Understanding Medicare: 6 Surprise Medicare Costs to Avoid

Estimated read time: ~7 minutes

Summary: Medicare provides seniors over 65 with healthcare coverage, but if you don’t understand the program, some Medicare costs may surprise you and put a dent in your wallet. Familiarize yourself with the intricacies through this Medicare guide

Most people know they become eligible for Medicare at age 65 and that it will help pay a large portion of their hospital and doctor bills. However, they might not be aware of exactly what Medicare does and doesn’t cover.

It’s essential to understand your Medicare costs because you may be able to reduce unanticipated expenses with careful planning.

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Build a basic understanding of Medicare

Original, or traditional, Medicare has two parts. Part A is hospital insurance and Part B covers outpatient care, such as doctor visits and medical tests.

You also have the option to enroll in Medicare Advantage plans (Part C) from private insurers. Medicare Advantage plans cover everything traditional Medicare does, but they typically also offer coverage for other expenses such as prescription drugs, dental care and routine care for vision and hearing.

Medicare Advantage may lower your Medicare costs, but you are generally limited to seeing doctors who are in your plan’s network. On the other hand, Original Medicare allows you to go to any doctor who accepts Medicare.

How much does Medicare cost?

How much does Medicare cost? Medicare costs usually increase yearly and are based on your income two years prior. Most people over 65 won’t have to pay anything for Medicare Part A coverage if they or their spouse worked for at least ten years and contributed to Medicare taxes on their income. In 2025, premiums for Medicare Part B coverage will cost $185 per month for individuals earning under $106,000 per year.

If you aren’t prepared for how Medicare works, your Medicare costs could give you sticker shock. Here are six Medicare surprise expenses to watch out for:

1. Late-enrollment Penalties

You have a seven-month window to sign up for Medicare. It starts three months before the month of your 65th birthday and extends for three months after your birthday month. For example, if you have a June birthday, your initial enrollment period runs from March 1 through September 30.

If you miss your enrollment deadline, you’ll owe some hefty late penalties.¹ For instance, if you fail to sign up for Medicare Part B on time, your Medicare Part B premium will rise by 10% for each 12-month period you did not have Part B. And the penalty is lifelong.

An exception can be made if you or your spouse works for an employer with at least 20 employees and you are covered under its group plan (not counting coverage under COBRA). In such a case, you can delay enrolling in Medicare. However, starting the month after your employment or group coverage ends, you have eight months to enroll in Medicare to avoid penalties.²

You may also get hit with a late penalty if you don’t sign up for prescription drug coverage (Part D) when enrolling in Medicare and later decide you want it. The penalty is triggered if you have gone more than 63 consecutive days without Part D or other “creditable” coverage that is as good or better than Part D. You’ll pay 1% of the national base beneficiary premium, $36.78 in 2025, for every month you didn’t have drug coverage.³ That penalty is generally added to your Part D premium, and you’ll pay it for as long as you have Medicare prescription drug coverage. (NOTE: Most Medicare Advantage Plans include Medicare drug coverage (Part D).)

To learn more about Medicare enrollment periods, see When to Enroll in Medicare.

2. Deductibles and Co-Insurance

As with workplace or individual health insurance plans, Original Medicare also has co-pays, deductibles and coinsurance (a percentage of covered healthcare costs you pay after the Medicare deductible). For example, Medicare Part B pays 80% of the approved amount for doctors and other medical services, while you are responsible for the remaining 20%.

To help with these expenses and others, you can add Medicare supplement insurance sold by private insurers. The six-month Medicare Open Enrollment period for a Medicare supplement insurance policy starts the first day of the month in which you are at least 65 and enrolled in Medicare Part B. During this time, you can’t be denied a Medicare supplement insurance policy or charged more because of your health.

3. Prescription Drugs

Your Medicare Parts A and B don’t cover most outpatient prescription drugs. However, you can buy a separate Medicare Part D prescription drug plan that does cover them or a Medicare Advantage plan that covers both medical and drug costs.

To enroll in Part D, you must be enrolled in Original Medicare. Most Medicare Advantage plans include Part D coverage. Private insurers offering Part D maintain their own list of covered drugs, called a formulary, and the price of medications can differ under each plan. Make sure the Part D plan you choose covers your medications. To shop for Part D plans – and compare the cost of your medications under each – you can use Medicare’s Plan Finder.

4. Long-term Care

One big misconception about Medicare is that it will cover long-term care. Your Medicare plan may cover skilled nursing care for a limited period, such as when recovering from an injury or illness. However, it won’t pay for the kind of extended custodial care that nursing homes provide — help with bathing, dressing, eating and other daily activities.

You can turn instead to Medicaid, a joint state and federal program, that covers nursing home costs for those with very limited assets. Otherwise, you will have to pay for long-term care out-of-pocket, with long-term care insurance or with a hybrid policy that combines long-term care and life insurance benefits.

For some people, long-term care could be their biggest healthcare bill in retirement. Use our long-term care calculator to find the projected cost of care in your area.

5. Dental, Vision and Hearing

With few exceptions, Medicare Part A and B won’t cover routine dental care such as cleanings, nor basic and major dental procedures such as fillings, tooth extractions, root canals, bridge or dentures. It also won’t pay for routine eye exams or eyeglasses and contact lenses. And if you need hearing aids, you’ll be responsible for the cost.

Some Medicare Advantage insurance plans may offer limited coverage for these expenses. You can help also cover the costs with an individual dental insurance policy.

Another option is to fund a tax-friendly health savings account (HSA) now that can help you pay for these expenses later. If you’re not enrolled in Medicare yet and have a high deductible insurance policy, you can set aside pre-tax money in an HSA. The HSA maximum contribution limit in 2025 is $4,300 for single health coverage and $8,550 for family coverage.⁴ The invested dollars grow tax-deferred and can be withdrawn tax-free at any age for a wide range of medical expenses. You can also use HSA money to pay Medicare and Medicare Advantage premiums, but not Medicare supplement insurance premiums.

6. Overseas Coverage

Some people tend to travel more often in retirement. However, their Medicare coverage generally doesn’t go with them, except in a few medical emergencies.

That doesn’t mean you have to travel uninsured. Most Medicare supplement insurance policies, also known as Medigap, cover 80% of emergency care outside the US, although the lifetime limit is $50,000. You can also purchase a travel insurance policy with medical coverage, which might also include emergency evacuations. If you plan to travel abroad during retirement, check out these tips for traveling overseas with Medicare.

Spending some time planning in advance and evaluating your options for enrolling in Medicare is bound to serve you well. Educate yourself on the basics about your Medicare costs so you can be prepared to choose the coverage that best fits your needs. At Mutual of Omaha, we’re committed to helping people understand Medicare — we know it can be confusing! Visit our Medicare Advice Center to get a personalized Medicare recommendation just for you. Or, visit our Medicare Questions for quick answers to common questions.

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¹ Medicare.gov. Web page: Avoid late enrollment penalties. Retrieved Nov. 26, 2024, from www.medicare.gov/basics/costs/medicare-costs/avoid-penalties

² Medicare.gov. Web page: Working past 65. Retrieved Nov. 26, 2024, from www.medicare.gov/basics/get-started-with-medicare/medicare-basics/working-past-65

³ Medicare.gov. Web page: Part D late enrollment penalty. Retrieved on Nov. 26, 2024, from www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/part-d-late-enrollment-penalty

⁴ Health Insurance Marketplace. Web page: What’s a Health Savings Account. Retrieved on Nov. 26, 2024 from https://www.cms.gov/marketplace/outreach-and-education/health-savings-account.pdf