You Planned for Retirement Healthcare—But Did You Account for These Medicare Expenses?

Key Takeaways

• Even with Medicare, you will face out-of-pocket expenses that can significantly affect your retirement budget.

• Costs like premiums, coinsurance, prescription drugs, and uncovered services add up quickly if not accounted for in advance.

You May Have Planned Around Premiums, But They’re Only the Beginning

Medicare isn’t free. While you might have budgeted for monthly premiums, there’s much more to consider when estimating your true retirement healthcare expenses.

In 2025, the standard monthly premium for Medicare Part B is $185. That’s just to maintain coverage. Depending on your income level, you may pay more due to Income-Related Monthly Adjustment Amounts (IRMAA). Similarly, Medicare Part A is premium-free only if you paid Medicare taxes for at least 40 quarters. If you didn’t, your monthly premium for Part A could reach up to $518.

Even if you qualify for premium-free Part A, you still face deductibles and coinsurance. Part A has a deductible of $1,676 per benefit period, and you may be responsible for daily coinsurance after 60 days of hospitalization.

Deductibles Add Up Faster Than You Think

Each part of Medicare comes with its own deductible, and these can be recurring within a calendar year depending on your care needs.

• Part A deductible applies per benefit period, not annually. A new benefit period begins after 60 days without inpatient care.

• Part B deductible is $257 annually in 2025. After you meet this deductible, you typically pay 20% of the Medicare-approved amount for most outpatient services.

• Part D deductible can go up to $590 in 2025. Many plans don’t apply the deductible to all drugs, but you should prepare for this cost if you use brand-name or specialty medications.

Missing these in your retirement budget may leave you vulnerable to surprise expenses early in the year.

Coinsurance: The Silent Expense That Follows Every Visit

Unlike a fixed copayment, coinsurance is a percentage of costs. This makes it harder to predict. Here’s where it hits you:

• Part B coinsurance is typically 20% after meeting the deductible. This includes doctor visits, outpatient therapy, durable medical equipment, and diagnostic tests.

• Part A coinsurance kicks in after day 60 of an inpatient hospital stay. You pay $419 per day for days 61–90, and $838 per day after that, using lifetime reserve days.

• Skilled nursing facility care has no coinsurance for the first 20 days. But from day 21 to 100, you’ll pay $209.50 per day.

These are not rare situations. Long hospital stays or rehab can make coinsurance a major line item.

Prescription Drug Costs Aren’t Fully Covered

In 2025, Medicare Part D has introduced a $2,000 annual cap on out-of-pocket prescription drug costs. This change eliminates the coverage gap (previously known as the donut hole), but that doesn’t mean drug costs are negligible.

Before you reach the $2,000 cap, you’ll pay out-of-pocket for:

• Deductible phase: Up to $590

• Initial coverage phase: 25% of medication costs until total drug expenses reach a certain threshold

Even after the cap, you’ll need to be enrolled in a plan that participates in the new structure. Opting out of drug coverage could mean bearing the full cost of medications or facing late penalties if you enroll later.

Late Enrollment Penalties Can Stay With You for Life

Some Medicare costs are avoidable, but only if you enroll on time. Delaying enrollment in Part B or Part D when you don’t have creditable coverage leads to penalties that don’t go away.

• Part B late enrollment penalty adds 10% for each 12-month period you were eligible but not enrolled. You pay this penalty for as long as you have Part B.

• Part D late enrollment penalty is calculated as 1% of the national base beneficiary premium multiplied by the number of months you didn’t have coverage. This penalty also lasts as long as you keep Part D.

Failing to factor these into your planning can permanently increase your monthly healthcare costs.

Some Services Are Only Partially Covered—or Not at All

Medicare doesn’t cover every service. Some services are only partially covered, and others not at all, unless you have supplemental insurance.

Partial or limited coverage:

• Chiropractic care (only spinal manipulation is covered under specific conditions)

• Physical therapy (limited sessions unless medically necessary)

• Ambulance services (only medically necessary and to the nearest facility)

Not covered at all:

• Long-term custodial care (non-skilled assistance with daily activities)

• Routine dental care, dentures, and oral surgery

• Eye exams and eyeglasses for vision correction

• Hearing exams and hearing aids

• Overseas emergency care (unless covered by a supplemental plan)

If your retirement plans involve significant travel, dental work, or help with daily tasks, these gaps can become costly.

Supplemental Coverage Helps, But Comes with Its Own Costs

You might consider supplemental insurance to offset Medicare’s gaps. But it’s important to remember:

• Medigap plans have premiums that increase with age and often do not include prescription drug coverage.

• Medicare Advantage plans (Part C) may offer additional benefits, but you still pay premiums, copayments, and coinsurance. Network restrictions also apply, and certain out-of-pocket costs may be higher depending on the service and provider.

Supplemental coverage isn’t a cure-all. You’ll still face out-of-pocket spending. Always account for these costs when calculating your retirement healthcare budget.

IRMAA Could Increase What You Pay

If your income exceeds certain thresholds, you’ll pay more for Parts B and D due to the Income-Related Monthly Adjustment Amount (IRMAA). In 2025, this applies if your income from your 2023 tax return exceeds:

• $106,000 for individuals

• $212,000 for joint filers

These surcharges are reassessed each year. If your income fluctuates in retirement—say from capital gains, pensions, or withdrawals from retirement accounts—you could find yourself paying hundreds more each month.

You can appeal IRMAA if your income has gone down due to specific life-changing events, but that takes time and paperwork. Planning for the possibility of IRMAA is a safer bet.

Observation vs. Inpatient Status Matters More Than You Think

If you’re hospitalized, how Medicare classifies your stay—”observation” vs. “inpatient”—can make a big difference.

• Observation status is considered outpatient. Even if you stay overnight, Medicare Part B applies, which means you’re responsible for the 20% coinsurance.

• Inpatient status qualifies under Part A. Once you meet the deductible, coverage becomes more robust, especially if you require a skilled nursing facility afterward.

The problem? Hospitals may initially classify you under observation status, even during multi-night stays. If you need follow-up care in a nursing facility, Medicare won’t cover it unless you had a qualifying three-night inpatient stay.

You should always ask for your admission status and get it in writing.

Emergency Coverage Abroad Isn’t Standard

Medicare typically does not provide coverage outside the United States and its territories. If you become ill or injured while traveling internationally, you may need to pay the full cost of care unless you:

• Have a Medigap plan that includes foreign emergency coverage (lifetime limits apply)

• Purchase separate travel medical insurance

This is a major consideration if international travel is part of your retirement plans.

End-of-Life Costs and Hospice

While Medicare does cover hospice care, there are associated costs to be aware of:

• You may still pay a copayment of up to $5 for each prescription for pain relief and symptom control

• In some cases, inpatient respite care requires a 5% coinsurance payment

Caregiver support, bereavement services, or assisted living during end-of-life care are typically not covered.

Hospice under Medicare is comprehensive, but not without out-of-pocket components. Planning ahead ensures your family isn’t left navigating both grief and bills.

Long-Term Care Isn’t Covered

Medicare doesn’t pay for long-term custodial care, such as assisted living or help with bathing, eating, or dressing if it’s not medically necessary.

This is a common misconception. Many retirees mistakenly believe Medicare will cover nursing home care indefinitely. In reality:

• Medicare pays only for short-term skilled care following a qualifying hospital stay

• It does not cover ongoing assistance with daily activities

You’ll need to prepare for these costs separately—whether through long-term care insurance, personal savings, or other resources.

Getting Clarity Before It Becomes Costly

The earlier you account for these less-obvious Medicare expenses, the more confident you’ll feel about your retirement budget. A small miscalculation now can lead to major financial stress later.

Many of these costs aren’t talked about often, but they can affect your decisions around plan selection, retirement account withdrawals, and even your travel or housing plans. Before you finalize your Medicare decisions, speak with a licensed agent listed on this website. They can help you compare options based on your personal situation and budget.