Key Takeaways

• Medicare often seems affordable upfront, but ongoing and hidden costs can lead to significant financial surprises.

• Understanding each part of Medicare and its limitations is essential to avoid unexpected out-of-pocket expenses.

The Assumption: Medicare Covers Most Costs

When you first enroll in Medicare, you might assume that it functions like a full health insurance plan with minimal additional expenses. After all, it’s a federal program designed to help retirees and older adults manage healthcare. However, Medicare isn’t free, and it’s certainly not all-inclusive. The reality is that while it provides a critical foundation for coverage, many services come with their own costs—and those can stack up quickly if you’re not prepared.

What Original Medicare Covers—And What It Leaves Out

Original Medicare consists of Part A (hospital insurance) and Part B (medical insurance). Here’s what each generally includes:

Part A

• Inpatient hospital stays

• Skilled nursing facility care (short-term)

• Hospice care

• Some home health care

Most people don’t pay a monthly premium for Part A if they paid Medicare taxes for 10 years or more. However, you still face deductibles and coinsurance. In 2025, the Part A deductible is $1,676 per benefit period. After 60 days in a hospital, you start paying daily coinsurance.

Part B

• Outpatient care

• Doctor visits

• Durable medical equipment

• Preventive services

Part B does come with a monthly premium, which in 2025 is $185 for most people. After meeting the $257 annual deductible, you typically pay 20% of the Medicare-approved amount for services. That 20% might sound small, but it quickly adds up with ongoing medical care or multiple visits.

Why the Costs Don’t Stop There

Even with Part A and Part B, there are still substantial gaps that Medicare doesn’t fill. Some of the most common areas where beneficiaries are surprised by charges include:

Prescription Drugs

Original Medicare doesn’t include coverage for most outpatient prescription drugs. You need a separate Part D plan for that, which comes with its own premium, deductible (up to $590 in 2025), and out-of-pocket costs. While 2025 introduces a $2,000 cap on annual drug spending under Part D, until you reach that threshold, you’re still responsible for copayments and cost-sharing.

Dental, Vision, and Hearing Services

Routine dental exams, dentures, eye exams for glasses, and hearing aids are not covered under Original Medicare. Paying out of pocket for these essential services often comes as a shock, especially when they are tied to chronic conditions or safety issues.

Long-Term Care

Perhaps one of the most expensive surprises is that Medicare doesn’t cover long-term custodial care, such as help with bathing, dressing, or eating, whether in a nursing home or at home. While short-term skilled nursing care is covered under certain conditions, long-term care must be paid privately unless you qualify for Medicaid.

Excess Charges

Some doctors do not accept Medicare’s approved amount as full payment and can charge up to 15% more. These excess charges aren’t covered by Medicare, and unless you have supplemental coverage, you’re on the hook.

Annual Increases and Premium Adjustments

You may assume Medicare costs stay relatively stable. However, premiums, deductibles, and coinsurance amounts can rise each year. For example:

• Part B premiums rose from $174.70 in 2024 to $185 in 2025.

• The Part A deductible increased from $1,632 in 2024 to $1,676 in 2025.

• Part D plan costs also adjust annually, including the deductible and the share of drug costs.

Over the course of a 20- or 30-year retirement, these incremental increases can eat into your fixed income.

IRMAA: Income-Related Monthly Adjustments

If your income exceeds certain thresholds, you’ll pay more for both Part B and Part D. This surcharge is called the Income-Related Monthly Adjustment Amount (IRMAA). In 2025, individuals with income over $106,000 and couples over $212,000 pay higher premiums.

These adjustments can be unexpected for those who experience a spike in income due to investment withdrawals, property sales, or delayed retirement accounts.

Surprise Billing for Non-Covered Services

Not all services you assume are medically necessary are automatically covered. If Medicare deems a test or procedure “not medically necessary,” even if your doctor ordered it, you could be left with the full bill.

This is especially common with diagnostic imaging, physical therapy beyond the coverage cap, or advanced lab testing. If you’re not informed in advance, you may be blindsided by a high bill.

Costs from Using Out-of-Network or Non-Participating Providers

Medicare allows you to see any provider who accepts Medicare, but some doctors “accept assignment,” while others do not. If a doctor doesn’t accept assignment:

• They can bill you more than the Medicare-approved amount.

• You may have to pay the full cost upfront and submit a claim to Medicare yourself.

This is an area where costs can spike unexpectedly, especially in emergencies or when traveling.

Hospital Observation Status: A Common Trap

If you’re kept in a hospital under “observation” status rather than being admitted as an inpatient, Part A doesn’t cover your stay. Instead, you’re billed under Part B. This affects:

• Hospital stay billing

• Eligibility for skilled nursing facility care afterward

Many people don’t realize this classification difference until they receive a bill that’s much higher than expected.

Skilled Nursing Facility Requirements

To qualify for Medicare-covered skilled nursing care, you must meet strict criteria:

• You must have a qualifying 3-day inpatient hospital stay.

• The nursing care must be for the same condition treated in the hospital.

Miss one of these criteria, and you could be paying $6,000 to $10,000 per month out of pocket.

The Limitations of Preventive Services

While Medicare Part B covers many preventive services with no cost sharing (such as mammograms, colonoscopies, and diabetes screenings), this only applies when:

• The service is coded as a preventive visit.

• There are no findings requiring further testing.

If the screening leads to a diagnostic follow-up in the same visit, you could be charged.

Yearly Out-of-Pocket Costs Add Up

Even with Medicare coverage, you face multiple layers of recurring costs each year:

• Monthly premiums (Part B, Part D)

• Deductibles (Part A, Part B, Part D)

• Coinsurance (often 20% or more)

• Copayments for drugs and services

• Supplemental plan premiums if you choose to fill gaps

It’s common for retirees to spend thousands of dollars each year out-of-pocket, even when staying in-network and following all Medicare rules.

The Need for Supplemental Coverage

Because of all these gaps, many beneficiaries seek supplemental insurance. These plans help cover deductibles, coinsurance, and other expenses. However, they come with their own monthly premiums and may not cover every cost or provider.

Supplemental coverage helps protect against financial risk, but it’s important to:

• Compare plan options during your enrollment window

• Understand what each plan covers and excludes

• Know how these plans interact with Medicare billing

Without a supplement, you could face substantial medical bills over the long run.

Why Medicare Still Matters—Despite the Charges

Despite these hidden and surprise costs, Medicare provides critical coverage that would be far more expensive on the private market. But you have to approach it with awareness. The myth that Medicare is a low-cost solution can lead to underestimating your actual healthcare expenses in retirement.

Preparing a budget that includes:

• Projected premium increases

• Out-of-pocket estimates

• Supplemental insurance costs

…can help you avoid the shock that so many retirees experience.

Understanding Medicare’s True Costs Is the First Step

Medicare can be one of the most confusing and financially surprising parts of retirement. What seems affordable on paper often expands in cost once you include uncovered services, annual increases, and out-of-pocket exposure.

To avoid surprises and protect your finances, it’s essential to:

• Review your Medicare Summary Notice (MSN) regularly

• Ask providers if they accept Medicare assignment

• Confirm whether services are considered preventive or diagnostic

• Know your annual deductibles and coverage limits

If you’re unsure whether your current plan meets your needs, or you’re just starting Medicare, now is the time to get expert advice.

Learn More About Your Medicare Costs

If you’re starting to see unexpected bills or are concerned about how your Medicare costs might increase in the future, don’t wait. A licensed agent listed on this website can walk you through your current plan, potential gaps, and options to reduce out-of-pocket exposure.

Schedule a consultation to ensure you understand your real Medicare costs and explore coverage that better aligns with your healthcare needs.