Signing Up for Medicare Is Just the Beginning—Here’s What They Don’t Tell You About Ongoing Costs

Key Takeaways

• Enrolling in Medicare isn’t a one-time financial decision. Your monthly and yearly costs can grow over time depending on income, inflation, plan type, and service usage.

• Understanding the full scope of out-of-pocket expenses—including premiums, deductibles, copayments, and drug costs—is essential for realistic retirement planning.

The Starting Line: Enrollment Isn’t the Finish Line

Once you enroll in Medicare at age 65 (or earlier, if eligible due to disability), you might assume your healthcare costs are now stable or predictable. But the reality is that Medicare is an evolving set of financial responsibilities that can shift every year. Premiums, deductibles, and coverage terms are updated annually, and your personal costs will depend on the decisions you make at enrollment and beyond.

The Four Parts of Medicare and Their Cost Layers

Medicare has four parts: A, B, C, and D. Each comes with its own cost structure.

Part A: Hospital Insurance

• Most people don’t pay a premium for Part A if they paid Medicare taxes for at least 40 quarters.

• But there is a deductible per benefit period. In 2025, that deductible is $1,676.

• Hospital stays beyond 60 days come with daily coinsurance costs, increasing significantly for longer stays.

Part B: Medical Insurance

• Part B covers outpatient services like doctor visits, preventive screenings, and durable medical equipment.

• The standard monthly premium in 2025 is $185, and the annual deductible is $257.

• After the deductible, you pay 20% coinsurance for most covered services.

• Higher-income individuals pay more due to the Income-Related Monthly Adjustment Amount (IRMAA).

Part C: Medicare Advantage

• These plans must cover everything Original Medicare does, but the cost-sharing structure varies.

• Plans may have additional premiums, and costs change annually.

• There are maximum out-of-pocket limits (MOOP), but those caps have increased in 2025: up to $9,350 for in-network and $14,000 combined in-network/out-of-network.

Part D: Prescription Drug Coverage

• Monthly premiums and deductibles vary by plan, but in 2025, the maximum deductible is $590.

• New in 2025: once you spend $2,000 out of pocket on prescription drugs, you pay nothing further for the rest of the year.

• This is a major shift that eliminates the coverage gap previously known as the “donut hole.”

Inflation and Cost-of-Living Adjustments

Medicare costs generally increase each year. In 2025, the COLA for Social Security benefits is 2.5%, but Medicare premiums and deductibles have also risen:

• Part B premium rose from $174.70 in 2024 to $185 in 2025.

• Deductibles and coinsurance amounts also climbed.

You may plan your budget around a fixed monthly premium, only to find your total healthcare costs increase every January.

What IRMAA Means for Higher-Income Beneficiaries

If your modified adjusted gross income (MAGI) exceeds certain thresholds, you pay more for Part B and Part D. These IRMAA brackets are updated annually.

In 2025, IRMAA begins if your individual income exceeds $106,000 or $212,000 for joint filers.

Even if your income drops due to retirement, your IRMAA tier is based on your tax return from two years prior. So if you retired in 2024, your 2025 Medicare costs may still reflect your pre-retirement income.

Extra Coverage Can Mean Extra Costs

Original Medicare doesn’t cover all health needs. You may want or need to pay for:

• Dental, vision, and hearing services

• Long-term care

• Over-the-counter medications

• International medical emergencies

Many people add supplemental coverage or Medicare Advantage plans to help, but these come with their own costs, which vary annually and are not guaranteed to remain affordable.

Even Covered Services Often Come With Bills

Medicare doesn’t offer 100% coverage for most services. Here are common scenarios that surprise enrollees:

• A preventive screening may be covered, but a follow-up diagnostic test might incur coinsurance.

• Ambulance services and ER visits can trigger significant copayments.

• Outpatient surgery often involves 20% coinsurance after your deductible.

Each of these costs adds up, especially if you require ongoing treatment.

Prescription Drugs: What the $2,000 Cap Does and Doesn’t Do

The $2,000 cap on out-of-pocket prescription drug spending under Part D is a major change in 2025. But this only applies to covered medications.

You still need to:

• Choose a plan that covers your specific prescriptions.

• Pay your monthly premium and deductible.

• Use in-network pharmacies to avoid extra charges.

Some drugs, especially specialty medications, may still require prior authorization or step therapy.

Surprise Billing and Coverage Gaps

Medicare coverage doesn’t extend everywhere. For example:

• Foreign travel is not covered by Original Medicare.

• Certain outpatient procedures may not be fully covered.

• Observation status during hospital stays can result in higher out-of-pocket costs, especially if it prevents qualification for skilled nursing facility care.

If you assume all medical scenarios are covered, you could be in for financial surprises.

The Annual Enrollment Trap: Costs Shift Each Year

Every fall, plans update their premiums, copays, formularies, and provider networks. These changes take effect on January 1.

If you fail to review the Annual Notice of Change (ANOC) sent by your plan, you may:

• Continue paying more for the same medications

• Lose access to your preferred doctors

• Miss out on new cost-saving options

Staying in the same plan without review could result in higher costs over time.

Timing Your Enrollment to Avoid Penalties

Medicare imposes late enrollment penalties that are permanent:

• If you don’t enroll in Part B when first eligible (and don’t qualify for a Special Enrollment Period), you pay a 10% penalty for each 12-month period you delay.

• If you delay enrolling in Part D without other credible drug coverage, your penalty is 1% of the national base beneficiary premium for each month you go without coverage.

These penalties add to your monthly costs and stay with you for life.

Cost of Not Coordinating with Other Coverage

Many retirees have other sources of coverage, such as:

• Employer-sponsored retiree health benefits

• TRICARE

• VA benefits

But failing to coordinate those with Medicare properly can lead to denied claims or duplicate coverage you don’t need. For example, some private retiree plans require you to enroll in Medicare once eligible. If you don’t, the plan may pay less or nothing.

Budgeting for Healthcare in Retirement

A common rule of thumb is that you may spend around 15% of your retirement income on healthcare, even with Medicare.

To manage the ongoing costs:

• Track your total Medicare-related expenses yearly, not just premiums.

• Consider setting aside funds in a Health Savings Account (HSA) before you retire, if eligible.

• Reevaluate your plan options every fall during Open Enrollment (October 15 to December 7).

• Stay informed about cost increases by monitoring CMS announcements each fall.

What to Expect in the Next 5 Years

Looking ahead, you should anticipate:

• Annual increases in premiums and deductibles

• More emphasis on cost containment within Medicare Advantage plans

• Continued integration of supplemental benefits like mental health and wellness

• Possible expansion of income-based subsidies or coverage protections

While new reforms aim to reduce out-of-pocket burdens (such as the Part D cap), they won’t eliminate the core costs you must still manage annually.

Making Medicare Work for Your Budget

Medicare is not one-size-fits-all. Your cost experience depends heavily on:

• The plan types you choose

• Your healthcare usage

• Your income level

• Your willingness to reevaluate your plan each year

The best way to protect your finances is to treat Medicare as an ongoing relationship, not a one-time decision.

Staying in Control of Your Medicare Costs Starts Now

The real challenge isn’t just signing up for Medicare—it’s maintaining your financial footing as costs rise year after year. From IRMAA adjustments to drug price fluctuations to unexpected bills, your Medicare expenses will evolve.

If you’re unsure about your current or future Medicare costs, don’t guess. Speak with a licensed agent listed on this website to review your plan, compare options, and find ways to manage costs more effectively in 2025 and beyond.