What Does Medicare Cover?

In retirement, healthcare costs are likely to impact your finances more than housing, food, or lifestyle expenses. Many people underestimate the financial impact of healthcare on their savings and hold misconceptions about Medicare, the federal health insurance program for those 65 and older or with certain medical conditions. Some think Medicare is a free program that covers all healthcare costs. While Medicare is a key part of healthcare for most retirees, it is not free, and its coverage has limits. Understanding Medicare options and what they cover can help savers see the importance of including healthcare in their retirement plans to prepare for out-of-pocket costs and potential expensive surprises.

The Basics of Medicare

While Medicare generally costs less than traditional healthcare, it still requires monthly premiums that vary based on income. In 2025, the premiums range from $185 to $628.90 per month for Part B. This does not include the costs of supplemental plans like Medigap.

There are four parts of Medicare, each offering different services.

• Medicare Part A (Hospital Insurance): Part A is premium-free for those who have worked and paid into Social Security and Medicare for at least ten years. A monthly premium applies to those who have not met the 10-year requirement. Part A coverage includes inpatient hospital stays, hospice care, limited home health, and skilled nursing care in an institution. Additionally, it covers hospital admission (minus co-pays and deductibles) and skilled nursing home care for a maximum of 100 days following a qualifying hospital stay.
• Medicare Part B (Medical Insurance): Part B covers “medically necessary” care that does not require hospitalization. This encompasses outpatient and preventative care, checkups, X-rays, medical supplies, and laboratory and ambulance services. Income-adjusted monthly premium, deductible, and coinsurance costs apply. Those with eligibility who did not enroll within the 12-month window incur a 10% premium increase. Late enrollment penalty fees may also apply. It’s imperative to enroll within the first seven months of eligibility to avoid punitive charges.
• Medicare Part C (Medicare Advantage Plans): This plan allows individuals to choose alternative Medicare-approved private health insurance for their healthcare (must be enrolled in Medicare Parts A and B). It affords the same services as Medicare Parts A and B (except hospice), often with additional coverage for prescription drugs, vision, dental, and more.  Retirees with this coverage pay the Medicare Part B plus the Part C premium.
• Medicare Part D (Prescription Drug Plans): The Part D prescription drug plan is voluntary for anyone enrolled in Medicare Parts A and B. It covers most prescription drugs and vaccines, including medications that Parts A and B do not, but there are still exceptions. As with Part B, there is a penalty for late enrollment.

The Gaps in Medicare

As people age, they need comprehensive healthcare. Retirees without coverage in areas where Medicare falls short might see a significant impact on their retirement savings. Here are some blind spots retirees should watch out for.

• Long-term care: Approximately 70% of Americans will need long-term care in their lifetime, according to the United States Department of Health and Human Services. With the 2024 annual national median price of a private room in a nursing home at $127,750 and $77,792 for a home health aide, the cost of long-term care is prohibitive for many. Medicare only extends to home healthcare, rehab facility, or nursing home expenses up to 100 days (following a qualifying hospital stay). Additionally, custodial care in an assisted living facility or nursing home for dressing, bathing, eating, or other daily activities does not fall under Medicare.
• Dental, vision, and hearing: Medicare coverage does not extend to routine dental care, eye exams for glasses or contacts, or hearing aids, common necessities for retirees. Some Medicare Advantage programs provide coverage depending on the plan.
• Cosmetic surgery: Elective cosmetic surgeries are not included in Medicare coverage, so those wanting to look younger in retirement should save for those expenses. However, surgeries serving a medical purpose, such as breast reconstruction after a mastectomy, may be covered, so it’s important to confirm.
• Overseas health care: Medicare coverage only applies in the United States. Retirees traveling abroad should consider travel health insurance if venturing outside the U.S.
• Alternative therapies: Medicare does not cover acupuncture, naturopathy, and holistic treatments, but it does cover limited chiropractic care. 

Bridging Medicare Coverage Gaps

A financial advisor can help individuals employ funding strategies for out-of-pocket medical costs in retirement. Here are a few options to explore.

• Medigap (Supplemental Insurance): Medigap policies help with co-payments, coinsurance, and deductibles that Medicare doesn’t cover. Like Medicare, Medigap does not pay toward long-term care, dental, vision, or hearing.

• Health Savings Accounts (HSA): Working individuals who qualify for an HSA can make pre-tax contributions, and withdrawals are tax-free for qualified medical expenses. These accounts can help cover out-of-pocket expenses in retirement.

• Long-term Care Insurance (LTC insurance): LTC insurance can help fund long-term care, but policies can be expensive. Of the two options, one provides a death benefit for beneficiaries, and the other does not. Health-based underwriting processes establish premiums in most cases. Those who purchase in good health, about ten years before retirement, increase their chances of securing affordable premiums.

Medicare is a valuable benefit for retirees, but it shouldn’t be the only line of defense against healthcare expenses. Individuals approaching retirement should explore all available options and incorporate supplemental and financial strategies to help manage out-of-pocket costs. To better protect yourself and feel more confident in your financial future, reach out to an SHP Financial advisor today. We’ll provide a complimentary review of your finances and customized advice.