options currently available.

In this article, we start with the basics. Here's what you need to know before your 65th birthday.

Medicare 101
So what is Medicare? Simply put, it's health insurance for seniors. This federal program, administered by the Centers for Medicare & Medicaid Services (CMS), boasts a network of nearly 778,000 health-care professionals and more than 6,000 hospitals across the country. Whether you're a snowbird or a ski bunny, a Medicare doctor should never be more than a few miles away.

At the core of this program is what's known as the Original Medicare Plan, a fee-for-service program that's made up of two components: Medicare Part A and Part B. Medicare Part A is hospital insurance, which covers everything from general hospital stays to rehabilitation in a nursing home for acute illnesses. Most people don't have to pay a premium for Part A since they paid Medicare taxes during their working days.

Medicare Part B is basic medical insurance that covers services ranging from doctors' visits and outpatient hospital care to some physical and occupational therapy and even some home health care. For 2005, most people will pay $78.20 a month, or nearly $940 a year, for this coverage. That's a remarkably good deal: Consider that the average group health plan charges $3,384 annually (including the employer contribution). "Medicare is the best buy in the country," says Irene Card, a Medicare expert and owner of MIC Insurance Services. "For $78.20 you have phenomenal coverage."

This may be true, but it can still leave a lot of holes in one's coverage. Seniors who opt for Medicare's Original plan (also known as traditional Medicare) often find themselves paying well beyond their monthly premiums. According to the Kaiser Family Foundation, a nonprofit focused on health-care policy, Medicare pays only 56% of beneficiaries' total health-care expenditures. As a result, 87% seniors opt for some sort of supplemental insurance.

The biggest category of noncovered items: prescription drugs, which can cost thousands of dollars a year for people on pricey maintenance medications. Unfortunately, the new drug discount cards won't offer seniors much relief, since it will provide only a 10% to 25% discount from retail prices. That's why most Medicare experts advise retired folks to purchase additional coverage to supplement Medicare. The choices range from inexpensive but somewhat restrictive Medicare HMOs to more costly Medigap plans. For more on how to choose a plan, click here. Below, we'll stick with the basics.

Who's Eligible?
Virtually everyone age 65 and older is eligible for Medicare. You or your spouse simply needs to be eligible for Social Security, Railroad Retirement benefits (for former railroad employees) or Civil Service Retirement benefits (for former federal employees).

Indeed, even if you haven't paid enough into the Medicare system to receive full benefits you may still be able to purchase the health insurance at a higher premium. It's also available for people under age 65 with certain disabilities, and for those suffering from end-stage renal disease (severe kidney problems). And unlike other federal programs, such as Medicaid (which targets the poor), there are no income limits restricting people from joining Medicare. So regardless of whether you live luxuriously or modestly, Medicare will most likely be your primary health insurance.

For additional questions about eligibility, call the Social Security Administration at 800-772-1213 or contact your local Social Security office.

For those turning 65, the enrollment process is fairly straightforward. "Much of what needs to happen is automatic," says Trisha Neuman, a Medicare expert with the Kaiser Family Foundation.

If you're collecting Social Security income, you should receive your Medicare card in the mail three months before your 65th birthday. You're then automatically registered for Medicare Part A and can voluntarily sign up for Part B up to three months after your birthday. This is your open-enrollment period. (Don't wait until the last minute to sign on the dotted line, since this could delay your coverage.)

If you opt for Part B, Uncle Sam will simply deduct the $78.20 monthly premium from your Social Security, Railroad Retirement or Civil Service Retirement check. If you don't receive benefits from these programs, the government will send you a bill every three months. Once you sign up for Part B, your open enrollment for a Medicare Advantage or a supplemental plan begins. Participants then have six months to decide if they want to purchase additional coverage.

In other words, right around age 65, you have some serious decisions to make. And if you mess this up, it will cost you. The only time the government allows someone age 65 or older to postpone enrollment in Medicare Part B penalty free is when that person or a spouse is working full time and receiving health-insurance benefits from that employer. In this scenario, it's often beneficial to stick with your employer's plan, since it's usually heavily subsidized and more comprehensive than Medicare, says the Kaiser Family Foundation's Neuman. (For more on this, see our story.) Once you or your spouse officially retire, however, you must notify Social Security and activate your open-enrollment period.

Keep in mind, warns MIC Insurance's Card, that if you're not already collecting Social Security, you need to be proactive about enrolling in Medicare. To do so, you must contact your local Social Security office. "If you aren't collecting Social Security, the government doesn't know you exist," she says. And the open-enrollment period is the same for everyone, whether the government sends you a card in the mail or not.

Missed Opportunities
Medicare is not forgiving. If you don't act during your initial enrollment period you could find yourself without health insurance for a significant length of time. Should you miss your six-month window, you'll have to wait until the following enrollment period (Jan. 1 through March 31 of the following year) to sign up for Medicare Part B. (Remember, Part A is usually automatic.) Coverage would then begin the following July.

Not only does this mean you could go months with no basic medical coverage, but you'll also pay more for your plan once you enroll. The government will penalize you an additional 10% on top of your policy for every year you're eligible for Part B Medicare that you don't sign up. "That can be a huge financial burden," says the Kaiser Family's Neuman.

More important, insurance companies that sell supplemental insurance are under no obligation to sell you a plan with prescription-drug benefits once you miss your initial open-enrollment period. You'd then be subject to medical tests to see if you're healthy enough to qualify for their plans. Needless to say, if you aren't in good health, this could be financially devastating.

Bottom line? Pay attention to deadlines here. Your health and your wallet are at stake.

Help, Please
Still have questions? For basic information, check out the CMS's Web site. Nonprofit organizations such as the Kaiser Family Foundation and AARP are also good resources for Medicare info. For individual help, visit your local State Health Insurance Program office for counseling and assistance with questions. You could also call the Medicare hotline at 800-Medicare.