Key Takeaways

• Medicare may seem affordable at first glance, but there are multiple out-of-pocket expenses that catch many people off guard.

• Understanding the timelines, penalties, and gaps in coverage can help you avoid costly surprises and plan more effectively.

The Illusion of “Free” Medicare Coverage

Turning 65 and enrolling in Medicare is often viewed as a healthcare milestone that brings relief from high insurance premiums. However, many people find out too late that Medicare is far from cost-free. While some parts of Medicare come without a monthly premium, most don’t—and even the ones that do include deductibles, coinsurance, and out-of-pocket limits that can add up quickly.

You may be eligible for premium-free Part A if you’ve worked and paid Medicare taxes for at least 40 quarters (10 years), but even then, hospital stays under Part A come with copayments and a deductible of $1,676 in 2025 per benefit period. This benefit period resets—not annually, but after 60 days of no inpatient care—which means you could pay this deductible more than once in a single year.

Monthly Premiums Add Up

Medicare Part B comes with a standard monthly premium of $185 in 2025. This is not optional if you want coverage for doctor visits, outpatient procedures, preventive services, and durable medical equipment. If your income is above certain thresholds, you will also pay an Income-Related Monthly Adjustment Amount (IRMAA), which increases your premium based on your modified adjusted gross income (MAGI) from two years prior.

In addition to Part B, you may choose to enroll in Part D for prescription drug coverage. In 2025, the average Part D premium is around $46.50 per month. Part D plans are offered by private insurers approved by Medicare, and the costs can vary widely depending on your location and the drugs you take.

Late Enrollment Penalties That Stick

If you delay signing up for Medicare when you’re first eligible and don’t qualify for a Special Enrollment Period, you could face lifelong penalties:

• Part B Penalty: 10% increase in your monthly premium for each 12-month period you were eligible but didn’t enroll. This penalty applies for as long as you have Part B.

• Part D Penalty: 1% of the national base premium ($34.70 in 2025) multiplied by the number of months you went without creditable drug coverage. This is also a lifelong penalty unless you qualify for financial assistance.

These penalties are avoidable if you understand your Initial Enrollment Period (IEP), which starts three months before the month you turn 65, includes your birthday month, and ends three months after.

Out-of-Pocket Costs That Catch You Off Guard

Even with Medicare, you are responsible for several forms of cost-sharing:

• Deductibles: Part A has a $1,676 deductible per benefit period. Part B has an annual deductible of $257.

• Coinsurance: After the deductible, you typically pay 20% of Medicare-approved services under Part B.

• Hospital Coinsurance: For hospital stays, you pay $419 per day for days 61-90 and $838 per day for lifetime reserve days.

• Skilled Nursing: After 20 days of full coverage, days 21-100 have a daily coinsurance of $209.50.

These numbers add up quickly, especially for chronic conditions or extended hospitalizations.

Prescription Drug Costs

While 2025 introduces an out-of-pocket cap for Part D prescription drugs at $2,000 per year, many people will still face significant costs before reaching that cap. You pay your plan’s deductible (up to $590 in 2025), then co-pays or coinsurance until you hit the cap.

To help manage costs, Medicare is also introducing the Medicare Prescription Payment Plan, which allows you to spread out these expenses over the calendar year. However, this is an opt-in program, and it’s crucial to understand the rules before relying on it.

Dental, Vision, and Hearing—Not Covered by Original Medicare

Original Medicare does not cover routine dental exams, cleanings, dentures, vision exams, eyeglasses, or hearing aids. These are essential services, particularly as you age, and paying for them out of pocket can be expensive. Some people enroll in separate dental and vision plans or consider Medicare Advantage plans that include these services, though these options come with their own set of costs and network restrictions.

The Cost of Long-Term Care

Long-term care is one of the most significant hidden costs. Medicare does not cover custodial care in a nursing home or assisted living facility. It only covers short-term skilled nursing care under specific conditions and only up to 100 days. After that, you’re on your own. Given that the average cost of long-term care can run into thousands of dollars per month, this is a major financial risk that many people don’t plan for.

Medicare Advantage Plans: Not Always a Cost Saver

Medicare Advantage (Part C) plans often promise extra benefits, but many people are surprised by their out-of-pocket costs. In 2025, the maximum out-of-pocket limit for in-network services under these plans is $9,350, and for combined in-network and out-of-network services, it’s $14,000. That’s significantly higher than the worst-case scenario under Original Medicare with a Medigap plan.

Additionally, Advantage plans may require:

• Prior authorizations for procedures and referrals

• Limited provider networks

• Cost-sharing for services that would be fully covered under Original Medicare

While the extra perks sound appealing, they can distract from the core issue: your total financial exposure in the event of serious illness.

Medigap Isn’t Free Either

If you want to limit your out-of-pocket expenses under Original Medicare, a Medigap policy (also called Medicare Supplement Insurance) is often the go-to solution. But these plans come with their own monthly premiums, which are in addition to what you pay for Part B and possibly Part D. And not all Medigap plans cover everything—you’ll still be responsible for some costs depending on the plan you choose.

Enrollment in Medigap is easiest during your 6-month Medigap Open Enrollment Period, which starts when you are both 65 or older and enrolled in Part B. Outside of this window, insurers may deny coverage or charge more based on preexisting conditions.

The Impact of Income on Your Medicare Costs

Your income plays a significant role in what you pay for Medicare. In 2025, individuals with an MAGI above $106,000 and couples above $212,000 face IRMAA surcharges for Part B and Part D premiums. These surcharges apply based on your tax return from two years ago, so income planning is essential—especially as you approach retirement.

Travel and Emergencies Abroad

Original Medicare generally does not cover medical services you receive while traveling outside the U.S., with very limited exceptions. If you plan to travel during retirement, you may need supplemental insurance that includes foreign emergency care, which means an added monthly cost.

Extra Help Isn’t Automatic

Programs like Extra Help and Medicaid do provide financial relief for those with low income and limited assets, but you must apply and qualify. These programs can lower your Part D costs, premiums, and deductibles, but many people either don’t know they exist or assume they will be automatically enrolled.

If your income or resources are close to the eligibility limits, it’s worth reviewing your situation annually to see if you qualify, especially since limits can change each year.

A More Realistic Medicare Budget

When budgeting for healthcare in retirement, don’t just factor in premiums. You should also account for:

• Annual deductibles and coinsurance

• Prescription drug costs

• Dental, vision, and hearing expenses

• Long-term care planning

• Travel insurance or foreign emergency care

• Potential late enrollment penalties

It’s not uncommon for retirees to spend several thousand dollars a year on Medicare-related costs, even with a relatively healthy lifestyle.

What to Do Next

Understanding Medicare’s hidden costs isn’t about creating fear—it’s about preparing with clarity. The more informed you are, the better choices you can make. Carefully evaluate your healthcare needs, financial situation, and retirement goals. Consider speaking with a licensed agent listed on this website who can walk you through your options and help build a Medicare strategy that fits your budget.