Understanding Medicare

2025 costs and coverage — a retirement planning guide

1. What Is Medicare?

Medicare is the federal health insurance program for people aged 65 and older, as well as certain younger people with disabilities or end-stage renal disease. It is not a single plan — it is a collection of coverage parts, each covering a different category of care.

Understanding how the parts fit together is essential for retirement planning because healthcare is consistently one of the largest — and most unpredictable — expenses retirees face.

2. The Four Parts of Medicare

Part A

Hospital Insurance

Inpatient care, skilled nursing, hospice

Premium	Free for most (paid ≥ 10 yrs of Medicare taxes)
Inpatient deductible	$1,676 per benefit period (2025)
Days 1–60	$0 coinsurance
Days 61–90	$419/day coinsurance
Days 91–150 (lifetime reserve)	$838/day coinsurance
Skilled nursing (days 21–100)	$209.50/day (2025)

A 'benefit period' starts the day you're admitted and ends after 60 consecutive days without inpatient care. There is no cap on the number of benefit periods in a lifetime.

Part B

Medical Insurance

Doctor visits, outpatient, preventive care

Standard premium	$185.00/month (2025)
Annual deductible	$257/year (2025)
Your share after deductible	20% of Medicare-approved amount
Out-of-pocket cap	No cap in Original Medicare
Preventive services	Many covered at 100%
Mental health	Covered (same 20% coinsurance)

Higher-income beneficiaries pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of the standard premium. See Section 4.

Part C

Medicare Advantage

All-in-one private plan alternative

How it works	Replaces Parts A & B via private insurer
Typical premium	$0 – $100+/month (varies by plan)
Network	Usually HMO or PPO — referrals may be required
Out-of-pocket max	Required by law (2025 limit: $9,350 in-network)
Extra benefits	Often includes dental, vision, hearing
Part D coverage	Usually bundled in

Advantage plans are popular for their out-of-pocket cap and extra benefits, but care must stay in-network and prior authorizations can be required for specialist referrals.

Part D

Prescription Drug Coverage

Outpatient prescription medications

Standard premium	Varies by plan (~$46/month avg, 2025)
Annual deductible	Up to $590 (2025)
Catastrophic cap	$2,000 max out-of-pocket (2025)
Coverage phases	Deductible → Initial Coverage → Catastrophic
Late enrollment penalty	+1% of national avg premium per month late
How to enroll	Standalone plan (Original Medicare) or via Part C

The Inflation Reduction Act (2022) introduced the $2,000 out-of-pocket cap and a voluntary payment plan for 2025. These are significant improvements over prior years.

3. Medigap (Medicare Supplement) Plans

Original Medicare (Parts A + B) has no out-of-pocket maximum and leaves the 20% coinsurance entirely uncapped. A Medigap policy — sold by private insurers — fills in those gaps.

Plan	Part A Coinsurance	Part B Coinsurance	Part A Deductible	Part B Deductible	Foreign Travel
G (most popular)	100%	100%	100%	Not covered	80%
N	100%	100% (some copays)	100%	Not covered	80%
F (pre-2020 enrollees)	100%	100%	100%	100%	80%
K	100%	50%	50%	Not covered	Not covered
L	100%	75%	75%	Not covered	Not covered

Plan G is now the go-to choice for new enrollees. It covers everything except the Part B deductible ($257/year), making your only predictable out-of-pocket expense the monthly premium.

Buy during Open Enrollment. For the first 6 months after you turn 65 and enroll in Part B, insurers cannot deny you or charge more due to pre-existing conditions. After that window, medical underwriting applies in most states.

Medigap does NOT work with Medicare Advantage. You must choose one path: Original Medicare + Medigap + Part D, or Medicare Advantage (which bundles all three).

4. IRMAA — Higher Premiums for Higher Incomes

The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge added to your Part B and Part D premiums if your modified adjusted gross income (MAGI) from two years prior exceeds certain thresholds. In 2025, the look-back is to 2023 tax returns.

Filing Single / Married Filing Separately

2023 MAGI	Part B Monthly	Part D Surcharge
≤ $106,000	$185.00	$0.00
$106,001 – $133,000	$259.00	$13.70
$133,001 – $167,000	$370.00	$35.30
$167,001 – $200,000	$480.90	$57.00
$200,001 – $500,000	$591.90	$78.60
> $500,000	$628.90	$85.80

Married Filing Jointly

2023 MAGI	Part B Monthly (each)	Part D Surcharge (each)
≤ $212,000	$185.00	$0.00
$212,001 – $266,000	$259.00	$13.70
$266,001 – $334,000	$370.00	$35.30
$334,001 – $400,000	$480.90	$57.00
$400,001 – $750,000	$591.90	$78.60
> $750,000	$628.90	$85.80

IRMAA is a "cliff" surcharge. Earning $1 over a bracket threshold raises your premiums on the entire bracket — not just the overage. A couple filing jointly earning $267,000 pays $185/month each; at $267,001 they each pay $370/month — a $2,220/year jump per person.

You can appeal. If a life-changing event (retirement, divorce, death of spouse) caused your income to drop significantly since the look-back year, file SSA Form SSA-44 to request a lower IRMAA tier based on your current income.

5. When to Enroll — Critical Deadlines

IEP

Initial Enrollment Period (IEP): A 7-month window — 3 months before your 65th birthday month, your birthday month, and 3 months after. This is the ideal time to enroll in Parts A, B, and D.

SEP

Special Enrollment Period (SEP): If you (or your spouse) have employer group health coverage at 65, you may delay Medicare without penalty. The SEP opens when that employer coverage ends — you have 8 months to enroll in Part B.

GEP

General Enrollment Period (GEP): If you missed your IEP and don't qualify for an SEP, you can enroll January 1 – March 31 each year, with coverage starting July 1. Late enrollment penalties apply.

OEP

Annual Open Enrollment (Oct 15 – Dec 7): Each year you can switch between Original Medicare and Medicare Advantage, or change your Part D plan. Changes take effect January 1.

Late enrollment penalties are permanent. Missing your Part B window without a valid SEP adds 10% to your premium for each 12-month period you were eligible but not enrolled — for life. The Part D penalty is 1% of the national base premium per month late, also permanent.

6. What Medicare Does Not Cover

Original Medicare covers a broad range of medically necessary services but has notable gaps retirees often overlook when estimating healthcare costs.

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Routine Dental: Cleanings, fillings, crowns, dentures — not covered under Parts A or B.

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Vision & Eyeglasses: Routine eye exams and glasses are excluded (though cataract surgery is covered).

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Hearing Aids: Not covered; hearing tests for diagnostic purposes may be covered.

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Long-Term Care: Custodial care (help with daily activities) in a nursing home is not covered.

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Out-of-Country Care: Foreign travel emergency coverage is very limited under Part B.

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Most Cosmetic Surgery: Covered only when medically necessary (e.g., after an accident).

7. Retirement Planning Considerations

Budget for premiums + out-of-pocket. A couple on Original Medicare + Plan G + Part D can expect to pay roughly $600–$800/month in total premiums alone (2025), before any actual care costs. Use this as a baseline in your retirement income plan.

Roth conversions can trigger IRMAA. Roth conversions increase your MAGI and can push you into a higher IRMAA bracket two years later. Coordinate conversion amounts with your expected Medicare enrollment date to avoid an unintended surcharge.

HSA funds can pay Medicare premiums. If you accumulated a Health Savings Account balance while working, you can use those tax-free dollars to pay Part B premiums, Part D premiums, and Medicare Advantage premiums in retirement — but not Medigap premiums.

Plan for long-term care separately. Medicare does not cover custodial long-term care. Fidelity's 2024 estimate: a 65-year-old couple may need ~$330,000 for healthcare costs in retirement (excluding long-term care). Adding LTC insurance or a dedicated budget line is prudent.

Sources: Centers for Medicare & Medicaid Services (CMS), Medicare.gov, Social Security Administration. Premiums and thresholds reflect 2025 figures and are adjusted annually. For educational purposes only — consult a licensed Medicare counselor or SHIP (State Health Insurance Assistance Program) advisor for personalized guidance.