Key Takeaways

• Medicare is not a one-size-fits-all program. Each part comes with separate premiums, deductibles, coinsurance, and limits that shift year to year, often catching retirees off guard.

• Understanding the 2025 costs, including the $185 monthly Part B premium and $2,000 annual prescription drug cap under Part D, is critical to avoid underestimating your healthcare expenses in retirement.

Medicare Has Multiple Parts, Each With Its Own Costs

If you’ve assumed Medicare would cover most of your healthcare needs at no extra cost after turning 65, it’s time to look again. Medicare has a multi-layered structure, and each layer comes with distinct financial obligations.

Medicare Part A: Hospital Insurance

Medicare Part A typically doesn’t require a monthly premium if you’ve worked and paid Medicare taxes for at least 40 quarters. However, it’s not free of costs:

• In 2025, you pay a $1,676 deductible for each benefit period.

• If your hospital stay exceeds 60 days, you face daily coinsurance: $419 for days 61–90 and $838 for lifetime reserve days.

• Skilled nursing care after a hospital stay also has a coinsurance of $209.50 per day (days 21–100).

Medicare Part B: Medical Insurance

This is where most beneficiaries start noticing monthly charges. For 2025:

• The monthly premium is $185.

• The annual deductible is $257.

• After meeting the deductible, you pay 20% of Medicare-approved amounts for most services, including doctor visits, durable medical equipment, and outpatient care.

Also, if your income is above a certain level, you may be subject to an Income-Related Monthly Adjustment Amount (IRMAA), pushing your premium even higher.

Medicare Part D: Prescription Drug Coverage

While private plans administer Part D, Medicare sets annual thresholds. In 2025:

• The deductible is capped at $590.

• Once you meet the deductible and hit $2,000 in out-of-pocket costs, you no longer pay anything for covered medications for the rest of the year.

• Before reaching that cap, your cost-sharing can vary widely, depending on your plan and the medications you take.

These Extra Costs Can Add Up Quickly

While the core premiums and deductibles may look manageable, the real costs begin to pile up when you start adding routine and unexpected services. Medicare does not pay 100% for most services.

Copayments and Coinsurance

You’ll often have to pay a portion of the cost when receiving care:

• 20% coinsurance under Part B, which can be significant if you need expensive diagnostic testing, outpatient surgery, or chemotherapy.

• Hospital coinsurance under Part A after day 60 of an inpatient stay.

Annual Out-of-Pocket Spending

Unlike many employer plans, Original Medicare does not have an out-of-pocket maximum. If you rely only on Part A and B, your yearly spending can become unpredictable if you face a serious illness or injury.

Some people consider additional coverage to limit those expenses, but that often comes with separate monthly premiums and restrictions.

Services Medicare Doesn’t Cover

Medicare doesn’t pay for everything. In fact, some of the most common healthcare expenses aren’t covered:

• Long-term custodial care in a nursing home or assisted living facility.

• Routine dental, hearing, and vision services (though some Advantage plans offer them).

• Over-the-counter medications, most foot care, and cosmetic procedures.

You’ll need to pay entirely out of pocket or purchase supplemental coverage for these types of services.

Income Can Affect What You Pay

If your modified adjusted gross income (MAGI) from two years ago is high enough, your Medicare premiums can increase substantially under IRMAA.

For 2025, the IRMAA thresholds begin at $106,000 for individuals and $212,000 for joint filers. If you’re above those levels, your Part B and Part D premiums will be higher, potentially adding hundreds of dollars per month to your bill.

These higher premiums are recalculated each year based on your tax return from two years prior. If your income has dropped due to retirement or a life change, you may request a reconsideration.

Penalties for Late Enrollment Are Costly and Permanent

You might think delaying enrollment can save money if you’re still working or covered by another plan. But Medicare imposes permanent late enrollment penalties for missing deadlines without qualifying coverage.

Part B Late Enrollment Penalty

• If you don’t sign up during your Initial Enrollment Period and lack creditable coverage, you’ll pay a 10% penalty for each 12-month period you were late.

• This penalty lasts as long as you have Part B.

Part D Late Enrollment Penalty

• If you go 63 or more consecutive days without creditable drug coverage, you’ll pay a penalty calculated as 1% of the national base premium times the number of uncovered months.

• This is also a lifetime surcharge.

Advantage and Supplement Plans May Offer Savings—But Read the Fine Print

Many people look to Medicare Advantage or Medigap plans to manage out-of-pocket costs. While these can offer additional protections, they come with their own layers of complexity.

Medicare Advantage (Part C)

These are all-in-one alternatives to Original Medicare, often with prescription drug coverage and extra benefits. But you may face:

• Prior authorization requirements for many services.

• Limited provider networks, meaning you might not be able to see your preferred doctors.

• Variable out-of-pocket limits, which may still reach thousands per year.

Medigap (Medicare Supplement Insurance)

Medigap plans help cover some of the gaps in Original Medicare, such as Part B coinsurance and Part A hospital costs. However:

• You must pay a separate monthly premium.

• You may have to undergo medical underwriting if you apply outside your Medigap open enrollment window (the first six months after you’re both 65 and enrolled in Part B).

Prescription Drug Costs Can Still Be Unpredictable

Even with the 2025 cap of $2,000 on out-of-pocket prescription costs, not everything is straightforward. Your costs depend on:

• Formulary placement: Drugs are divided into tiers, and higher-tier medications cost more.

• Pharmacy choice: Using preferred or in-network pharmacies can lower your costs.

• Prior authorization: Some medications may require approval before being covered.

You should review your drug plan every year during the Medicare Open Enrollment period, which runs from October 15 to December 7, as formularies and cost-sharing can change annually.

Coverage Gaps for Mental Health and Rehab

In 2025, Medicare covers a wider array of mental health services than in past years, including therapy by mental health counselors and marriage and family therapists under Part B. Still, you’ll pay:

• The $257 Part B deductible.

• 20% coinsurance for each visit.

• Additional costs if the provider doesn’t accept Medicare assignment.

Rehabilitative services like physical therapy also require coinsurance and may be subject to coverage caps or reviews.

Telehealth and At-Home Care May Come With Strings Attached

Medicare now permanently covers telehealth services for mental health and other select visits. However:

• As of October 1, 2025, you must have an in-person visit at least once every 12 months to maintain eligibility for ongoing tele-mental health care, unless you meet certain exceptions.

• Home health care is covered under specific conditions but often requires that you be homebound and under a doctor’s care.

Don’t assume virtual care or in-home services are automatically covered without limits.

Annual Cost Changes Require Ongoing Review

Medicare costs and rules are not fixed. Each year, the Centers for Medicare & Medicaid Services (CMS) adjusts premiums, deductibles, and out-of-pocket limits. If you’re not paying attention, you might miss:

• Increases in your monthly premium.

• Changes to your plan’s network or drug coverage.

• New benefits or cost-saving opportunities.

Review your Annual Notice of Change (ANOC) each fall. This document, sent by your plan provider, outlines exactly what’s changing in the upcoming year.

A Closer Look Now Can Prevent Bigger Bills Later

If you’re approaching 65 or already enrolled, don’t treat Medicare as a set-it-and-forget-it program. It demands close attention, ongoing review, and careful plan selection to keep your healthcare costs manageable.

Take Action to Stay Ahead

• Mark the Open Enrollment window from October 15 to December 7.

• Track your total out-of-pocket spending each year.

• Compare coverage annually, especially if your medications or providers change.

• Contact a licensed agent listed on this website for help reviewing your Medicare options.