Medicare & Healthcare Costs

Medicare has four parts. Think of them as four separate pieces of coverage you assemble into a plan.

Part A — Hospital insurance. Covers inpatient hospital stays, skilled nursing facility care (short-term, after a hospital stay), hospice, and some home health care. For most people, Part A is premium-free — you earned it through at least 10 years (40 quarters) of paying Medicare taxes while working. If you do not have enough work history, Part A has a monthly premium, and it is not cheap.

Part B — Medical insurance. Covers doctor visits, outpatient care, preventive services, lab tests, and durable medical equipment (walkers, wheelchairs). Part B has a monthly premium that changes each year — it is deducted from your Social Security check if you receive one. Higher-income retirees pay more (these are called income-related monthly adjustment amounts, or IRMAA — surcharges based on your income from two years earlier). Part B also has an annual deductible and typically covers 80% of approved costs, leaving you responsible for the other 20% — with no annual cap. That uncapped 20% is exactly why almost everyone adds supplemental coverage.

2026 snapshot (CMS, announced November 2025): the standard Part B premium is $202.90 per month, and the Part B annual deductible is $283. IRMAA surcharges apply above $109,000 of 2024 income for single filers ($218,000 for joint filers), topping out at $689.90 per month for Part B at the highest incomes. These numbers change yearly — check medicare.gov for the current ones.

Part D — Prescription drug coverage. Covers prescription medications. Part D is sold by private insurance companies approved by Medicare, and you pay a monthly premium plus copays that vary by drug tier. If you do not enroll when first eligible and go without creditable drug coverage, a late-enrollment penalty accrues — a small percentage added to your premium for every month you were eligible but uninsured, and it lasts for as long as you have Part D. In other words: enroll on time even if you take no medications today.

Part C — Medicare Advantage. This is not a fourth piece alongside the others — it is an alternative way to receive your Medicare benefits. Private companies offer Medicare Advantage plans that bundle Parts A, B, and usually D into one plan, often with extras like dental, vision, and hearing coverage. You still pay your Part B premium, and the plan may charge its own additional premium (many charge $0 beyond Part B). In exchange, you generally must use the plan's network of doctors and hospitals, and the plan manages your care — including requiring prior authorization for some services.

So your real choice at 65 is between two paths: Original Medicare (Parts A + B + D, plus a Medigap supplement) or a Medicare Advantage (Part C) plan. Everything else is detail.

This is the most consequential healthcare decision most retirees make, and both options are legitimate. Here is how they actually compare.

Medigap (Medicare Supplement Insurance)

• A private policy that pays the costs Original Medicare does not — the 20% coinsurance, deductibles, and other gaps.
• You can see any doctor or hospital in the country that accepts Medicare. No networks, no referrals.
• Your costs are highly predictable: a monthly premium (which varies by plan letter and location) plus Part B and Part D premiums, and very little out-of-pocket beyond that.
• Tradeoffs: higher total monthly premiums; you must buy a separate Part D drug plan; Medigap does not cover dental, vision, or hearing (you buy those separately or pay out of pocket); and — critically — in most states, if you do not buy Medigap when first eligible at 65, insurers can later charge you more or deny you based on health (medical underwriting). The guaranteed-issue window at 65 is precious.
• Best for: people who want maximum freedom of doctors, predictable costs, and no insurance company second-guessing their care — and who can afford the premiums.

Medicare Advantage (Part C)

• One plan, one card, often with $0 additional premium beyond Part B, frequently including drug coverage plus dental, vision, and hearing benefits.
• Annual out-of-pocket maximum — a cap on what you pay in a bad year, which Original Medicare alone does not have.
• Tradeoffs: restricted provider networks (HMO-style plans generally cover only in-network care except emergencies); prior authorization requirements — the plan can require approval before covering procedures, which means delays and occasional denials; networks and benefits can change every year; and if you develop a serious illness, you may find the best specialists are out of network.
• Best for: people who are relatively healthy, comfortable staying in a network, and want lower premiums with extra benefits — and who are willing to re-shop the plan every year during open enrollment.

The one-line version: Medigap buys freedom and predictability at a higher monthly price. Medicare Advantage buys lower premiums and extra perks at the price of networks and managed care. Neither is a scam; they are different philosophies. Pick the philosophy that fits your health, your doctors, and your budget — and revisit it every fall during the annual election period (October 15 to December 7), when you can switch Advantage plans or between Advantage and Original Medicare.

Medicare punishes lateness. Mark these dates.

Your Initial Enrollment Period (IEP). A seven-month window: the three months before the month you turn 65, your birthday month, and the three months after. Enroll in Parts A and B during this window and you avoid penalties. Miss it without qualifying coverage, and the Part B penalty is 10% added to your premium for every 12-month period you were eligible but not enrolled — and that penalty lasts for the rest of your life. The Part D penalty accrues monthly and also lasts as long as you carry Part D.

Still working at 65 with employer coverage? If you (or your spouse) have group health coverage through current employment — not retiree coverage, not COBRA — you generally get a Special Enrollment Period: you can delay Parts B and D without penalty and enroll later, within 8 months after the employment or coverage ends. This is the single most common exception, and it is the one people mess up most often by confusing retiree coverage or COBRA with active employment coverage. When in doubt, call Medicare or your benefits office before your 65th birthday.

A critical HSA warning. A health savings account (HSA) is a tax-advantaged account paired with a high-deductible health plan: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. It is one of the best savings vehicles in existence — but you cannot contribute to an HSA once you enroll in any part of Medicare, including premium-free Part A. Worse, if you are receiving Social Security at 65, you are automatically enrolled in Part A — which retroactively ends HSA eligibility up to six months back, creating excess-contribution headaches. If you plan to work past 65 and keep funding an HSA, you must actively delay both Social Security and Medicare Part A. Get advice on this specific point; it is a trap for the unwary.

Annual Election Period: October 15 – December 7. Every fall, you can change Medicare Advantage plans, switch between Advantage and Original Medicare, or change Part D plans. Plans change their networks, drug lists, and costs every year — re-shop annually even if you are happy, because "happy" may be based on last year's terms.

Nobody can give you an exact number, because it depends on your health, your state, your plan choices, and how long you live. But you need a realistic order of magnitude, so here it is, qualitatively:

• Premiums alone — Part B, plus a Medigap or Advantage plan, plus Part D — typically run several hundred dollars per month per person, and higher-income retirees pay IRMAA surcharges on top.
• Out-of-pocket costs — deductibles, copays, coinsurance — add thousands more per year in an average year, and far more in a bad year.
• Over a full retirement, a typical couple's lifetime healthcare spending routinely reaches into the hundreds of thousands of dollars — one of the largest line items in any retirement budget, rivaling housing.

The honest way to plan: budget healthcare as a major, recurring, inflation-beating expense — not as an afterthought. Build it into your withdrawal plan (Module 5) as its own line item, assume it grows faster than general inflation, and keep a reserve for the bad years. The retirees who get blindsided are almost always the ones who budgeted for premiums and forgot everything else.

This section may be the most valuable in the module. Medicare is broad, but its gaps are exactly where retirees get hurt.

• Long-term care. This is the big one. Medicare does not cover custodial long-term care — the help with bathing, dressing, eating, and daily living that most people eventually need, whether at home, in assisted living, or in a nursing home. It covers only short-term skilled nursing after a hospital stay (up to 100 days, with cost-sharing after day 20). A multi-year nursing home stay can cost several hundred thousand dollars, and Medicare will not pay for it. Module 11 covers long-term care insurance and elder-care options in depth — read it as carefully as this one.
• Dental, vision, and hearing (under Original Medicare). Routine dental work, dentures, eye exams for glasses, and hearing aids are generally not covered by Parts A and B. (Many Medicare Advantage plans include some of these — one of their genuine selling points.)
• Most care outside the United States. Original Medicare generally does not cover healthcare abroad. If you plan to travel or live overseas in retirement, you need separate coverage — see Module 9.
• Cosmetic procedures, most alternative medicine, and private-duty nursing are excluded.
• Prescription drugs are only covered if you have Part D or an Advantage plan with drug coverage — there is no drug coverage in Parts A and B alone.

The pattern: Medicare covers medical care well and custodial, routine, and lifestyle care poorly or not at all. Plan and budget for the gaps deliberately instead of discovering them in a crisis.

Higher-income retirees pay more for Medicare — through income-related monthly adjustment amounts (IRMAA, pronounced "erma"). Here is how it works, because it surprises people constantly:

• Each year, Medicare looks at your tax return from two years ago. High modified adjusted gross income (MAGI) in that year means surcharges on your Part B and Part D premiums this year.
• The surcharges come in tiers — several income brackets, each adding a larger amount to the standard premium. At the top tier, premiums can be several times the standard amount.
• The trap: a one-time income spike — selling a business, a large Roth conversion, cashing out investments — can trigger two years of surcharges. This is manageable if planned (Module 7 covers how to time Roth conversions around IRMAA), but brutal as a surprise.
• The good news: if your income drops due to a life-changing event — retirement, divorce, death of a spouse — you can file Form SSA-44 to appeal and have the surcharge reduced based on your current income. Many new retirees do not know this form exists. Now you do.

The planning lesson: in the years around retirement, every large financial move should be checked against its IRMAA effect two years out. Your tax adviser should be asking about this; if they are not, ask them.

Medicare starts at 65 (with rare exceptions for disability). If you retire at 62 or 63, you need a bridge — and this is one of the most expensive stretches in retirement planning, because private health insurance for someone in their early sixties is costly.

Your options, briefly:

• A spouse's employer plan. If your spouse is still working, joining their coverage is usually the cheapest bridge available.
• COBRA. Federal law lets you continue your former employer's plan for up to 18 months after leaving — but you pay the full premium plus an administrative fee, which is often shocking the first time you see it.
• The ACA marketplace (healthcare.gov). Plans sold on the Affordable Care Act exchanges, where premium tax credits are based on income. Here is the strategic part: in early retirement, before Social Security and required minimum distributions begin, your taxable income is often low — which can mean substantial subsidies. Managing your income deliberately in these bridge years (living off Roth or taxable accounts, doing careful Roth conversions) can cut your health insurance cost dramatically. This is advanced coordination, and it is worth professional help.
• Part-time work with benefits. Some employers — including certain large retailers and public-sector jobs — offer health coverage to part-time workers. For some early retirees, 20 hours a week is really about the insurance.

The "Bridging the Gap Before 65" section above covers your options in detail. The point here: do not retire at 62 assuming healthcare will sort itself out. Price the bridge before you cross it.

These are the expenses that nickel-and-dime retirees because Original Medicare does not cover them and people forget to budget for them. A crown can cost well over a thousand dollars. Hearing aids run several thousand per pair. Glasses, exams, cleanings — none of it is covered by Parts A and B.

Your options: many Medicare Advantage plans include limited dental, vision, and hearing benefits (check the annual caps — they are often modest). Standalone dental and vision policies exist but are frequently poor value — the premiums plus copays can approach what you would pay out of pocket, so run the numbers honestly. The most practical approach for many retirees is a dedicated sinking fund: a few thousand dollars set aside specifically for teeth, eyes, and ears, replenished yearly. Unromantic, but it beats the surprise bill.

If you are approaching 65, here is the order of operations:

1. Six months before 65: Decide whether you will keep working with qualifying employer coverage. If yes, confirm in writing how it coordinates with Medicare, and decide about Part A vs. your HSA. If no, prepare to enroll.
2. Three months before 65: Your Initial Enrollment Period opens. Enroll in Parts A and B (and choose your path: Medigap + Part D, or Medicare Advantage).
3. If choosing Medigap: Buy it during your six-month Medigap open enrollment (starts the month you are 65+ and enrolled in Part B) — this is your guaranteed-issue window with no medical underwriting in most states. Buy a standalone Part D plan at the same time.
4. If choosing Medicare Advantage: Compare plans at medicare.gov — check that your doctors and hospitals are in-network and your prescriptions are on the plan's drug list. Do not pick on premium alone.
5. Every October 15 – December 7 thereafter: Re-shop. Plans change annually; your health changes too.

• Medicare has four parts: A (hospital, usually premium-free), B (doctors/outpatient, monthly premium, 80/20 cost-sharing with no cap), D (prescription drugs, private plans), and C (Medicare Advantage — a bundled private-plan alternative to A+B+D).
• Your core choice is Original Medicare + Medigap + Part D (freedom, predictability, higher premiums) versus Medicare Advantage (lower premiums, extra benefits, networks and prior authorization). Both are legitimate; pick the philosophy that fits you and re-shop every fall.
• Enroll during your seven-month Initial Enrollment Period around age 65. Late enrollment in Part B adds 10% per year to your premium for life; Part D penalties also last indefinitely.
• Still working at 65 with employer coverage? You generally get a Special Enrollment Period — but retiree coverage and COBRA do not count. Confirm before your birthday.
• You cannot contribute to an HSA once enrolled in any part of Medicare, including premium-free Part A. If you want to keep funding an HSA past 65, you must delay Social Security and Part A — get advice on this.
• Budget healthcare as one of your largest retirement expenses: premiums of several hundred dollars a month per person plus out-of-pocket costs, totaling hundreds of thousands over a full retirement for a typical couple.
• Medicare does NOT cover long-term custodial care, routine dental/vision/hearing (under Original Medicare), or most care abroad. Module 11 covers long-term care in depth.