Medicare

Medicare is the federal health insurance program for Americans 65 and older and for certain younger people with disabilities. For most retirees, it is the foundation of healthcare coverage in retirement — but it is more complicated, more expensive, and more individually specific than most people expect when they first encounter it.

Medicare is an individual benefit. Unlike employer-sponsored health insurance, which often covers an entire family under a single plan, Medicare covers one person at a time. A married couple each needs their own Medicare enrollment, their own premium payments, and their own coverage decisions. This individual structure has significant financial implications — particularly for couples where one spouse is older, one is still working, or their health needs differ substantially.

Understanding how Medicare works before you reach 65 — ideally years before — determines how well your retirement income plan accounts for one of its largest fixed costs.

Part A: Hospital Insurance

Medicare Part A covers inpatient hospital stays, skilled nursing facility care following a hospital stay, hospice care, and some home health services. For most people, Part A has no monthly premium — you have paid for it through the Medicare payroll tax (1.45% of wages, matched by your employer) over your working career. If you or your spouse paid Medicare taxes for at least 40 quarters (10 years), Part A is premium-free.

Premium-free does not mean cost-free. Part A has its own cost-sharing structure:

• Inpatient deductible: $1,676 per benefit period in 2026. A benefit period begins when you are admitted and ends when you have been out of the hospital or skilled nursing facility for 60 consecutive days. There is no limit on the number of benefit periods per year — a patient hospitalized multiple times in the same year pays the deductible for each new benefit period.
• Coinsurance for extended hospital stays: Days 1–60 are fully covered (after the deductible). Days 61–90 require $419/day coinsurance. Days 91 and beyond draw from a lifetime reserve of 60 days at $838/day coinsurance, after which Medicare pays nothing.
• Skilled nursing facility coinsurance: Days 1–20 are covered in full following a qualifying 3-day hospital stay. Days 21–100 require $209.50/day coinsurance. Day 101 and beyond: no Medicare coverage.

Part A does not cover long-term custodial care — help with daily activities like bathing and dressing for someone who cannot recover full function. This is a common and costly misconception. Medicaid, long-term care insurance, and personal savings are the mechanisms for covering custodial care. Medicare is for acute medical treatment and short-term recovery, not ongoing care needs.

Part B: Medical Insurance

Medicare Part B covers outpatient medical services: doctor visits, preventive care, diagnostic tests, outpatient surgery, mental health services, durable medical equipment, and some home health and physical therapy. Part B has a monthly premium that most enrollees pay — $185.00 per month in 2026 for standard enrollees, before IRMAA adjustments (discussed below).

Part B cost-sharing:

• Annual deductible: $257 in 2026. Unlike Part A's per-event deductible, the Part B deductible applies once per calendar year.
• Coinsurance: After the deductible, Medicare pays 80% of approved costs. The enrollee pays the remaining 20% with no out-of-pocket cap. This uncapped 20% coinsurance is the primary reason many beneficiaries purchase Medigap supplemental coverage.

The absence of an out-of-pocket maximum under traditional Medicare (Parts A and B) is the single most important design feature to understand. A major illness or prolonged treatment can generate 20% coinsurance obligations that run into tens of thousands of dollars. The standard Medicare benefit has no ceiling on what you can owe.

Part C: Medicare Advantage

Medicare Advantage — also called Part C — is an alternative way to receive Medicare benefits through a private insurance company approved by Medicare. Instead of paying Part A and Part B costs separately and purchasing Medigap coverage, you enroll in an all-in-one plan that typically bundles hospital, medical, and often prescription drug coverage, sometimes including dental, vision, and hearing benefits that traditional Medicare does not cover.

Medicare Advantage plans vary enormously by structure, network, and cost:

• HMO plans require using a network of providers and obtaining referrals for specialists. Generally the lowest-premium option with the most restrictive access.
• PPO plans allow out-of-network care at higher cost-sharing. More flexibility, higher premiums.
• Special Needs Plans (SNPs) are designed for people with specific chronic conditions, dual Medicare-Medicaid eligibility, or institutional care needs.

Medicare Advantage plans are required to cap out-of-pocket costs — the 2026 cap is $9,350 for in-network costs and $14,000 for combined in- and out-of-network costs. This cap is the primary structural advantage over traditional Medicare, which has no cap at all.

The tradeoffs: Medicare Advantage plans restrict your provider network, can require prior authorization for procedures, and can change their plan structure, formulary, and network annually. A plan that works well one year may change dramatically at renewal. Beneficiaries who develop a serious illness and find their specialist or treatment center is not in-network face difficult choices. Traditional Medicare is accepted by nearly all doctors and hospitals nationwide — Medicare Advantage is not.

Part D: Prescription Drug Coverage

Medicare Part D covers prescription drugs. It is offered through private insurance companies as a standalone plan (for those on traditional Medicare Parts A and B) or bundled into Medicare Advantage plans. Each plan has its own formulary — the list of covered drugs — and its own cost-sharing structure of premiums, deductibles, and copays.

Part D cost structure in 2026:

• Deductible: Up to $590 per year (plans may have lower deductibles or none).
• Initial coverage: You pay your plan's copays or coinsurance after the deductible until total drug costs reach $2,000.
• Catastrophic coverage: After $2,000 in out-of-pocket drug costs (the Medicare Part D cap introduced by the Inflation Reduction Act), Medicare covers 100% of additional drug costs for the rest of the year. This $2,000 cap, effective in 2025, is a significant improvement over prior law and eliminates what was previously the most unpredictable Part D expense for patients on high-cost specialty drugs.

Part D also carries an IRMAA surcharge for high-income enrollees, mirroring Part B's income-adjusted premiums (discussed below).

Choosing a Part D plan requires matching the specific formulary to your specific medications each year. The plan that covers your drugs at the lowest total cost — premium plus out-of-pocket — is rarely the plan with the lowest headline premium. Medicare's Plan Finder tool allows direct comparison of total estimated annual costs by drug list.

Medigap: Filling the Gaps in Traditional Medicare

Medigap (Medicare Supplement Insurance) is private insurance that pays some or all of the cost-sharing left over by Parts A and B — the Part A deductible, the Part B 20% coinsurance, and excess charges. Medigap is available only to people enrolled in traditional Medicare Parts A and B; Medicare Advantage enrollees cannot purchase Medigap.

Standardized Medigap plans are labeled with letters (Plan G and Plan N are the most commonly purchased for new enrollees, as Plan F — which covered the Part B deductible — is no longer available to those who turned 65 after January 1, 2020). Plan G covers virtually all Medicare cost-sharing except the Part B deductible. Plan N covers most cost-sharing but requires small copays for some office visits and does not cover Part B excess charges.

The critical enrollment window: during the six-month Medigap Open Enrollment Period that begins the month you turn 65 and enroll in Part B, insurers cannot deny you coverage or charge higher premiums based on health status. After this window closes, Medigap insurers in most states can use medical underwriting — and can reject applicants with pre-existing conditions or charge significantly higher premiums. Switching from Medicare Advantage to traditional Medicare with Medigap after this window is closed is often difficult or impossible for people with significant health conditions. This is one of the most consequential enrollment timing decisions in Medicare planning.

IRMAA: The Income-Related Monthly Adjustment Amount

IRMAA is the premium surcharge applied to Medicare Part B and Part D for beneficiaries whose income exceeds certain thresholds. It is the Medicare system's equivalent of a means test — higher earners pay higher premiums. And for tech workers with significant retirement income from RSU proceeds, traditional IRA withdrawals, or taxable investment income, IRMAA can add thousands of dollars per year to Medicare costs.

IRMAA is based on your MAGI from two years prior. In 2026, the surcharge is based on 2024 income. The Part B IRMAA tiers for 2026 (married filing jointly):

• $212,000 or less: Standard premium — $185.00/month per person
• $212,001–$266,000: $259.00/month per person (+$74.00)
• $266,001–$334,000: $370.00/month per person (+$185.00)
• $334,001–$400,000: $481.00/month per person (+$296.00)
• $400,001–$750,000: $591.90/month per person (+$406.90)
• Above $750,000: $628.90/month per person (+$443.90)

For a married couple both on Medicare, the IRMAA is doubled — each person pays the surcharge independently. A couple with 2024 MAGI of $350,000 pays $481.00 × 2 = $962.00/month in Part B premiums alone, compared to $370.00 for a couple just below the next tier. Part D carries its own IRMAA on top of the plan premium.

The two-year look-back and life-changing events: Because IRMAA is based on income from two years prior, a one-time income spike — a large Roth conversion, a business sale, a concentrated stock liquidation — can trigger IRMAA two years later. A tech worker who sold significant RSU holdings in 2024 may face IRMAA surcharges in 2026. If your income has since dropped permanently (retirement, job loss, divorce, death of a spouse), you can file Form SSA-44 to request an IRMAA reduction based on current income rather than the two-year-prior figure.

IRMAA cliff awareness: The tier thresholds create significant cliff effects. A couple at $265,999 in MAGI pays $259.00/month each; a couple at $266,001 pays $370.00/month each — a $222.00/month difference triggered by $2 of additional income. Managing MAGI to stay within a given IRMAA tier — through Roth withdrawals rather than traditional IRA distributions, tax-loss harvesting, charitable giving of appreciated shares, or timing of capital gains realizations — can save thousands of dollars per year per couple.

Enrollment Rules and Penalties: The Mistakes That Follow You Forever

Medicare enrollment has specific windows, and missing them creates permanent financial penalties that compound for life.

Initial Enrollment Period (IEP): A 7-month window — 3 months before your 65th birthday month, your birthday month, and 3 months after. Enrolling in the first three months means coverage begins the month you turn 65. Waiting until after your birthday month delays coverage by 1–3 months. You must enroll in Part B during your IEP unless you have qualifying employer coverage (see below).

Part B late enrollment penalty: If you do not enroll in Part B when first eligible and do not have a qualifying employer plan, your Part B premium increases by 10% for each 12-month period you were eligible but not enrolled. This penalty is permanent — it applies for as long as you have Part B. A person who delays enrollment by three years pays a 30% premium surcharge for life.

Part D late enrollment penalty: Similarly, if you go more than 63 consecutive days without creditable prescription drug coverage after becoming eligible for Part D, you pay a late enrollment penalty of 1% of the national base beneficiary premium for each month without coverage. This penalty is also permanent and added to your Part D premium for life.

Working past 65 with employer coverage: If you are still employed at 65 and covered by an employer group health plan from an employer with 20 or more employees, you can delay Part B and Part D enrollment without penalty. Employer coverage is primary in this case; Medicare is secondary. You receive a Special Enrollment Period to enroll in Part B within 8 months of losing employer coverage or leaving employment — whichever comes first. Important: COBRA coverage does not count as qualifying employer coverage for this purpose. Enrolling in COBRA rather than Medicare when you leave work is a common and expensive error.

Medicare Is an Individual Benefit: What This Means for Couples

Each spouse enrolls independently, pays premiums independently, and makes coverage decisions independently. A 65-year-old spouse cannot add a 63-year-old spouse to their Medicare coverage — the younger spouse must find their own coverage (employer plan, ACA marketplace, or COBRA) until they turn 65 and become eligible for Medicare in their own right.

The age gap between spouses has significant financial implications. A two-year age gap means the younger spouse needs two years of non-Medicare coverage after the older spouse turns 65. ACA marketplace coverage at ages 63–64, priced without Medicare and potentially without employer subsidies, can cost $1,500–$2,500/month for a couple — a meaningful budget item that must appear explicitly in a retirement income plan.

IRMAA also applies individually but is calculated on joint income for married filing jointly returns. Both spouses pay the IRMAA surcharge based on their combined household income — there is no splitting or averaging. A couple where one spouse earned significantly more income in the look-back year still faces the surcharge for both Medicare enrollments based on their combined MAGI.

Medicare and Medical Expenses in Retirement: How to Plan

Healthcare is consistently one of the largest and most volatile expenses in retirement. Unlike most spending categories that decline with age, healthcare spending typically increases — and it increases unpredictably. Planning for medical expenses in retirement requires more than assuming Medicare covers most of it.

Budget for premiums as a fixed expense from day one. For a couple both on Medicare with incomes near or above the IRMAA thresholds, combined Part B premiums, Part D premiums, and Medigap Plan G premiums can easily reach $12,000–$20,000 per year — before any out-of-pocket medical costs. This is a significant fixed line item that must be in the retirement budget, not treated as incidental spending.

Use the HSA as a dedicated healthcare reserve. If you accumulated an HSA during your working years, it is the most tax-efficient vehicle for paying Medicare premiums and out-of-pocket medical costs in retirement. Medicare Part B, Part D, and Medicare Advantage premiums are all qualified HSA expenses. Medigap premiums are not. A large HSA balance earns returns tax-free and can be drawn tax-free for healthcare indefinitely — making it the ideal holding account for the retirement healthcare budget.

Do not count on Medicare for long-term care. Medicare covers short-term skilled nursing care following a qualifying hospital stay, but not custodial care — the help with daily activities that characterizes long-term care needs. A retirement plan that relies on Medicare to cover nursing home or in-home aide costs is missing a category of expense that averages $50,000–$100,000+ per year and can run for years. Long-term care insurance, hybrid life/LTC policies, self-funding from retirement assets, or Medicaid planning (for those with limited assets) are the mechanisms for this gap.

Plan for IRMAA proactively, not reactively. Because IRMAA is based on income two years prior, the decisions you make in your final working years and the first years of retirement determine your IRMAA tier years before you see the bill. A large Roth conversion, a business sale, or a concentrated stock liquidation in the year before you turn 63 will affect your Part B premium at 65. Modeling IRMAA as part of your income and withdrawal plan — not as an afterthought — allows you to time income events to minimize tier crossings or smooth income across years to avoid cliff effects.

Medicare Coverage Adequacy: Low, Medium, and High Medical Needs

Low medical needs — healthy, infrequent users: For individuals and couples in good health who use routine preventive care and have few specialist visits or prescriptions, traditional Medicare plus a Medigap Plan G is often the most cost-effective combination. You pay a predictable monthly premium with minimal out-of-pocket exposure per event. Medicare Advantage may offer a lower monthly premium, but the network restrictions and prior authorization requirements are an ongoing inconvenience for people who see specialists occasionally and do not want administrative friction around care decisions.

Medium medical needs — regular specialist care, ongoing prescriptions: At this level, the choice between traditional Medicare plus Medigap and Medicare Advantage requires careful comparison. Medicare Advantage plans cap out-of-pocket costs and often include dental and vision, which traditional Medicare lacks entirely. But prior authorization requirements, network restrictions, and plan changes at renewal can disrupt ongoing care relationships. People managing multiple chronic conditions with established specialist relationships often find traditional Medicare — despite higher premiums — more functional because it guarantees continuity of access without network-driven disruptions.

High medical needs — complex conditions, frequent hospitalizations, specialist-dependent care: Traditional Medicare with Medigap Plan G is almost always the better choice for high utilizers. The Medigap plan eliminates the 20% coinsurance exposure on what can be very large Part B bills, creates predictable total costs, and crucially — allows care at any Medicare-accepting provider nationwide without network restrictions. For a cancer patient, someone requiring frequent specialist care at academic medical centers, or anyone with complex, high-cost medical needs, the provider access flexibility of traditional Medicare is functionally irreplaceable. Medicare Advantage's out-of-pocket cap protects against catastrophic costs, but network denial of high-cost procedures or specialists is a real risk that traditional Medicare eliminates.