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.
New Ways to Plan for Long-Term Care Costs: Self-Insure & Medicaid Trusts
Planning for long-term care is harder than ever as insurance premiums rise and availability shrinks. In 2025, families are turning to two main strategies: self-insuring with dedicated assets or using Medicaid trusts for protection and eligibility. This article breaks down how each option works, their pros and cons, and which approach fits your financial situation. Proactive planning today can help you protect assets, reduce risks, and secure peace of mind for retirement.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Planning for long-term care has always been one of the most challenging aspects of a retirement plan. For decades, the go-to solution was purchasing long-term care insurance. But as we move into 2025, this option is becoming less viable for many families due to skyrocketing premiums and shrinking availability associated with long-term care insurance. For example, in New York, there is now only one insurance company still offering new long-term care insurance policies. Carriers are exiting the market because the probability of policies paying out is high, and the dollar amounts associated with these claims can easily be in excess of $100,000 per year.
So where does that leave retirees and their families? Fortunately, there are two primary strategies that have emerged as alternatives:
Self-insuring by setting aside a dedicated pool of assets for potential care.
Using Irrevocable or Medicaid trusts to protect assets and plan for Medicaid eligibility.
In this article, we’ll break down each approach, their pros and cons, and what you should consider when deciding which path makes sense for you.
The Self-Insurance Strategy
Self-insuring means you create a separate “bucket” of assets earmarked specifically for long-term care needs. Instead of paying tens or even hundreds of thousands of dollars in premiums over the years for the long-term insurance coverage, those funds stay in your name. If a long-term care event never occurs, those assets simply pass on to your beneficiaries.
The benefits:
Flexibility—you decide how, when, and where care is provided.
Assets remain under your control and stay in your estate.
Avoid the risk of paying for insurance you never use.
The challenges:
You need significant extra assets, beyond what you already need to meet your retirement income goals.
Costs can be substantial—long-term care can run $120,000 to $200,000 per year, depending on location and type of care.
Self-insuring works best for those who have enough wealth to comfortably dedicate a portion of their portfolio to this potential risk without jeopardizing their retirement lifestyle.
The Trust Approach
For individuals or couples without the level of assets needed to fully self-insure, the next common strategy is using Irrevocable trusts (often called Medicaid trusts). These trusts are designed to protect non-retirement assets so that if you need long-term care in the future, you may qualify for Medicaid without having to spend down all your savings.
How it works:
Assets placed into an irrevocable trust are no longer counted as yours for Medicaid eligibility purposes.
If structured properly and far enough in advance, this can preserve assets for heirs while ensuring that Medicaid can help cover long-term care.
Important considerations:
There is typically a five-year look-back period in most states. If assets aren’t in the trust at least five years before applying for Medicaid, the strategy can fail.
Medicaid doesn’t cover everything. For example, around-the-clock home health care often isn’t fully covered, which limits flexibility.
The trust strategy is most effective for individuals who wish to protect their assets but recognize that care options may be limited to facilities and providers that accept Medicaid.
Which Approach is Right for You?
Ultimately, the choice between self-insuring and using a trust comes down to your financial position and your preferences for future care.
If you value flexibility and have the assets, self-insuring is often the preferred option.
If resources are more limited, a trust strategy can provide asset protection and access to Medicaid, even though it may reduce your care options.
The Key Takeaway: Plan Ahead
Whether you choose to self-insure, set up a trust, or use a combination of both, the most important factor is timing. These strategies require proactive planning—often years in advance. With costs continuing to rise and traditional long-term care insurance becoming less accessible, exploring these new approaches early can help protect both your assets and your peace of mind.
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 (FAQs)
Why is traditional long-term care insurance becoming less viable?
Long-term care insurance has become less practical due to rising premiums, stricter underwriting, and fewer insurers offering new policies. Many carriers have exited the market because claim payouts are large and frequent, making policies increasingly expensive for consumers.
What does it mean to self-insure for long-term care?
Self-insuring means setting aside a dedicated portion of your assets to cover potential long-term care expenses instead of paying insurance premiums. This approach offers flexibility and keeps assets under your control but requires sufficient wealth to handle potentially high annual costs.
Who is best suited for a self-insurance strategy?
Self-insuring typically works best for individuals or couples with substantial savings beyond what’s needed for retirement income. Those with enough assets can earmark funds for potential care without endangering their financial security or lifestyle.
What is a Medicaid or irrevocable trust, and how does it help with long-term care planning?
An irrevocable or Medicaid trust allows individuals to transfer assets out of their name, potentially helping them qualify for Medicaid coverage without depleting all their savings. If created properly and early enough, it can preserve wealth for heirs while enabling access to Medicaid-funded care.
What are the limitations of using a trust for long-term care planning?
Medicaid trusts must be established at least five years before applying for benefits to meet look-back rules. Additionally, Medicaid may not cover all types of care, such as full-time home assistance, which can limit personal choice and flexibility.
When should you start planning for long-term care needs?
It’s best to plan well in advance—ideally several years before care is needed. Early planning allows time to build assets for self-insuring or to structure a trust properly for Medicaid eligibility, reducing financial and emotional stress later.
