While Medicare covers an array of care and services, it doesn’t cover everything.¹ Eye exams, most dental care, dentures, hearing aids, cosmetic surgery and routine foot care are not covered under Original Medicare. Same goes for long-term care, which 70% of people² turning 65 will need in their lifetime.

In fact, nearly 90% of the average retiree’s out-of-pocket expenses include long-term care, doctor’s visits, medical supplies, prescription drugs and dental services. Combined, those expenses can be significant, averaging $5,460 a year.³

Covering Out-of-Pocket Costs

Original Medicare does not put a cap on your out-of-pocket expenses. To help cover costs, you can purchase supplemental plans, like Medigap or Medicare Advantage, or you can use funds from an existing Health Savings Account (HSA), which is allowed no matter what type of coverage you have.

Pre-existing conditions could also impact how much you’ll pay out of pocket. If you sign up for Medigap outside of your designated open enrollment period, the insurer reserves the right to wait up to six months before covering any health conditions you were diagnosed with or treated for. The insurer also has the right to adjust your premium amount based on your health, or they may deny your policy application if you do not meet certain criteria, outside of your initial election period.

Depending on your healthcare needs, the best way to limit your out-of-pocket expenses may be to sign up for a Medicare Advantage plan. The maximum amount you’ll still be responsible for can vary by plan.

Another option is to purchase a Part D prescription drug only plan, which can help shield you from ever-increasing prescription drug costs. Starting in 2025, if you spend $2,000⁴ out-of-pocket on covered prescription drugs in a calendar year, you’re entitled to catastrophic coverage. Once you reach this limit, you won’t have to pay a copayment or coinsurance for Part D drugs covered under your plan or the rest of the calendar year.

It’s a common mistake to only focus on the premiums when we sign up for a healthcare plan, but as you embark on your retirement healthcare journey, it’s crucial that you factor in not only what's covered but also what’s not covered by your plan. Planning how much you’ll need to spend on out-of-pocket costs is essential. 

SOURCES

1. “What's Not Covered by Part A & Part B?” Medicare, www.medicare.gov/what-medicare-covers/whats-not-covered-by-part-a-part-b. Accessed 1 May 2021.
2. Johnson, Richard W. “What Is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports?” ASPE, 4 Apr. 2019, aspe.hhs.gov/basic-report/what-lifetime-risk-needing-and-receiving-long-term-services-and-supports. Accessed 1 May 2021.
3. Cubanski, Juliette, et al. “How Much Do Medicare Beneficiaries Spend Out of Pocket on Health Care?” KFF, 4 Nov. 2019, www.kff.org/medicare/issue-brief/how-much-do-medicare-beneficiaries-spend-out-of-pocket-on-health-care/. Accessed 12 July 2022.
4. Catastrophic coverage, Medicare www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/catastrophic-coverage. Accessed 7 December 2023.