Healthcare in retirement: what Medicare covers, what it doesn't, and what that gap actually costs

What you’ll learn in this guide:

• How Medicare is structured — and why the “four parts” framing matters
• What Medicare reliably covers, and where the significant gaps are
• Why a couple retiring today might need $400,000 or more set aside for healthcare alone
• How long-term care fits in (or doesn’t)
• When you need to sign up for Medicare, and what happens if you miss the window
• How to think about Medigap, Medicare Advantage, and other coverage options
• Where to go for free, unbiased help

The assumption that catches most retirees off guard

There’s a version of retirement planning that goes: I’ll figure out the financial stuff, then Medicare takes care of healthcare. It’s a reasonable assumption. You’ve paid into the system your whole working life. The program exists specifically for people your age.

The problem is that Medicare covers far less than most people expect — and the gap between what it covers and what healthcare actually costs in retirement is substantial enough to reshape an entire financial plan if it isn’t accounted for.

According to Fidelity’s annual estimate, a 65-year-old individual retiring today may need roughly $165,000 in after-tax savings to cover healthcare costs over their lifetime. For a couple, that figure climbs to around $330,000. And that’s before accounting for long-term care — a separate category of expense that Medicare largely doesn’t touch. Add in a realistic long-term care scenario, and the number for a couple can reach $400,000 or more.

This isn’t a reason to panic. It is a reason to plan with clearer numbers than most people start with.

How Medicare is actually structured

Medicare isn’t one program — it’s a collection of parts, each covering different things, with different costs and enrollment timelines. Here’s the short version:

Part A — Hospital coverage

Part A covers inpatient hospital stays, skilled nursing facility care (under specific conditions), hospice, and some home health care. Most people don’t pay a premium for Part A if they’ve worked at least 10 years and paid Medicare taxes during that time.

What it doesn’t cover: extended stays beyond 60 days come with substantial daily coinsurance costs. It does not cover custodial care — that is, help with daily activities like bathing, dressing, or eating — even in a nursing facility. That distinction matters enormously, and we’ll come back to it in the long-term care section.

Part B — Medical coverage

Part B covers outpatient care: doctor visits, preventive services, lab work, durable medical equipment, and outpatient procedures. Unlike Part A, it has a standard monthly premium — $185 in 2025, though higher earners pay more through a surcharge called IRMAA (Income-Related Monthly Adjustment Amount). Part B also has an annual deductible and requires 20% coinsurance on most covered services, with no out-of-pocket maximum.

That last detail is important: under Original Medicare (Parts A and B together), there is no annual cap on what you can spend out-of-pocket.

Part C — Medicare Advantage

Medicare Advantage plans are offered by private insurers as an alternative to Original Medicare. They bundle Parts A and B — and usually Part D — into a single plan, often with an out-of-pocket maximum and sometimes with extra benefits like dental or vision. The tradeoff is typically a network: you’ll generally need to use in-network providers, and coverage outside your plan’s service area can be limited. We cover this more in the coverage options section below.

Part D — Prescription drugs

Part D covers prescription medications through private insurers. Plans vary significantly in which drugs they cover, at what cost, and what their annual deductibles are. If you don’t sign up when first eligible and don’t have creditable drug coverage elsewhere, you’ll generally face a late enrollment penalty that lasts for as long as you have Part D.

The four things Medicare doesn’t cover

This is the section most retirement planning conversations skip. These aren’t obscure edge cases — they’re categories of healthcare that almost every retiree will encounter.

1. Dental

Original Medicare does not cover routine dental care: cleanings, fillings, extractions, dentures, crowns, or most oral surgeries. Some Medicare Advantage plans include dental benefits, but coverage varies widely and is often limited in dollar amount or scope.

Dental care costs tend to rise with age, and poor oral health has documented links to cardiovascular and other systemic health conditions. The average American spends around $1,200 per year on dental care; retirees often spend more.

2. Vision

Original Medicare doesn’t cover routine eye exams, glasses, or contact lenses. It does cover medically necessary procedures — cataract surgery, for example — but not the glasses or contacts prescribed afterward. Again, some Medicare Advantage plans offer vision benefits, though the coverage ceiling is often low.

3. Hearing

Hearing aids are not covered by Original Medicare. This is a notable gap: hearing loss affects roughly two-thirds of adults over 70, and hearing aids can cost $2,000–$7,000 per pair, with replacements needed every few years. A few Medicare Advantage plans include hearing benefits, but coverage is inconsistent.

4. Long-term care

This is the biggest gap by far, and it deserves its own section.

Long-term care: the cost most retirement plans don’t include

Long-term care refers to ongoing assistance with daily activities — bathing, dressing, eating, getting around — that becomes necessary when a person can no longer manage independently due to illness, injury, or cognitive decline. It includes in-home care, assisted living, memory care, and nursing home care.

Medicare covers very little of this. It will pay for skilled nursing facility care after a qualifying hospital stay, but only for up to 100 days, and only when the care is medically necessary and recovery-focused. Custodial care — ongoing help with daily activities — is not covered, regardless of how much someone needs it.

The numbers around long-term care are significant:

• According to the U.S. Administration for Community Living, someone turning 65 today has roughly a 70% chance of needing some form of long-term care services during their lifetime.
• The median annual cost for a home health aide is around $75,000. Assisted living runs about $64,000 per year. A private room in a nursing facility costs over $108,000 annually. (These are national medians; costs vary widely by region.)
• The average duration of care is around 2.5 years, though for those who need it most intensively, it can run much longer.
• Medicaid does cover long-term care, but generally only after a person has spent down most of their assets — the specific rules vary by state and are complex.

Despite this, surveys consistently find that roughly 80% of Americans have no plan in place to fund potential long-term care needs. Not because people don’t care, but because the topic feels remote, uncomfortable, and hard to plan for without knowing what you’ll actually need.

The options for managing long-term care costs include dedicated long-term care insurance, hybrid life/LTC policies, self-funding through savings, and in some cases Medicaid planning — each with its own set of tradeoffs. We cover these in depth in a companion guide: Long-term care: the retirement cost nobody plans for.

Why healthcare costs run higher than people expect

Beyond the coverage gaps, a few structural factors push retirement healthcare costs higher than most projections account for:

Medical inflation outpaces general inflation. Healthcare costs have historically risen faster than the overall consumer price index. From 2000 through mid-2024, medical care prices rose 121% — compared to 86% for goods and services overall, according to Bureau of Labor Statistics data.

Utilization increases with age. People simply use more healthcare as they get older. Fidelity’s estimates account for average utilization patterns; someone with a chronic condition or family history of significant illness may face costs well above the median.

IRMAA affects higher-income retirees. Part B and Part D premiums aren’t the same for everyone. Above certain income thresholds, Medicare charges income-related surcharges. These thresholds are based on income from two years prior — which can catch people off guard in years following a particularly high-income year, such as a Roth conversion, a home sale, or a year with significant investment gains.

Medicare enrollment: the windows that matter

Missing Medicare enrollment windows can result in permanent premium penalties or gaps in coverage. The basic timelines:

Initial Enrollment Period: A 7-month window around your 65th birthday — starting 3 months before the month you turn 65, the month itself, and 3 months after. This is the main on-ramp.

Special Enrollment Period: If you (or your spouse) are still working and have employer health coverage when you turn 65, you can delay Medicare without penalty. Once that employer coverage ends, you have 8 months to enroll in Part B. This is a common scenario worth understanding carefully before assuming it applies to your situation.

Late enrollment penalties: If you don’t sign up during your Initial Enrollment Period and don’t qualify for a Special Enrollment Period, Part B carries a 10% permanent premium increase for every 12-month period you were eligible but didn’t enroll. Part D has a similar penalty structure.

The enrollment rules interact with employer coverage, COBRA, and retiree health plans in ways that vary by situation. Medicare.gov has an enrollment wizard that walks through the specific timelines based on your circumstances.

Original Medicare, Medicare Advantage, and Medigap: how to think about the choice

Once enrolled in Medicare, the central coverage decision most retirees face is between two paths:

Path 1: Original Medicare + a Medigap plan + Part D

Original Medicare (Parts A and B) plus a Medigap supplemental policy and a separate Part D prescription drug plan. Medigap plans, offered by private insurers, fill in the cost-sharing gaps in Original Medicare — deductibles, coinsurance, and in some plans, coverage abroad. This path typically means broader provider access (most doctors and hospitals who accept Medicare are in-network), predictable out-of-pocket costs, and higher combined monthly premiums.

Path 2: Medicare Advantage

A single plan from a private insurer that replaces Original Medicare. Usually lower monthly premiums, often includes dental/vision/hearing, and includes an out-of-pocket maximum — but typically requires using a network of providers. Access to specialists, out-of-area coverage, and plan stability over time are factors worth examining carefully.

Neither path is universally better. The decision depends on health status, geographic area (networks vary significantly by region), travel habits, finances, and how much predictability matters. This is one of the areas where personalized guidance — from a licensed counselor or a Medicare specialist — adds the most value, because the right answer is genuinely individual.

Building healthcare into your retirement plan

A few principles for thinking about healthcare costs without turning the planning process into an exercise in anxiety:

Use a realistic number as a planning anchor. Rather than hoping for the best, assume healthcare will be a significant expense — something in the range of Fidelity’s or Vanguard’s published estimates — and plan around that. Adjust up if you have chronic conditions or family history that suggests above-average utilization; adjust down modestly if you’re in excellent health.

Account for long-term care separately. The $330,000+ estimate for couples doesn’t typically include extended long-term care. If you haven’t thought through how you’d cover a need for sustained daily assistance, that conversation is worth having well before the need arises — both for financial and family planning reasons.

Don’t let IRMAA be a surprise. For retirees with investment accounts, large Roth conversions or asset sales can push income above the IRMAA thresholds in ways that weren’t anticipated. A tax professional can help model this.

Plan for enrollment windows now, not at 64. If you’re approaching 65 and currently have employer coverage, understanding the interaction between that coverage and Medicare before you hit the enrollment window prevents costly mistakes.

Where to get free, unbiased help

The Medicare landscape is genuinely complex, and the decisions are consequential enough to warrant personalized guidance. The best starting points:

SHIP (State Health Insurance Assistance Program) — A network of free, federally funded counselors in every state who provide unbiased Medicare counseling. They are not selling anything. Find your local SHIP at shiphelp.org.

Medicare.gov — The official site includes an enrollment timeline tool, a plan finder for comparing Medicare Advantage and Part D options in your area, and a cost estimator. medicare.gov

A financial planner with retirement income experience — If you’re building a comprehensive retirement income plan, a planner who understands how healthcare costs interact with Social Security timing, Roth conversions, and withdrawal strategy can help you see the full picture. Look for a CFP with experience in retirement income planning.

Next in the Money pillar: Required minimum distributions, explained and Withdrawal strategy basics: which account to draw from first.