By Scott Hamilton, CFP®
For many retirees, Medicare is a cornerstone of their financial and healthcare planning. Since its launch in 1965, the program has grown to serve over 66 million Americans, with nearly all individuals 65 and older relying on it in some form.
Even so, the variety of Medicare plans and options can be overwhelming. Without a solid understanding, it’s easy to make choices that may be costly or limiting. If you’ve ever felt unsure about which plan is right for you, a thorough Medicare assessment can provide the guidance and confidence needed to make informed decisions.
Table of Contents
What Is Medicare?
Medicare is a health insurance program provided by the federal government for people over the age of 65 as well as disabled individuals. As mentioned, it plays a key role in covering healthcare costs in retirement, but it is not meant to cover everything. Understanding its coverage and its limitations is a crucial part of being prepared for retirement. Medicare is divided into four parts: Part A, Part B, Part C, and Part D. There are also supplemental coverages to consider to fill in any gaps not covered in the four main parts. Here is an overview of the different options to review as you approach retirement:- Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium.
- Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium.
- Part D is an optional add-on that includes drug coverage that also comes with a monthly premium. Starting in 2025, those with Part D plans will not have to pay more than $2,000 per year in co-pays, deductibles, and coinsurance. The cap could rise, though, and will be indexed to the growth of the per capita Part D costs each year.
- Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. A new change that was implemented in 2024 is the Guiding an Improved Dementia Experience (GUIDE) program which provides 24/7 support, medical and community-services assistance, and caregiver training to help dementia patients and their caregivers, along with $2,500 in financial assistance for at-home, overnight, or adult day care expenses. This program’s coverage will expand four-fold in 2025 to help more patients (only those enrolled in Traditional Medicare) across the country.
- To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap plans also cover additional services not covered by Part A or Part B, but typically exclude services such as dental, vision, and hearing visits.
- Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B and often includes Part D as well. Medicare Advantage plans may cover additional services, including vision, hearing, and dental visits, but it is dependent on the terms of each plan. Also, if you’re enrolled in Medicare Advantage and you switch to Original Medicare, you may not automatically qualify for a Medigap policy and could face additional underwriting.
Income Related Monthly Adjustment Amount (IRMAA)
Regardless of whether you have Original Medicare or Medicare Advantage, you may pay an extra charge added to your Part B premium called an Income Related Monthly Adjustment Amount (IRMAA). In short, if your Modified Adjusted Gross Income (MAGI) as reported on your IRS tax return from two years ago is above a certain amount, you’ll pay the standard premium amount plus an IRMAA charge. For example, in 2025 if you’re a single taxpayer and your MAGI is between $106,000 and $133,000, your projected IRMAA charge is $71.00. Expect to pay the same $71.00 if you’re a married couple filing jointly and have a MAGI between $212,000 and $265,000. Here’s another example. Let’s say you’re a single taxpayer with a MAGI of between $199,000 and $500,000. Your projected 2025 IRMAA monthly charge is $396. Similarly, if you’re a couple filing jointly with a MAGI of between $398,000 and $750,000, you’ll pay the same $396 IRMAA adjustment. (You can find 2025 premium costs here.) Keep in mind, no form of Medicare covers long-term care. If these expenses are not properly planned for, it can be costly and detrimental to your overall retirement plan.What to Expect?
What to expect depends on which stage of the Medicare process you’re in. To enroll in Medicare, anticipate signing up during the three months before or three months after your 65th birthday. If you’re already receiving Social Security, you’re automatically enrolled in Medicare Parts A and B. Medicare Part D, Medigap, and Medicare Advantage are optional and you sign up for them separately. Every year, Medicare open enrollment runs from October 15th to December 7th. If you’re already enrolled in Medicare, these are the changes you can make to your coverage during open enrollment:- Parts A & B enrollees can switch to Part C.
- Part C (Medicare Advantage) enrollees can switch back to Original Medicare or change to a different Medicare Advantage Plan. Heads-up! Once you are past your one-time Medigap open enrollment period and you want to switch back to Original Medicare, you may not be able to qualify for an affordably priced Medigap plan.
- Part D enrollees can switch to a different Part D plan or drop their prescription drug plan altogether.
