Key Takeaways

• While Medicare helps reduce many healthcare costs, it doesn’t cover everything—and the out-of-pocket costs in 2025 can still add up quickly.

• Understanding the gaps in Medicare coverage is crucial for planning your healthcare budget in retirement and avoiding unexpected financial burdens.

The Real Cost of “Free” Medicare

Many people approach Medicare with the expectation that it will cover most, if not all, of their healthcare expenses after age 65. While it’s true that Medicare significantly reduces costs compared to being uninsured or relying on private insurance without subsidies, it’s far from free. In 2025, Medicare includes premiums, deductibles, coinsurance, and costs that fall entirely outside its coverage.

Let’s break down what you can expect to pay and where those surprise expenses come from.

Part A: Premium-Free for Most, But Not for Everyone

Medicare Part A, which covers inpatient hospital care, is premium-free only if you or your spouse worked and paid Medicare taxes for at least 40 quarters (10 years). If you fall short of this mark:

• You pay a monthly premium of $284 if you worked 30-39 quarters.

• You pay $518 per month if you worked fewer than 30 quarters.

Even if you qualify for premium-free Part A, you still face other costs:

• In 2025, the hospital deductible is $1,676 per benefit period.

• After day 60 of inpatient care, daily coinsurance begins at $419.

• After day 90, lifetime reserve day coinsurance is $838 per day.

Skilled nursing facility care has its own costs: after 20 covered days, you pay $209.50 per day up to day 100.

Part B: Monthly Premiums and Yearly Deductibles

Medicare Part B covers outpatient care, doctor visits, and preventive services. For most people in 2025:

• The standard monthly premium is $185.

• The annual deductible is $257.

• After meeting your deductible, you generally pay 20% coinsurance for most services.

If your income exceeds certain thresholds, you pay more through the Income-Related Monthly Adjustment Amount (IRMAA), which increases your premium based on income reported two years prior.

Part D: Drug Coverage Isn’t Simple Either

Prescription drug coverage under Part D also includes multiple costs:

• A deductible of up to $590 in 2025.

• Copayments or coinsurance depending on your drug plan’s formulary.

• Once your total out-of-pocket costs hit $2,000, you enter the catastrophic coverage phase where your plan covers the rest of the year’s covered medications.

While the $2,000 out-of-pocket cap introduced in 2025 is a welcome change, costs leading up to that point can still be burdensome, especially for those on multiple brand-name prescriptions.

Medicare Doesn’t Cover Everything

You might be surprised by how many healthcare services Medicare does not cover. These include:

• Long-term custodial care (help with bathing, dressing, or eating)

• Routine dental care and dentures

• Eye exams for glasses

• Hearing aids and exams for fitting them

• Most care outside the United States

If you need any of these services, you’ll likely be paying out-of-pocket unless you have supplemental coverage.

Supplemental Coverage: Not Always Optional, Not Always Cheap

Many people turn to Medigap or other insurance options to fill in the gaps left by Original Medicare. These policies help with deductibles, coinsurance, and services Medicare doesn’t fully cover. But you pay a monthly premium for this extra coverage, and these premiums can increase with age.

It’s important to know:

• You must be enrolled in both Part A and Part B to buy a Medigap policy.

• You may not qualify for the best rates if you apply outside your one-time Medigap open enrollment period.

• Supplemental policies don’t usually cover long-term care, vision, dental, or hearing.

Delayed Enrollment Penalties Can Add Up

Medicare penalizes you for not signing up on time unless you qualify for an exception.

Here are two common penalties:

• Part B Late Enrollment Penalty: An extra 10% added to your monthly premium for each full 12-month period you delayed enrollment after becoming eligible.

• Part D Late Enrollment Penalty: Calculated as 1% of the national base premium times the number of months you went without credible drug coverage.

These penalties last for as long as you have Medicare. Even a short delay can create a long-term financial burden.

Out-of-Pocket Maximums: Not What You Think

Original Medicare doesn’t have an out-of-pocket maximum. That means your costs could keep piling up without a defined cap. If you’re hospitalized repeatedly, require ongoing outpatient therapy, or need frequent tests, there’s no limit on what you might spend in a year.

Some supplemental plans or coverage alternatives may include an out-of-pocket maximum. But that depends entirely on the specific plan—it’s not built into Medicare itself.

Care Coordination and Surprise Bills

Another cost that catches many people off guard is the consequence of fragmented care. Because Medicare doesn’t automatically coordinate services among your providers:

• You may end up with duplicate tests or conflicting treatments.

• You could receive care from out-of-network or non-participating providers, resulting in higher bills.

• Certain services, like ambulance transport or durable medical equipment, may be billed in unexpected ways.

All of these scenarios can result in out-of-pocket costs you didn’t anticipate.

Medical Inflation Keeps Rising

Healthcare costs continue to increase annually. While Medicare helps control what providers are paid, it doesn’t completely shield you from inflation.

In 2025, you may see:

• Higher premiums and deductibles compared to 2024.

• Rising prescription costs, especially for specialty drugs.

• More providers shifting costs onto patients through balance billing or service limitations.

Failing to adjust your healthcare budget for these rising costs could leave you underprepared.

Planning for the Full Picture

To protect yourself from these hidden Medicare costs in 2025, you should:

• Review all four parts of Medicare (A, B, D, and any supplemental coverage).

• Factor in out-of-pocket costs like coinsurance, deductibles, and services Medicare doesn’t cover.

• Prepare for changes in income that could affect IRMAA surcharges.

• Account for inflation and unexpected medical events.

Being proactive, instead of reactive, is the best way to manage Medicare costs.

Make Medicare Work Smarter for You

Understanding the full scope of Medicare in 2025 allows you to make informed decisions that protect your finances and your health. While it provides invaluable support, it’s not all-inclusive, and the gaps can become costly if you don’t plan ahead.

Take time to review your coverage each year. If you’re uncertain about what your current plan covers or how to adjust it based on your needs, reach out to a licensed insurance agent listed on this website. They can help you explore your options, evaluate your projected costs, and ensure your plan fits your health and financial goals.