Planning for Healthcare Costs in Retirement: Why Medicare Isn’t Enough
Healthcare often becomes one of the largest and most underestimated retirement expenses. From Medicare premiums to prescription drugs and long-term care, this article from Greenbush Financial Group explains why healthcare planning is critical—and how to prepare before and after age 65.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
When most people picture retirement, they imagine travel, hobbies, and more free time—not skyrocketing healthcare bills. Yet, one of the biggest financial surprises retirees face is how much they’ll actually spend on medical expenses.
Many retirees dramatically underestimate their healthcare costs in retirement, even though this is the stage of life when most people access the healthcare system the most. While it’s common to pay off your mortgage leading up to retirement, it’s not uncommon for healthcare costs to replace your mortgage payment in retirement.
In this article, we’ll cover:
Why Medicare isn’t free—and what parts you’ll still need to pay for.
What to consider if you retire before age 65 and don’t yet qualify for Medicare.
The difference between Medicare Advantage and Medicare Supplement plans.
How prescription drug costs can take retirees by surprise.
The reality of long-term care expenses and how to plan for them.
Planning for Healthcare Before Age 65
For those who plan to retire before age 65, healthcare planning becomes significantly more complicated—and expensive. Since Medicare doesn’t begin until age 65, retirees need to bridge the coverage gap between when they stop working and when Medicare starts.
If your former employer offers retiree health coverage, that’s a tremendous benefit. However, it’s critical to understand exactly what that coverage includes:
Does it cover just the employee, or both the employee and their spouse?
What portion of the premium does the employer pay, and how much is the retiree responsible for?
What out-of-pocket costs (deductibles, copays, coinsurance) remain?
If you don’t have retiree health coverage, you’ll need to explore other options:
COBRA coverage through your former employer can extend your workplace insurance for up to 18 months, but it’s often very expensive since you’re paying the full premium plus administrative fees.
ACA marketplace plans (available through your state’s health insurance exchange) may be an alternative, but premiums and deductibles can vary widely depending on your age, income, and coverage level.
In many cases, healthcare costs for retirees under 65 can be substantially higher than both Medicare premiums and the coverage they had while working. This makes it especially important to build early healthcare costs into your retirement budget if you plan to leave the workforce before age 65.
Medicare Is Not Free
At age 65, most retirees become eligible for Medicare, which provides a valuable foundation of healthcare coverage. But it’s a common misconception that Medicare is free—it’s not.
Here’s how it breaks down:
Part A (Hospital Insurance): Usually free if you’ve paid into Social Security for at least 10 years.
Part B (Medical Insurance): Covers doctor visits, outpatient care, and other services—but it has a monthly premium based on your income.
Part D (Prescription Drug Coverage): Also carries a monthly premium that varies by plan and income level.
Example:
Let’s say you and your spouse both enroll in Medicare at 65 and each qualify for the base Part B and Part D premiums.
In 2025, the standard Part B premium is approximately $185 per month per person.
A basic Part D plan might average around $36 per month per person.
Together, that’s about $220 per person, or $440 per month for a couple—just for basic Medicare coverage. And this doesn’t include supplemental or out-of-pocket costs for things Medicare doesn’t cover.
NOTE: Some public sector or state plans even provide Medicare Part B premium reimbursement once you reach 65—a feature that can be extremely valuable in retirement.
Medicare Advantage and Medicare Supplement Plans
While Medicare provides essential coverage, it doesn’t cover everything. Most retirees need to choose between two main options to fill in the gaps:
Medicare Advantage (Part C) plans, offered by private insurers, bundle Parts A, B, and often D into one plan. These plans usually have lower premiums but can come with higher out-of-pocket costs and limited provider networks.
Medicare Supplement (Medigap) plans, which work alongside traditional Medicare, help pay for deductibles, copayments, and coinsurance.
It’s important not to simply choose the lowest-cost plan. A retiree’s prescription needs, frequency of care, and preferred doctors should all factor into the decision. Choosing the cheapest plan could lead to much higher out-of-pocket expenses in the long run if the plan doesn’t align with your actual healthcare needs.
Prescription Drug Costs: A Hidden Retirement Expense
Prescription drug coverage is one of the biggest cost surprises for retirees. Even with Medicare Part D, out-of-pocket expenses can add up quickly depending on the medications you need.
Medicare Part D plans categorize drugs into tiers:
Tier 1: Generic drugs (lowest cost)
Tier 2: Preferred brand-name drugs (moderate cost)
Tier 3: Specialty drugs (highest cost, often with no generic alternatives)
If you’re prescribed specialty or non-generic medications, you could spend hundreds—or even thousands—per month despite having coverage.
To help, some states offer programs to reduce these costs. For example, New York’s EPIC program helps qualifying seniors pay for prescription drugs by supplementing their Medicare Part D coverage. It’s worth checking if your state offers a similar benefit.
Planning for Long-Term Care
One of the most misunderstood aspects of Medicare is long-term care coverage—or rather, the lack of it.
Medicare only covers a limited number of days in a skilled nursing facility following a hospital stay. Beyond that, the costs become the retiree’s responsibility. Considering that long-term care can easily exceed $120,000 per year, this can be a major financial burden.
Planning ahead is essential. Options include:
Purchasing a long-term care insurance policy to offset future costs.
Self-insuring, by setting aside savings or investments for potential care needs.
Planning to qualify for Medicaid through strategic trust planning
Whichever route you choose, addressing long-term care early is key to protecting both your assets and your peace of mind.
Final Thoughts
Healthcare is one of the largest—and most underestimated—expenses in retirement. While Medicare provides a foundation, retirees need to plan for premiums, prescription costs, supplemental coverage, and potential long-term care needs.
If you plan to retire before 65, early planning becomes even more critical to bridge the gap until Medicare begins. By taking the time to understand your options and budget accordingly, you can enter retirement with confidence—knowing that your healthcare needs and your financial future are both protected.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQ)
Why isn’t Medicare enough to cover all healthcare costs in retirement?
While Medicare provides a solid foundation of coverage starting at age 65, it doesn’t pay for everything. Retirees are still responsible for premiums, deductibles, copays, prescription drugs, and long-term care—expenses that can add up significantly over time.
What should I do for healthcare coverage if I retire before age 65?
If you retire before Medicare eligibility, you’ll need to bridge the gap with options like COBRA, ACA marketplace plans, or employer-sponsored retiree coverage. These plans can be costly, so it’s important to factor early healthcare premiums and out-of-pocket expenses into your retirement budget.
What are the key differences between Medicare Advantage and Medicare Supplement plans?
Medicare Advantage (Part C) plans combine Parts A, B, and often D, offering convenience but limited provider networks. Medicare Supplement (Medigap) plans work alongside traditional Medicare to reduce out-of-pocket costs. The right choice depends on your budget, health needs, and preferred doctors.
How much should retirees expect to pay for Medicare premiums?
In 2025, the standard Medicare Part B premium is around $185 per month, while a basic Part D plan averages about $36 monthly. For a married couple, that’s roughly $440 per month for both—before adding supplemental coverage or out-of-pocket expenses. These costs should be built into your retirement spending plan.
Why are prescription drugs such a major expense in retirement?
Even with Medicare Part D, out-of-pocket drug costs can vary widely based on your prescriptions. Specialty and brand-name medications often carry high copays. Programs like New York’s EPIC can help eligible seniors manage these costs by supplementing Medicare coverage.
Does Medicare cover long-term care expenses?
Medicare only covers limited skilled nursing care following a hospital stay and does not pay for most long-term care needs. Since extended care can exceed $120,000 per year, retirees should explore options like long-term care insurance, Medicaid planning, or setting aside savings to self-insure.
How can a financial advisor help plan for healthcare costs in retirement?
A financial advisor can estimate future healthcare expenses, evaluate Medicare and supplemental plan options, and build these costs into your retirement income plan. At Greenbush Financial Group, we help retirees design strategies that balance healthcare needs with long-term financial goals.
