Millions of seniors rely on Medicare for health coverage in retirement, but new data tells us that a frightening number of older Americans are alarmingly clueless when it comes to some of the program's basic rules. In a recent MassMutual quiz distributed among older adults aged 60 to 64, 65% failed to answer most questions correctly.

Specifically, 42% of older workers thought that both Medicare Parts A and B are free. Additionally, 37% thought that filing for Medicare and Social Security together was a requirement. And 34% didn't know that Medicare won't pay for health coverage outside of the U.S.

Doctor holding older woman's hands.

IMAGE SOURCE: GETTY IMAGES.

If you're planning to get coverage from Medicare, it's imperative that you understand the program's ins and outs. Otherwise, you risk losing out on key benefits and facing higher-than-necessary healthcare costs you can't afford.

Understand your Medicare basics

Though Medicare is a somewhat complex program, there are certain rules you should know before applying. First, the program has several distinct parts. Part A covers hospital visits and is generally free for enrollees. Part B, meanwhile, covers doctor visits and diagnostics, and comes at a premium that, at present, starts at $134 per month but has the potential to increase based on your income. There's also Part D, which covers prescription drugs and, like Part B, charges a premium.

Of course, your total out-of-pocket spending under Medicare will depend on the extent to which you need to use its various services. But know that either way, you'll be looking at a monthly premium to factor into your retirement budget.

Another thing you must know about Medicare is that even though it and Social Security are interrelated, each program has its own distinct rules. While Medicare eligibility begins at age 65, you're allowed to claim Social Security as early as age 62. Doing so, however, will result in a reduction in benefits, because you're not eligible for those benefits in full until you reach full retirement age. That age is dependent on your year of birth, and it's either 66, 67, or 66 and a certain number of months.

Either way, if you rush to claim Social Security the moment you become eligible for Medicare coverage, you'll automatically slash your monthly benefits in the process, thereby reducing what could be your greatest source of income in retirement. Of course, you may come to find that you need that Social Security income once you turn 65 because you're no longer working or have expenses your earnings can't cover -- and that's fine. Just don't make the mistake of filing for benefits at 65 because you think you have to sign up in conjunction with Medicare.

Finally, while Medicare will give you access to a wide range of healthcare professionals within the country, it doesn't cover medical care outside the U.S. If you're planning to travel extensively in retirement, which many seniors do, you'll need to take steps to protect yourself from unforeseen health issues abroad. One good way to go about this is to sign up for a Medicare Advantage plan.

Medicare Advantage is essentially an alternative to traditional Medicare. When you sign up for an Advantage plan, you'll pay a premium that will generally include the items Medicare Parts A, B, and D cover collectively. But as a bonus, many Advantage plans include coverage for dental care, vision, and hearing services -- common items original Medicare won't pay for. And because many Advantage plans offer overseas health coverage, it's a good option to consider if you're planning to travel the globe later in life.

The more you know about Medicare, the better equipped you'll be to use and plan for it wisely. If you're nearing retirement, it pays to read up on how Medicare works -- especially if you've been in the dark about the program's basics thus far.

The Motley Fool has a disclosure policy.