Key Takeaways

• Medicare is not free, and even with it, you are likely to face ongoing out-of-pocket expenses, including premiums, deductibles, and copayments.

• Relying solely on Medicare after retirement may leave you financially vulnerable, especially if you need long-term care, prescription drugs, or services outside Medicare’s scope.

Retirement Shifts the Financial Burden to You

Leaving the workforce often marks the beginning of financial recalibration. You no longer have employer-sponsored insurance, steady income, or subsidized healthcare benefits. You might assume Medicare will step in to fully protect you, but that assumption can lead to unexpected financial strain.

Medicare does offer broad coverage, but it is not all-inclusive. There are multiple parts, enrollment windows, and ongoing costs that can catch retirees off guard. Understanding what is and is not covered helps you avoid budgeting missteps.

Medicare Coverage Isn’t All-Inclusive

Medicare has four main parts: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage), and Part D (prescription drugs). Most retirees enroll in Parts A and B, often called Original Medicare.

However, this combination leaves significant gaps:

• Part A has a deductible of $1,676 in 2025 for each benefit period

• Part B has a monthly premium of $185 in 2025, plus a deductible of $257

• Neither part includes dental, vision, hearing aids, or long-term care

• Coinsurance and copayments still apply after meeting deductibles

This means Medicare covers a portion, but you continue to carry the financial responsibility for a wide range of care.

Prescription Drug Costs Still Stack Up

Even with Medicare Part D, you may find drug costs difficult to manage. In 2025, the annual deductible is capped at $590, and a $2,000 out-of-pocket maximum is now in place, replacing the former coverage gap known as the “donut hole.”

But the numbers still matter:

• You must meet the deductible before receiving full drug coverage

• Brand-name medications and specialty drugs may cost more

• Not all medications are included on every Part D formulary

Although the $2,000 cap offers welcome relief, high drug usage could still strain your budget over time.

Dental, Vision, and Hearing Are Out-of-Pocket

Medicare does not cover routine dental exams, cleanings, fillings, or dentures. Vision care, such as eye exams and eyeglasses, is generally not included unless tied to a medical issue. Hearing aids and related exams are also excluded.

These costs can add up quickly. Annual dental cleanings, eyeglasses every two years, or hearing aids every few years are normal aging-related needs, yet these are entirely out-of-pocket unless you enroll in an additional plan or set aside funds specifically.

Long-Term Care Is a Major Financial Risk

This is often the most misunderstood area. Medicare covers skilled nursing facility care, but only under specific circumstances and only for a limited time:

• Must follow a qualifying hospital stay of at least three days

• Covers up to 100 days of skilled nursing facility care per benefit period

• Only the first 20 days are fully covered; days 21 to 100 require daily coinsurance ($209.50/day in 2025)

• Custodial care (help with bathing, eating, dressing) is not covered

Since most long-term care needs fall into the custodial category, Medicare does not pay. If you require ongoing care at home or in a facility, you may be forced to pay out-of-pocket or spend down assets to qualify for Medicaid.

Late Enrollment Penalties Add Up

You might be surprised to learn that delaying Medicare enrollment can lead to lifelong penalties. These apply if you miss your Initial Enrollment Period (IEP) and do not qualify for a Special Enrollment Period (SEP).

In 2025, here are the penalties:

• Part B: 10% increase in premium for every 12 months you delay enrollment

• Part D: 1% increase in premium for each month you delay enrollment without other creditable coverage

If you retire at 65 but delay Part B or Part D, thinking you’ll avoid the monthly premium, the decision can cost you for the rest of your life.

Medigap Plans Are Not Guaranteed After a Certain Window

Medigap (Medicare Supplement Insurance) helps cover out-of-pocket costs under Original Medicare. But you are only guaranteed the right to buy a Medigap policy during your 6-month Medigap Open Enrollment Period, which starts when you’re 65 or older and enrolled in Part B.

After that window, insurers may deny coverage or charge higher premiums based on health history. If you develop a chronic condition and then seek Medigap coverage outside your guaranteed issue period, you may be left without this safety net.

Medicare Advantage Isn’t Free from Costs or Limitations

Medicare Advantage (Part C) plans often attract enrollees with the promise of consolidated coverage and added benefits. But while these plans may offer perks like dental or vision care, they come with trade-offs:

• You must stay within the plan’s provider network for full coverage

• Out-of-pocket maximums can reach $9,350 in 2025 for in-network care

• Prior authorization is often required for procedures

• You still pay your Part B premium in most cases

A change in health status may reveal restrictions or costs you didn’t anticipate, especially if you move, travel, or require out-of-network care.

Inflation and Cost Growth Eat Into Your Retirement Budget

Healthcare costs continue to rise faster than inflation. While Social Security applies cost-of-living adjustments (COLAs), they often don’t keep pace with increases in Medicare premiums and other healthcare expenses.

For example:

• Part B premiums rose from $174.70 in 2024 to $185 in 2025

• Part A deductibles increased from $1,632 in 2024 to $1,676 in 2025

These may seem like modest increases individually, but over a decade, they can result in thousands of dollars in additional expenses. If your income is fixed or your savings limited, these increases chip away at your financial stability.

Coordination With Other Coverage Matters

Some retirees have access to other coverage through a former employer, union, or military service. But not all plans coordinate well with Medicare.

For example:

• Employer-sponsored retiree plans may require Medicare enrollment to continue coverage

• Veterans using VA services may still need Medicare for non-VA care

• COBRA coverage does not count as creditable coverage for Medicare

Failing to understand how your other insurance interacts with Medicare can leave you exposed to gaps or force you into late penalties.

Income-Related Premiums Increase Costs for High Earners

Medicare premiums are based on income. If your modified adjusted gross income (MAGI) from two years ago exceeds certain thresholds, you’ll pay Income-Related Monthly Adjustment Amounts (IRMAA) on top of your standard premiums.

In 2025, IRMAA thresholds begin at $106,000 for individuals and $212,000 for joint filers. These surcharges affect Part B and Part D premiums and can result in thousands more per year in costs.

Even if your income has dropped in retirement, prior years’ earnings still affect your Medicare costs. You can file an appeal with Social Security if your income has decreased due to a qualifying life event, but many retirees are unaware of this option.

Hospital Outpatient and Observation Status Confusion

One lesser-known pitfall involves hospital admissions labeled as “observation” rather than “inpatient.” If you are in the hospital under observation status, Medicare Part A does not apply. Instead, services are billed under Part B.

The consequences include:

• Higher out-of-pocket costs

• No coverage for skilled nursing facility care post-discharge

• Confusion about coverage and billing

Make sure to ask the hospital whether you’re admitted as inpatient or under observation. This distinction can change your coverage dramatically.

Annual Enrollment Windows Are Easy to Miss

Medicare changes are typically made during the Annual Enrollment Period (AEP) from October 15 to December 7. Missing this window means you’re locked into your current plan until the next year, unless you qualify for a Special Enrollment Period.

If your current plan changes coverage or increases costs and you miss the window to switch, you may be stuck with a plan that no longer fits your health or budget needs.

Why Planning Ahead Is Essential

Relying on Medicare alone is not a retirement plan. To protect your finances, consider steps such as:

• Budgeting for out-of-pocket healthcare costs

• Enrolling in supplemental insurance if available

• Reviewing coverage annually to avoid unexpected increases

• Understanding how enrollment windows and penalties work

A proactive strategy is your best defense against Medicare-related financial surprises.

Don’t Let Medicare Costs Derail Your Retirement Plan

Medicare provides critical healthcare coverage, but it is far from a complete solution. You may face rising premiums, gaps in coverage, limited provider access, and significant out-of-pocket expenses if you do not plan carefully.

Before you leave the workforce, take time to understand the full scope of what Medicare covers and where it falls short. Speak with a licensed agent listed on this website who can help you evaluate your options, assess your budget, and protect your retirement savings.