Key Takeaways
-
Medicare may seem like automatic coverage, but it includes a range of out-of-pocket expenses that can add up quickly if you don’t plan ahead.
-
Understanding the structure of premiums, deductibles, copayments, and drug costs in 2025 can help you avoid financial surprises after enrollment.
Medicare Isn’t Free: What You Need to Know Up Front
If you’re approaching age 65 or planning to retire soon, you might assume that Medicare will fully cover your healthcare costs. But Medicare is not free. In fact, if you don’t understand what’s covered and what isn’t, you could face significant bills you weren’t expecting. Medicare in 2025 includes monthly premiums, annual deductibles, copayments, coinsurance, and prescription drug expenses.
Even if you qualify for premium-free Medicare Part A, other parts of Medicare involve regular monthly costs and ongoing payments for care. It’s not uncommon for people to budget for retirement without accounting for these expenses, only to find themselves dipping into savings sooner than expected.
Medicare Part A: The Illusion of “Free”
Most people don’t pay a premium for Part A, which covers hospital services, if they worked and paid Medicare taxes for at least 40 quarters. But the misconception that Part A is cost-free ends quickly when you actually use your benefits.
Here are some key 2025 figures for Part A:
-
Deductible: $1,676 per benefit period
-
Coinsurance for hospital stays:
-
Days 1–60: $0 (after deductible)
-
Days 61–90: $419 per day
-
Days 91–150 (lifetime reserve days): $838 per day
-
Beyond 150 days: You pay all costs
-
Skilled nursing facility care has its own coinsurance after 20 days. That adds another layer of cost if recovery time stretches longer than expected.
Medicare Part B: Monthly Premiums and 20% Bills
Part B covers outpatient services such as doctor visits, lab tests, and preventive screenings. But this coverage comes at a price. In 2025:
-
Monthly Premium: $185 for most people
-
Annual Deductible: $257
-
Coinsurance: 20% of Medicare-approved amounts after the deductible
Even routine outpatient visits can add up quickly, especially for people managing chronic conditions. And if you need specialist care or diagnostic imaging, your 20% coinsurance could mean hundreds or even thousands of dollars per year.
Higher-income individuals may pay more due to the Income-Related Monthly Adjustment Amount (IRMAA), which increases the Part B premium based on your modified adjusted gross income.
Medicare Part D: Drug Costs and the New $2,000 Cap
Prescription drug coverage through Medicare Part D is one of the more complex areas of Medicare, with varying premiums and formularies. However, one significant improvement in 2025 is the implementation of a $2,000 annual out-of-pocket cap for covered drugs.
Still, here are the general costs you need to plan for:
-
Monthly premiums: Vary by plan
-
Annual deductible: Up to $590
-
Copayments and coinsurance: Vary based on drug tier and plan rules
Even with the $2,000 cap, these costs apply until you hit the limit, and that limit resets each calendar year. You also need to account for changes in the formulary each year during open enrollment.
Medicare Advantage (Part C): Costs Beyond the Premium
Medicare Advantage plans are offered by private companies approved by Medicare and are required to cover at least the same benefits as Parts A and B. But these plans often come with:
-
Additional monthly premiums (on top of Part B)
-
Copayments for primary and specialty care
-
Coinsurance for hospital and outpatient services
-
Out-of-pocket maximums, which vary by plan
In 2025, the in-network maximum out-of-pocket limit for these plans is $9,350. For combined in- and out-of-network care, the limit is $14,000. These figures exclude prescription drug costs, which have their own $2,000 cap if integrated with Part D.
Medicare Supplement Plans: Additional Costs to Cover the Gaps
Medigap plans help pay the costs Original Medicare doesn’t cover, such as coinsurance, copayments, and deductibles. While they offer peace of mind, they come with monthly premiums and must be purchased separately from Medicare.
Since 2020, new enrollees can no longer purchase certain Medigap plans that cover the Part B deductible, which means you may still need to pay some portion of care costs even with a supplement.
Telehealth and Mental Health Coverage: What You Still Pay
Medicare has made significant progress in expanding access to mental health services and telehealth options. As of 2025, you can access therapy, psychiatric evaluations, and follow-up visits from home.
Even so, standard cost-sharing applies:
-
20% coinsurance under Part B for outpatient mental health visits
-
Deductibles must still be met before coinsurance kicks in
Medicare now covers services from marriage and family therapists (LMFTs) and mental health counselors (MHCs), but access may still be limited by provider availability.
Preventive Care: Often Covered, But Not Always Free
Medicare covers a wide range of preventive services, such as:
-
Screenings for cancer, diabetes, and cardiovascular conditions
-
Flu and pneumonia vaccines
While many preventive services are fully covered, others may include partial cost-sharing depending on how the visit is billed. For example, if a screening leads to a diagnostic procedure during the same appointment, you might owe a copayment.
Penalties for Late Enrollment: A Long-Term Cost
Enrolling late in Medicare can cost you permanently. If you miss your Initial Enrollment Period (IEP), you may face lifelong penalties:
-
Part B: A 10% increase in your premium for each 12-month period you delay
-
Part D: A 1% increase in your monthly premium for every month you delay, unless you have creditable coverage
These penalties are cumulative and apply for as long as you have Medicare coverage. Avoiding them means planning your enrollment well in advance.
Costs During the Annual Enrollment Period
From October 15 to December 7 each year, Medicare beneficiaries can make changes to their coverage. However, changes made during this period may also mean a shift in costs. If you move to a new plan or change your drug coverage, be prepared for:
-
New premiums
-
Different deductibles
-
Varying copayments and out-of-pocket limits
You should always review your Annual Notice of Change (ANOC) to understand how your current plan is evolving and whether switching is financially wise.
Hidden Costs You Might Not Expect
Aside from the standard cost categories, there are hidden or less obvious expenses to account for:
-
Travel coverage: Medicare does not cover medical care outside the U.S. (with very limited exceptions)
-
Long-term care: Not covered by Medicare beyond short-term rehab
-
Home modifications: Grab bars, stairlifts, and other mobility devices are typically out-of-pocket
-
Dental, vision, and hearing: These are not covered under Original Medicare
These costs can easily surprise you if you don’t include them in your retirement health budget.
Why Planning Now Helps You Avoid Cost Surprises Later
Understanding the full scope of Medicare costs in 2025 means you can take steps to protect your budget before you enroll. Here’s what you can do:
-
Review your eligibility and understand when to enroll to avoid penalties
-
Estimate your total annual costs, including premiums, deductibles, and drug expenses
-
Consider whether you want a Medigap or Medicare Advantage plan to manage cost-sharing
-
Evaluate your need for dental, vision, hearing, and long-term care coverage
-
Reassess your needs during open enrollment each fall
Healthcare in retirement isn’t just about premiums. It’s about a cost structure that follows you every month and every appointment. Preparing now can prevent financial strain later.
Make Medicare Planning Part of Your Financial Health Strategy
If you want to avoid unexpected medical bills, it’s essential to understand the real structure of Medicare costs before you enroll. A licensed agent listed on this website can walk you through your options, help you compare coverage types, and make sure you’re prepared for the road ahead.
