Medicare, and what it does not cover

Medicare is frequently assumed to cover healthcare in retirement comprehensively. It covers a great deal and it leaves substantial gaps, and knowing where they are is the point of planning for it.

The parts

Part A covers inpatient hospital care, some skilled nursing facility care, hospice and some home health services. Most people pay no premium, having qualified through working years.

Part B covers outpatient care, physician services, preventive services and durable medical equipment. It has a monthly premium, which increases at higher income levels.

Part C, generally called Medicare Advantage, is an alternative delivery route in which a private plan provides Part A and Part B benefits, frequently bundling drug coverage and additional services.

Part D covers prescription drugs and is offered through private plans.

Supplemental coverage, generally called Medigap, is separate private insurance that covers some of what original Medicare does not.

The gaps that matter

Long-term custodial care. The largest and least understood gap.

Medicare covers skilled nursing care in limited circumstances and for limited periods following a qualifying hospital stay. It does not cover ongoing assistance with daily activities, which is what most long-term care actually consists of.

This is the single most consequential misunderstanding in retirement healthcare planning.

Dental, vision and hearing. Original Medicare provides very limited coverage in these areas. Some Medicare Advantage plans include benefits, frequently with meaningful limits.

Cost sharing. Original Medicare has deductibles, coinsurance and — importantly — no annual out-of-pocket maximum.

That last point is why supplemental coverage exists. Without it, a serious illness can produce open-ended cost sharing.

Care outside the country, which is generally not covered, with limited exceptions.

The decision structure

Broadly, two routes.

Original Medicare plus a supplement plus a drug plan. Broad provider access, predictable costs once the supplement is in place, higher monthly premiums.

Medicare Advantage. Frequently lower or no additional premium, an out-of-pocket maximum, often extra benefits, in exchange for network restrictions and prior authorisation requirements.

Both are legitimate and the right choice depends on health status, provider preferences, travel patterns and budget.

One asymmetry is worth knowing: in many states, the ability to buy a supplement without medical underwriting is guaranteed only during an initial window.

Someone who chooses Medicare Advantage initially may find that switching to original Medicare with a supplement later is subject to underwriting, and may be declined or charged more.

That makes the initial decision less reversible than it appears, and it is under-communicated.

Enrolment timing

Where mistakes are expensive and permanent.

There is an initial enrolment period around the sixty-fifth birthday. Missing it without qualifying coverage can result in lifetime late enrolment penalties for Part B and Part D.

Those penalties are added to premiums for as long as coverage is held, which makes this one of the more costly administrative errors available.

People still working with employer coverage may be able to delay without penalty, and the rules depend on employer size and coverage type.

Health savings account contributions must generally stop before Medicare enrolment, and there are lookback rules that catch people who enrol later.

These interactions are worth checking specifically rather than assuming.

The cost estimates

Various organisations publish estimates of lifetime out-of-pocket healthcare costs for retirees, and the figures are large — commonly cited in the hundreds of thousands of dollars per couple.

These figures are useful for setting expectations and should be treated carefully. They generally exclude long-term care, they are averages across widely varying individual experience, and they are sensitive to the assumptions used.

What they establish reliably is that healthcare is a major retirement expense category rather than an afterthought.

Annual review

Drug plan formularies, premiums and network arrangements change every year.

There is an annual enrolment period during which plans can be changed, and most people do not review, which means they remain in plans that no longer suit their prescriptions.

A yearly check of whether your current medications are covered under your current plan takes an hour and frequently saves a meaningful amount.

General information only, not medical, insurance or financial advice. Medicare rules and costs change annually — consult official Medicare resources and a qualified adviser about your own situation.