Key Takeaways

• Despite its reputation for reducing healthcare costs, Medicare often comes with significant out-of-pocket expenses that can overwhelm unprepared retirees.

• Understanding the multiple parts of Medicare, and how gaps in coverage can affect your personal budget, is essential for avoiding unwelcome financial surprises.

The Structure of Medicare Isn’t as Straightforward as It Seems

Medicare may seem like a safety net at age 65, but its structure is layered, and each part covers specific services—with cost-sharing and eligibility rules that aren’t always clear upfront. If you enter retirement assuming Medicare takes care of everything, you may be shocked at how much you’re still expected to pay.

Original Medicare, which consists of Part A (Hospital Insurance) and Part B (Medical Insurance), doesn’t offer full coverage. It operates with deductibles, copayments, and coinsurance, leaving many retirees to cover thousands of dollars out of pocket each year.

Understanding each part of Medicare and the role it plays is crucial before you build your retirement budget.

What Medicare Part A Covers—and What It Doesn’t

Part A covers inpatient hospital stays, skilled nursing facility care, some home health services, and hospice care. But even with premium-free coverage for most people (based on work history), there are still significant costs:

• Inpatient hospital deductible: $1,676 per benefit period in 2025

• Hospital coinsurance: $0 for days 1–60, then $419 per day for days 61–90, and $838 per day for lifetime reserve days

• Skilled nursing facility coinsurance: $0 for the first 20 days, then $209.50 per day for days 21–100

There’s no annual out-of-pocket cap for these costs. If your hospital stay extends, or if you need repeat care within the same year, you may pay the deductible multiple times.

Medicare Part B: Medical Insurance with Monthly Costs

Part B covers outpatient care, preventive services, durable medical equipment, and physician visits. It’s not free. In 2025, the standard premium is $185 per month, and you’ll also pay:

• Annual deductible: $257

• Coinsurance: Typically 20% of the Medicare-approved amount for services

Also, if your income exceeds certain thresholds, you may face additional monthly charges under the Income-Related Monthly Adjustment Amount (IRMAA).

Even routine visits and diagnostic testing can add up quickly when 20% of every bill is your responsibility.

Part D Prescription Drug Coverage Adds Another Layer

Prescription drugs are not covered by Original Medicare (Parts A and B), so you’re expected to enroll in a separate Part D plan. These plans include:

• Monthly premiums (cost varies by plan and region)

• Annual deductible of up to $590 in 2025

• Copayments and coinsurance at different coverage stages

While 2025 introduces a $2,000 annual out-of-pocket cap under Part D, reaching that cap could still mean significant expenses, especially for those taking high-cost medications. Many retirees mistakenly assume their drug costs will stay low in retirement, only to be surprised when chronic conditions develop or prescriptions change.

Medicare Advantage Plans: Extra Benefits, Extra Fine Print

Medicare Advantage (Part C) plans are private alternatives to Original Medicare. These plans must offer at least the same coverage as Parts A and B but often include additional benefits such as dental, vision, or hearing.

However, these plans come with their own structure of:

• Monthly premiums (varies)

• Copayments and coinsurance

• Maximum out-of-pocket limits

In 2025, Medicare Advantage plans can have an in-network out-of-pocket maximum of up to $9,350. While some plans may offer lower limits, they still require careful budgeting—especially if you need frequent specialist care or travel outside your network.

Cost Gaps That Can Hurt Your Budget the Most

When planning for Medicare, it’s not just the monthly premiums that impact your budget. It’s the gaps in coverage and unpredictable cost-sharing.

Common budget disruptors include:

• Hospital readmissions within the same year: You may pay multiple deductibles under Part A.

• Multiple outpatient procedures: These are subject to the 20% Part B coinsurance.

• Specialist visits and diagnostic scans: Costs can add up quickly, especially when follow-ups are required.

• Drug changes or new prescriptions: These can move you into higher tiers of out-of-pocket spending.

If you assume Medicare means no more large medical bills, these gaps can drain your savings faster than expected.

Telehealth and Mental Health: Covered, But Not Always Free

As of 2025, Medicare continues to offer coverage for telehealth visits, including behavioral health and chronic care management. But while this improves access, it doesn’t eliminate cost-sharing.

You’ll still owe:

• 20% of the Medicare-approved cost for most telehealth visits under Part B

• Annual deductible before coverage begins

Even preventive services, which are often covered fully, may trigger copayments when follow-up treatments are required.

Mental health services, especially outpatient counseling or therapy, follow the same 20% coinsurance model under Part B. This means even regular therapy can become a recurring cost for those managing chronic conditions.

No Out-of-Pocket Maximum for Original Medicare

One of the most overlooked aspects of Medicare is this: Original Medicare (Parts A and B) does not have an annual out-of-pocket limit. This means your medical expenses can continue to pile up throughout the year without any automatic stop.

Unless you have supplemental coverage or enroll in a Medicare Advantage plan with a defined limit, you bear 100% of your share indefinitely.

Many retirees find this hard to believe. Yet, it’s a fundamental reason why supplemental options—such as Medigap or Advantage plans—are considered by those seeking predictable costs.

Why Late Enrollment Can Raise Your Costs for Life

Failing to enroll in Medicare on time can trigger lifelong penalties. These aren’t just one-time fees; they’re recurring surcharges on your premiums.

Here’s how the penalties break down:

• Part B late enrollment penalty: 10% for each full 12-month period you delayed, added to your premium permanently

• Part D late enrollment penalty: 1% of the national base premium times the number of months you delayed

Even if you delay by just one year, you could be paying significantly more each month for the rest of your life. Budgeting for retirement requires anticipating these penalties and enrolling during your Initial Enrollment Period.

Dental, Vision, and Hearing: Big Costs with No Coverage

Original Medicare does not cover routine dental care, eye exams for glasses, or hearing aids. These services are often necessary as you age, yet Medicare leaves you responsible for:

• Cleanings, fillings, dentures

• Eyeglasses and contact lenses

• Hearing tests and aids

Out-of-pocket costs for these services can range from hundreds to thousands of dollars annually. Many retirees are forced to pay cash or purchase separate coverage plans to help offset these expenses.

Planning Ahead Can Prevent a Financial Shock

To reduce the risk of out-of-control medical spending in retirement, it’s essential to:

• Understand each part of Medicare before enrolling

• Review the cost structure, not just coverage benefits

• Plan for non-covered services like dental, vision, and hearing

• Enroll on time to avoid penalties

• Reassess your plan annually during Open Enrollment (October 15 to December 7)

Cost transparency may not be Medicare’s strength, but preparation can make all the difference.

Prepare for the Costs Hiding Behind the Medicare Label

Medicare offers meaningful coverage, but it’s far from comprehensive. Without careful review and yearly adjustments, your retirement budget can unravel under the weight of deductibles, coinsurance, and non-covered services.

Get the facts now, not after the bills arrive. Speak with a licensed agent listed on this website to understand how your healthcare needs, medications, and income may affect your total costs under Medicare. An informed decision today can prevent budget strain tomorrow.