Key Takeaways
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Medicare is not free and could end up being one of the largest expenses you face in retirement, especially if you don’t plan for out-of-pocket costs and supplemental coverage.
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Understanding the real cost structure of Medicare—including premiums, deductibles, coinsurance, and uncovered services—can help you budget more realistically for the long term.
Medicare Isn’t an All-Inclusive Health Plan
Many people approach Medicare with the assumption that it will cover nearly all their medical expenses once they retire. That assumption can lead to serious financial miscalculations. In 2025, Medicare still leaves significant gaps that you must pay for out-of-pocket unless you have other coverage to supplement it.
Original Medicare includes Part A (hospital insurance) and Part B (medical insurance). These parts come with costs that include monthly premiums, annual deductibles, and coinsurance. While Medicare helps with a large portion of your health care expenses, it does not pay 100% of your medical bills.
What You’ll Pay for Part A in 2025
Part A is premium-free for most people who have worked and paid Medicare taxes for at least 10 years. But the cost sharing kicks in quickly if you need hospital care:
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The 2025 deductible for inpatient hospital care under Part A is $1,676 per benefit period.
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You pay daily coinsurance of $419 for days 61-90 in a hospital stay.
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For lifetime reserve days beyond day 90, that jumps to $838 per day.
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Skilled nursing facility care (after a hospital stay) includes coinsurance of $209.50 per day for days 21-100.
You could spend several thousand dollars during a single hospital stay, even with Medicare.
What You’ll Pay for Part B in 2025
Part B covers outpatient care, doctor visits, preventive services, durable medical equipment, and more. It is not free:
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The standard monthly premium for Part B in 2025 is $185.
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The annual deductible is $257.
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After meeting the deductible, you typically pay 20% of the Medicare-approved amount for services.
Higher-income individuals pay more for Part B due to the Income-Related Monthly Adjustment Amount (IRMAA), which adds to the monthly premium if your income exceeds certain thresholds.
Part D Prescription Drug Costs Add Another Layer
Most prescription drugs are not covered by Original Medicare, which is why you need a separate Part D plan to get prescription drug coverage.
In 2025:
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The Part D deductible can be as high as $590.
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Once your drug costs reach $2,000, your out-of-pocket spending stops for the rest of the year, thanks to the new cap introduced in 2025.
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Until you reach that cap, you are responsible for cost-sharing, including copayments and coinsurance.
This $2,000 out-of-pocket limit is an improvement over past years, but it still requires you to budget for medication expenses.
Premiums Aren’t the Only Problem: The Real Cost of Coinsurance and Copays
Even after you pay your premiums, you’re not done. Medicare cost-sharing includes deductibles, coinsurance, and copayments, which can quickly accumulate:
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20% coinsurance for most outpatient services
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Copayments for ER and urgent care visits
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Out-of-pocket costs for ambulance services
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No coverage for custodial long-term care
Without additional protection, you could be looking at thousands of dollars in coinsurance and copayments in a single year, especially if you have a major illness or chronic condition.
Don’t Overlook What Medicare Doesn’t Cover at All
Some services fall completely outside the scope of Original Medicare, including:
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Most dental care, dentures, and oral surgery
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Routine vision exams and eyeglasses
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Hearing aids and exams
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Long-term care in a nursing home or assisted living
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Care outside the U.S., unless under rare circumstances
These are significant gaps that can become very expensive, especially over the course of a long retirement.
The Role of Medicare Advantage and Medigap Plans
To help manage the costs and fill the gaps in Original Medicare, many retirees turn to either Medicare Advantage (Part C) or Medigap (Medicare Supplement Insurance). Each comes with trade-offs in terms of:
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Premiums
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Coverage structure
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Network restrictions
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Out-of-pocket limits
Medicare Advantage plans are required to cover everything Original Medicare does, but they often have their own cost-sharing structures and may offer extras like dental or vision coverage. Meanwhile, Medigap plans work with Original Medicare and can cover coinsurance, deductibles, and other out-of-pocket expenses.
However, these options also come with monthly premiums and rules about when and how you can enroll. And as noted, you cannot be enrolled in both Medigap and Medicare Advantage at the same time.
Out-of-Pocket Maximums: Only Available in Certain Plans
Original Medicare has no cap on your out-of-pocket spending in a given year. That means if you need ongoing care or are hospitalized multiple times, your costs can continue climbing indefinitely.
In contrast, Medicare Advantage plans are required to set annual out-of-pocket limits. For 2025, the maximum for in-network services is $9,350. But this only applies to people enrolled in Medicare Advantage. If you rely solely on Original Medicare, you must manage your own exposure.
How These Costs Stack Up Over Time
When you add up premiums, deductibles, coinsurance, uncovered services, and the potential for high medical needs, it becomes clear why Medicare can become a major expense in retirement.
Let’s assume the following over a 20-year retirement:
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You pay $185/month for Part B: $2,220 per year, totaling $44,400 over 20 years
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Your average out-of-pocket for drug coverage: $1,000 per year (including premiums and copays), totaling $20,000
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You pay 20% coinsurance for outpatient services and incur an average of $1,500 per year: $30,000
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You have one hospital stay every 5 years, costing about $3,000 each: $12,000
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You pay $2,000 out-of-pocket for uncovered services (like dental, vision, or hearing) every 3 years: $13,000
Totaling these conservative estimates, your healthcare costs under Medicare could exceed $119,000 over a 20-year retirement. And this doesn’t account for inflation, emergencies, or rising medical costs.
Income-Based Surprises You Might Not Expect
One aspect of Medicare costs that catches many retirees off guard is the way premiums can vary based on your income. If you have a higher income in retirement—from a pension, investment withdrawals, or required minimum distributions—you could face higher Part B and Part D premiums due to IRMAA.
The 2025 IRMAA thresholds start at $106,000 for individuals and $212,000 for couples filing jointly, based on your 2023 tax return. Even a one-time income spike, such as from selling a property, can push you into a higher premium bracket for the following year.
Budgeting for Healthcare in Retirement
Given these potential expenses, it’s important to create a healthcare budget as part of your overall retirement plan. Include:
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Monthly premiums for Part B, Part D, and any supplemental coverage
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Expected coinsurance and copayments
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Annual deductibles
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Non-covered services
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Inflation projections (at least 3% annually for medical costs)
Setting aside funds in a Health Savings Account (HSA) before retirement can help, although you can no longer contribute once you enroll in Medicare. Still, any existing HSA funds can be used tax-free for qualified medical expenses.
Don’t Wait Until Costs Hit to Take Action
The best way to prevent Medicare from becoming a financial burden is to understand your coverage and plan early. Each year during Medicare Open Enrollment (October 15 to December 7), you have the opportunity to:
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Review your current coverage
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Compare plan options
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Switch from Original Medicare to Medicare Advantage or vice versa
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Change your Part D plan
Failing to act during this time can leave you stuck with a plan that no longer meets your needs—or worse, paying more than necessary.
The Real Cost of Medicare Is in the Planning You Do Now
Many retirees are surprised to find that Medicare can cost more than anticipated. But this isn’t just about the numbers. It’s about understanding how the system works, how your income and health can influence your costs, and what steps you can take now to protect your financial future.
If you’re approaching retirement or already enrolled in Medicare, speak with a licensed agent listed on this website. They can help you evaluate your options, clarify coverage gaps, and ensure your plan aligns with your healthcare and budget needs for the years ahead.
