Healthcare in retirement: how does Medicare work?

1 min readLast updated November 10, 2023by Rachel Carey

Higher medical bills are inevitable as we get older. Annual checkups turn into more regular doctor's visits. So, adapting to this change in routine without proper planning can be costly.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2022 needed approximately $315,000 saved (after tax) to cover healthcare expenses in retirement.   

Multiple types of healthcare insurance are available to US citizens to cover these expenses, including private health insurance, Medicare, and Medicaid. For those approaching retirement or who have retired, Medicare is something you need to be aware of.  

What is Medicare? 

Medicare is the US government’s health insurance program for people aged 65 and over.  

When you turn 65, you become eligible for Medicare. However, you have limited time to sign up once you reach this age, so you need to start thinking about it in the months beforehand.  

Once signed up, you must decide what part of Medicare you wish to avail yourself of. Broadly speaking, Medicare consists of four parts: 

  • Medicare Part A (hospital insurance) 

  • Medicare Part B (medical insurance) 

  • Medicare Part C (advantage plan) 

  • Medicare Part D (prescription drug coverage) 

In most cases, you don’t pay a monthly premium for Part A coverage if you or your spouse paid Medicare taxes while working. However, Medicare Part B is a voluntary program that requires a monthly premium. 

Parts C and D are also optional. However, you must have Medicare Parts A and B to get Part C and Part A or B to access Medicare Part D. There are also specific timeframes when you can enroll in Parts C and D.  

While Medicare does cover a significant portion of medical expenses, it’s important to remember that it doesn’t cover every eventuality.  

How do I apply for Medicare? 

You will be automatically enrolled in Part A if you are 65 or older and receive Social Security benefits. 

If your employer’s health plan still covers you, you can take advantage of a special enrollment period. 

This means you can: 

  • Sign up at any time while working and still be covered by the employer’s scheme  

  • Enroll eight months from the day you or your spouse stops working 

  • Enroll eight months from the day your health plan ends while you continue to work 

When you choose to enroll, you can do so online through the Social Security Administration website or over the phone.   

When doing this, you must provide key information, including your Social Security number, birthplace, current health insurance information (if applicable), and contact information.  

How much does Medicare cost at age 65? 

The costs associated with Medicare depend on several factors, including the type of coverage you opt to receive, and the amount of taxes paid.   

Depending on how long you or your spouse worked and paid Medicare taxes, a cost may be associated with Medicare. 

For those below the threshold of 10 years, the premium for Part A is$278 or $506 in 2023, depending on how long you or your spouse has worked and paid tax. For those above the threshold, Part A is free.  

For Medicare Part B, there is a monthly premium. Social Security will tell you the exact amount, but the standard premium amount stood at $164.90 in 2023. This amount changes each year and could be higher depending on your income.  

Costs of Parts C and D vary by plan. However, in September 2022, the Biden-Harris administration announced lower premiums for Parts C and D plans. For Part C, the monthly premium fell to $18 in 2023 from $19.52 in 2022. While for standard Part D, the average premium comes in at $31.50.  

What happens if you don't sign up for Medicare at 65? 

When signing up for Medicare, you need to be aware of strict enrollment periods.  

Medicare eligibility starts three months before the month you turn 65 and ends three months after. So, you have seven months to sign up for Medicare surrounding your 65th birthday.  

If you fail to sign up in this initial window, you can sign up again between January 1 and March 1 each year. Your coverage will begin on July 1 of that year. 

However, if you miss your initial sign-up period, you could face a late enrollment penalty and pay higher premiums. Take Part B, for example. If you sign up after your initial enrolment period, you may pay an extra 10% above the standard premium cost for every year you delay.  

Not everyone will need to opt into Medicare.  

Those who decide to work past their full retirement age (FRA) may choose not to sign up for the program.  

If you decide to return to work after you’ve enrolled in Medicare, you are still eligible to receive Medicare benefits.   

However, if you choose to keep all of your Medicare, you may be pushed into a higher premium bracket due to your additional income.   

It’s important to know that you do have other options. For example, if your employer offers healthcare, you may choose to opt into this instead.   

What healthcare do I need to consider when I retire? 

One of the most common retirement mistakes is not considering your long-term health.  

Healthcare costs are a substantial financial challenge in retirement. And while there are options – private insurance, Medicare for those over 65, or self-insuring (setting aside money to pay for care) – deciding which route you will go down as early as possible is key.   

Unfortunately, getting sick or needing some form of healthcare is expensive. So, with ailments, illnesses, and injuries increasing with age, it’s best to develop a long-term plan that works for you.   

While all those over 65 are eligible for Medicare, it does not cover all health expenses.  

Long-term health insurance is an option for those worried about long-term care costs. Although purchasing this in your 50s is recommended, the longer you wait, the more expensive it becomes.    

According to the U.S. Department of Health and Human Services, there is a 70 percent chance that Americans aged 65 or older will need long-term care at some point. Should that involve assisted living, families must pay for these high costs separately as Medicare doesn't cover them. 

On average, assisted living costs over $4,000 a month, with costs doubling for nursing homes. Many older adults purchase long-term care (LTC) insurance in their late 50s and early 60s to relieve this burden and adequately prepare for the future.  

With niggles and ailments becoming more frequent as your journey through retirement, it pays to have a plan of action for the day your health requires more dedicated attention.  

If you need help managing your healthcare costs in retirement, it's important to seek expert advice. A good place to start is Unbiased. Here you can get matched with an independent SEC-regulated financial advisor who can ensure you’re getting the most out of your current plan and are on course to achieving your retirement goals.   

Find your perfect financial professional today.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.