Many people are surprised to learn that Medicare isn’t free. While it provides an essential foundation for healthcare in retirement, it doesn’t cover everything—and the out-of-pocket costs can add up faster than expected.
This article breaks down the key costs associated with Medicare, highlights what’s not covered, and offers strategies to help you plan ahead and protect your retirement income.
Why Understanding Medicare Costs Matters for Your Retirement
A common misconception is that once you turn 65, Medicare takes care of all your healthcare expenses. Unfortunately, that’s not the case.
According to Fidelity Investments’ 2025 Retiree Health Care Cost Estimate, the average 65-year-old couple may spend about $172,500 (in after-tax savings) on healthcare throughout retirement—not including long-term care.
Knowing what’s covered, what’s not, and what you’ll pay out of pocket allows you to plan confidently and avoid unpleasant surprises later on.
A Closer Look at What Each Part of Medicare Costs
Each part of Medicare—A, B, C, and D—has its own rules, premiums, and cost-sharing requirements. Here’s how they work:
Part A: The Basics of Hospital Coverage
What It Covers: Inpatient hospital stays, skilled nursing facility (after hospital stay), hospice, and limited home health care
Monthly Premium: Typically $0 if you or your spouse paid Medicare taxes for at least 10 years
Deductible: $1,676 per benefit period (2025)
Coinsurance:
- Hospital Stays: $0 (days 1-60), $419/day (days 61-90), $838/day (days 91+)
- Skilled Nursing Facility: $0 (days 1-20) $209.50 (days 21-100), no coverage beyond day 100
Part B: Doctor Visits, Tests, and More
What It Covers: Doctor visits, outpatient care, preventive services, lab work, and durable medical equipment
Monthly Premium: $185 (higher if you are subject to IRMAA)
Deductible: $257 per year
Coinsurance: 20% of approved costs after deductible, with no annual out-of-pocket maximum
Preventive services, like screenings and vaccines, are typically covered in full.
Part C: Combining Coverage Through Medicare Advantage
What It Covers: Combines Parts A and B (and often Part D) into a single plan through private insurers. Many include dental, vision, or hearing benefits.
Monthly Premium: You continue paying your Part B premium; additional plan premiums vary.
Deductibles and Copays: Vary by plan
Average Out-of-Pocket Limits: $5,320 (individual in-network) and $9,547 (family in-network). The Federal maximums are $9,350 and $14,000, respectively.
Part D: Managing Prescription Drug Costs
What It Covers: Prescription medications (stand-alone or bundled with a Medicare Advantage Plan)
Monthly Premium: $36.78 base premium, subject to change annually
IRMAA Surcharge: $13.70 to $85.80 per month for higher-income earners
Deductible: $590 per year
Coinsurance: Typically 25% of drug costs after deductible
Tip: Review your plan every year during Open Enrollment (October 15-December 7) to confirm that your coverage and costs still make sense for your situation.
IRMAA: The Medicare Premium Surcharge That Surprises Many
IRMAA, short for Income-Related Monthly Adjustment Amount, is an extra charge added to your Medicare Part B and Part D premiums if your income exceeds certain thresholds.
In 2025, individuals with incomes above $106,000, or married couples earning over $212,000, will pay a surcharge between $13.70 and $85.80 per month. IRMAA is based on your tax return from two years prior (for 2025, that means your 2023 income).
While you can’t always avoid IRMAA, there are tax efficient strategies to reduce or appeal it, especially if your income dropped due to retirement or another life event. Cross link to new article
Understanding What Medicare Leaves Out
Medicare leaves some significant gaps. It does not cover:
- Routine dental, vision, or hearing care
- Long-term or custodial care (like help with daily activities)
- Care received outside the United States
- Most chiropractic or alternative therapies
- Cosmetic procedures
- Medigap premiums (we’ll discuss those in our next article)
For reference, a private nursing home room can cost more than $10,000 per month, so it’s essential to plan ahead and consider supplemental coverage.
5 Strategies to Reduce Medicare Costs
- Conduct an annual review of your plan. Coverage details, provider networks, and drug formularies can change.
- Plan income strategically. Managing your modified adjusted gross income (MAGI) may help reduce or avoid IRMAA surcharges.
- Use preventive care. Early detection can prevent costlier treatments later.
- Coordinate with your spouse. Joint income affects both spouses’ IRMAA brackets.
- Shop around for Medigap. Premiums for identical plan letters can vary significantly by insurer.
Turning Knowledge Into Action: Plan for Healthcare Costs Early
Medicare provides critical protection, but it’s not a blank check for healthcare. By understanding how premiums, deductibles, and surcharges work, you can make informed decisions that support your financial independence throughout retirement.
At Access Wealth, we help clients estimate healthcare costs, evaluate Medigap and Advantage options, and build Medicare expenses into a broader financial plan.
If you’d like help reviewing your Medicare strategy or planning for healthcare in retirement, we’re here to guide you.
Next in the series: Medicare Supplement Insurance (Medigap): Do You Need It? : Learn how Medigap policies can help fill the coverage gaps left by Original Medicare.
