Medicare Basics

By Mitchell J. Smilowitz, CPA

A recent Fidelity study estimates that a couple retiring in 2023 at age 65 may need savings of approximately $315,000 to cover their out-of-pocket health care costs in retirement. This includes Medicare Part B and D premiums, Medicare cost sharing provisions (co-payments, coinsurance, deductibles) and prescription drugs. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Therefore, paying for health care in retirement is another reason to increase contributions to your JRB account.

Many factors affect that estimate: when you plan to retire, where you will live in retirement, your health status when you retire, how long you live, the medical treatments you need, the prescription medications you take and the care your family may be able to provide.

The backbone of paying health care expenses in retirement for most people is Medicare. Understanding Medicare can be confusing. This article offers basic information about the program, but we urge you to learn more before making a decision about the Medicare option you choose.

The World of Medicare

Here are some basic facts about Medicare. You can find out more, and sign up for Medicare (once you reach age 65), at

  • Medicare Part A covers hospital costs. Most people do not pay a premium for Part A, but you will pay deductibles and co-pays for hospital stays.
  • Medicare Part B generally pays 80% of “usual and customary” medical expenses including doctors’ visits. Part B carries a monthly premium which varies by income. You will also be responsible for deductibles and co-pays. Together, Medicare Part A and Part B are known as traditional Medicare.
  • Medicare Advantage plans, also known as Medicare Part C, are all-in-one managed care type plans that include Medicare Parts A and B coverage. Like other managed care plans, Medicare Advantage plans generally limit you to a network of providers, so it’s important to make sure the plan you choose includes the doctors and other health care facilities you use. Some also include prescription drug coverage and other services, such as gym memberships and over-the-counter pharmacy products, that traditional Medicare does not cover. Medicare Advantage plans charge a monthly premium.
  • Medicare Part D pays for prescription drugs. Each Medicare Part D plan has its own list of prescription drugs for which it will pay so make sure the plan you choose covers the drugs you use. Most Medicare Part D plans charge deductibles and co-pays, especially for name brand (vs. generic) drugs. Medicare Part D plans charge a monthly premium. Many Medicare Advantage plans include prescription drug coverage, but again, make sure the drugs you use are covered.
  • Supplemental Health and Prescription Drug Insurance policies, generally known as Medigap policies, pay for medical expenses, such as deductibles, co-pays and prescriptions, that traditional Medicare does not cover. There are several Medigap policy options; your premiums will depend on the option you choose. Private insurance companies bill you directly for Medigap coverage. Those who choose Medicare Advantage cannot purchase Medigap policies.

You must apply for Medicare when you turn 65 unless you continue to receive health insurance through your employer or your spouse’s employer. There’s a 7-month enrollment window. The enrollment period begins 3 months before you turn 65 and includes the month you turn 65 and the three months after you turn 65. There are penalties for late enrollment.

During the enrollment period you’ll have a chance to review the different plans available. The availability of Medicare Advantage plans and supplementary health insurance policies, as well as their cost, varies by where you live.

Each year there is an Open Enrollment Period during which you’ll get a chance to change your Medicare coverage. You can switch between traditional Medicare and Medicare Advantage or choose another Medicare Advantage or Medigap policy. Be aware that switching from Medicare Advantage to traditional Medicare during the annual open enrollment period can result in higher premiums for a Medigap policy.

Managing Health Care Costs in Retirement

Health care costs generally increase the longer we live. Increasing the contribution to your JRB retirement account is an effective way to prepare for health care expenses while reducing your current taxes.

If you have questions about retirement planning, including budgeting for health care in retirement, please contact the JRB at 888-JRB-FREE (572-3733) or by email.

March 2024