Medicare 101: What Every New Retiree Needs to Know

Healthcare is consistently the most underestimated expense in retirement. And the reason is simple: most pre-retirees have been covered by employer insurance for decades and have little experience navigating Medicare. When they finally sign up, the complexity — and the cost — comes as a genuine shock.

This guide cuts through the confusion. Here is what Medicare covers, what it costs, and the decisions you need to make to avoid expensive mistakes.

The Four Parts of Medicare

Part A: Hospital Insurance

Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Most people pay no premium for Part A if they or their spouse worked and paid Medicare taxes for at least 10 years (40 quarters). If you don't qualify for premium-free Part A, you can still enroll — but you'll pay a monthly premium.

Part A is not free at the point of service. There is a per-benefit-period deductible (in 2025, approximately $1,632) and coinsurance costs for extended hospital stays beyond 60 days.

Part B: Medical Insurance

Part B covers outpatient care — doctor visits, preventive services, lab tests, medical equipment, and some home health services. Unlike Part A, Part B has a monthly premium. The standard Part B premium in 2025 is approximately $185 per month per person, though higher-income retirees pay more through an income-related surcharge called IRMAA.

Part B also has an annual deductible (approximately $257 in 2025), after which Medicare typically covers 80% of approved costs. You are responsible for the remaining 20% — with no out-of-pocket maximum under original Medicare alone.

Part C: Medicare Advantage

Part C, also called Medicare Advantage, is an alternative to original Medicare offered by private insurers. These plans bundle Parts A and B coverage (and usually Part D drug coverage) into a single plan that often includes extras like dental, vision, and hearing.

Medicare Advantage plans typically have lower premiums than original Medicare plus a supplement, but they use provider networks and require prior authorization for many services. They can work well for healthy retirees who stay within their network, but can be costly and restrictive for those with complex medical needs.

Part D: Prescription Drug Coverage

Part D covers prescription drugs. If you choose original Medicare (Parts A and B), you'll need to add a stand-alone Part D plan. Medicare Advantage plans usually include drug coverage. Part D premiums, deductibles, and copays vary widely by plan. Choosing the wrong Part D plan for your specific medications can cost hundreds of dollars per year more than necessary.

Original Medicare vs. Medicare Advantage: The Key Differences

Medigap: Filling the Gaps in Original Medicare

Original Medicare leaves you exposed to significant out-of-pocket costs — the 20% coinsurance under Part B has no cap. A Medigap (Medicare Supplement) policy is private insurance that covers some or all of those leftover costs.

Medigap plans are standardized and labeled by letter (Plan G and Plan N are currently among the most popular). Plan G covers nearly all out-of-pocket costs under original Medicare except the Part B deductible. The monthly premium for Medigap varies by plan, age, location, and insurer — but typically ranges from $100 to $250+ per month.

The best time to buy Medigap is during your Medigap Open Enrollment Period — the 6-month window starting the month you turn 65 and enroll in Part B. During this window, insurers cannot deny you coverage or charge more due to pre-existing conditions. After this window closes, medical underwriting applies and you can be rejected or charged higher premiums.

Medicare Enrollment: Deadlines That Matter

Missing Medicare enrollment deadlines can result in permanent premium penalties that apply for the rest of your life. Here are the critical windows:

Initial Enrollment Period (IEP)

This is a 7-month window: 3 months before your 65th birthday month, the birthday month itself, and 3 months after. Enrolling during the first 3 months means coverage starts the month you turn 65. Waiting until after your birthday month delays coverage start.

Special Enrollment Period (SEP)

If you are still covered by an employer health plan through active employment at 65, you can delay Medicare without penalty and enroll during a Special Enrollment Period when that coverage ends. This does not apply to COBRA or retiree health coverage — those do not qualify for the SEP.

Late Enrollment Penalties

If you miss your enrollment window and don't qualify for a SEP, the penalties are permanent and compounding:

• Part B penalty: 10% added to your premium for every 12-month period you were eligible but not enrolled
• Part D penalty: 1% of the national base premium for every month you were without creditable drug coverage

How Medicare Costs Affect Your Retirement Budget

A realistic Medicare budget for a retiree in 2025 might look like this:

• Part B premium: ~$185/month
• Medigap Plan G: ~$150–$200/month
• Part D drug plan: ~$30–$80/month
• Dental/vision (not covered by Medicare): ~$50–$100/month

That totals $415 to $565 per month — and that does not include out-of-pocket costs for actual medical care, which can vary dramatically. Many retirees budget $500 to $700+ per month for total healthcare, and those with chronic conditions often spend more.

This is exactly why healthcare costs are the most common reason retirees score lower than expected on their Retirement Comfort Score. If your healthcare expenses are not accurately reflected in your monthly expense calculation, your score is overstated.