Key Takeaways

• Even though Medicare offers broad healthcare coverage, it can still account for a major part of your monthly retirement expenses when premiums, deductibles, and out-of-pocket costs are added up.

• Understanding how Medicare Parts A, B, D, and optional supplemental coverage interact is essential to avoid surprise costs and better plan your healthcare budget.

Medicare Isn’t Free—And It Was Never Meant to Be

Many people are surprised to learn that Medicare is not fully paid for by the government. While you may have contributed to Medicare through payroll taxes during your working years, this only covers part of your future healthcare costs. In 2025, you’re still responsible for a wide range of expenses including premiums, deductibles, coinsurance, and costs associated with prescription drugs.

Premiums You’ll Pay Every Month

The foundation of your Medicare coverage—Parts A and B—often comes with monthly premiums, especially Part B.

Part A Premiums (When Applicable)

Most people don’t pay a premium for Medicare Part A if they or their spouse worked at least 10 years (40 quarters). But if you haven’t met that requirement, you could be paying a monthly premium as high as several hundred dollars.

Part B Premiums in 2025

In 2025, the standard Part B premium is $185 per month. This is a flat fee for most beneficiaries, although those with higher incomes may pay more due to the Income-Related Monthly Adjustment Amount (IRMAA). These premiums are typically deducted from your Social Security check, but if you haven’t started taking benefits yet, you’ll be billed directly.

Deductibles That Reset Every Year

Even if you’re healthy and rarely visit the doctor, you’ll need to meet annual deductibles before Medicare coverage kicks in.

• Part A deductible: $1,676 per benefit period

• Part B deductible: $257 annually

• Part D deductible: Can be up to $590 depending on your plan

These are not one-time payments. The Part A deductible applies per benefit period, which can happen multiple times in a year depending on your hospital stays.

Prescription Drug Costs Are Capped—But Still Significant

Medicare Part D, which covers prescription drugs, saw a major change in 2025 with the introduction of a $2,000 out-of-pocket cap. While this is a major improvement over past years, the costs can still add up over time:

• You still have to pay monthly premiums.

• You’ll likely face copayments or coinsurance for each prescription.

• Your total drug costs—especially for brand-name or specialty medications—can still bring you close to the $2,000 cap if you take multiple medications.

Out-of-Pocket Maximums and What They Actually Mean

One of the most misunderstood features of Medicare-related coverage is the concept of an out-of-pocket maximum. Original Medicare (Parts A and B) does not include a built-in out-of-pocket limit. That means your expenses can keep growing the more healthcare you need.

If you add supplemental insurance (like Medigap) or enroll in other plan types that place a cap on out-of-pocket costs, you could reduce financial risk. However, these plans usually come with their own premiums and cost structures. You’re not escaping cost—you’re trading it.

High-Cost Situations: What You Might Not Expect

Healthcare in retirement isn’t just about routine doctor visits. Major events can drive your Medicare-related expenses up quickly:

• Hospitalizations: You pay the Part A deductible per benefit period, plus daily coinsurance starting on day 61 of your stay.

• Skilled nursing facilities: After 20 days, you pay a daily coinsurance of $209.50 up to day 100.

• Outpatient surgery and specialists: These can come with 20% coinsurance after you meet your Part B deductible.

And remember, none of these costs include what you might pay for transportation, over-the-counter medications, or services not covered by Medicare.

Don’t Forget About Dental, Vision, and Hearing

Original Medicare doesn’t cover routine dental care, vision exams, or hearing aids. You’ll need to seek separate coverage or pay out of pocket for:

• Dental cleanings, fillings, crowns

• Eye exams, glasses, and contacts

• Hearing tests and devices

These services can easily cost hundreds or even thousands of dollars annually depending on your needs.

If You’re Still Working or Have Retiree Coverage

If you have employer-based insurance or retiree coverage, you may think you’re insulated from high Medicare costs. But that coverage can coordinate with Medicare in complex ways:

• You may still be required to enroll in Part B at age 65.

• Your employer or retiree plan may change or end, shifting costs back to you.

• You might have to manage coordination of benefits between multiple plans, which can be confusing and impact how much you pay out of pocket.

Income Can Push Your Costs Higher

Medicare is not immune to income-based pricing. In fact, the more you earn, the more you may be charged. The IRMAA surcharges apply to:

• Part B premiums

• Part D premiums

These surcharges are based on your income from two years prior. That means your 2023 tax return can impact your 2025 Medicare premiums.

If your income changes—for instance, due to retirement or the sale of property—you can request a review, but until then, you’ll be paying the higher rate.

Delayed Enrollment = Long-Term Penalties

Missing your initial enrollment period or not signing up when required can lead to lifetime penalties:

• Part B late enrollment penalty: 10% increase in your premium for each full 12-month period you were eligible but didn’t enroll

• Part D late enrollment penalty: Calculated based on the number of months you were without creditable prescription drug coverage

These penalties don’t disappear. They’re added to your monthly premium for as long as you’re enrolled in Medicare.

Budgeting for Medicare in Retirement

Planning ahead is essential. Here’s how you can prepare for Medicare-related expenses:

• Estimate your total monthly Medicare costs, not just premiums.

• Include drug costs, potential copays, and supplemental coverage.

• Review your Annual Notice of Change (ANOC) each fall to track cost or coverage changes.

• Consider setting aside funds in a health savings account (if eligible before enrolling in Medicare) or in a designated healthcare budget line.

Annual Enrollment Period: A Cost-Saving Opportunity

Each year from October 15 to December 7, the Annual Enrollment Period gives you the chance to reevaluate your coverage. During this time, you can:

• Switch drug plans if your medication needs change

• Review your plan’s formulary and pharmacy network

• Evaluate your out-of-pocket costs versus your coverage

Don’t ignore this window—it’s one of the few chances you have each year to make meaningful changes to control your healthcare expenses.

Getting Strategic About Your Coverage Choices

Choosing Medicare coverage isn’t one-size-fits-all. Consider your health needs, budget, and risk tolerance. Some people are willing to pay higher premiums for more predictable costs, while others prefer lower premiums even if it means paying more when care is needed.

You should:

• Compare out-of-pocket maximums if available

• Weigh premium costs against usage-based expenses

• Think beyond just this year—look at the potential for long-term expenses

Medicare Is Still Valuable—But It’s Not Cheap

There’s no question that Medicare provides crucial health coverage for millions of Americans. But its costs are real, ongoing, and often underestimated.

If you approach your Medicare choices with a clear-eyed understanding of premiums, deductibles, and limitations, you can better prepare yourself for what lies ahead.

Understand the Real Cost of Coverage Before You Choose

If you’re planning for retirement or reviewing your Medicare options, don’t rely on assumptions. The total cost of Medicare in 2025 could be one of your largest recurring monthly bills.

To help ensure you’re choosing coverage that aligns with both your healthcare needs and financial reality, speak with a licensed agent listed on this website. They can offer one-on-one guidance based on your personal circumstances.