Many Americans Think Medicare Is Free — and They’re Wrong

New data from Allianz shows that 1 in 4 Americans believe Medicare costs nothing for everyone.

It doesn’t.

The research also found three other widespread misconceptions about the program.

More than a third of Americans think Medicare pays for long-term care, while more than 1 in 3 say it is guaranteed to be available when they retire. More than 4 in 10 believe it covers prescription drugs.

Those are major misunderstandings of how Medicare works, what it covers, and what it leaves out for the roughly 70 million people in the United States who rely on it for health insurance.

The confusion matters because healthcare remains one of the biggest retirement expenses and continues to rise.

“Americans clearly understand that healthcare costs can threaten their retirement security,” Kelly LaVigne, vice president of Consumer Insights at Allianz Life, told Yahoo Finance. But, he added, “so many don't fully understand what Medicare will and won't cover. And the details matter.”

Fidelity estimates that about 15% of the average retiree’s yearly spending goes to health-related costs. On average, a 65-year-old leaving the workforce this year may need $185,500 in savings to cover out-of-pocket healthcare costs throughout retirement.

That figure does not include long-term care, over-the-counter drugs, or most dental services.

Here is a closer look at several common Medicare myths.

Fact: Medicare comes with costs, including prescription drug expenses.

Medicare includes premiums, deductibles, and other out-of-pocket costs for enrollees.

People covered by traditional Medicare usually pay a monthly premium for Part B, which covers physician services, and for Part D prescription drug coverage. Premium amounts vary by plan. Some beneficiaries also pay a monthly premium for Part A hospital coverage.

Each year, Medicare Part B premiums, deductibles, and coinsurance rates are adjusted. If you are enrolled in traditional Medicare, you also have a Part D drug plan. The average base premium for Part D in 2027 is $36 a month, though your actual premium may be higher.

“For 2027, we’re seeing monthly premiums for some standalone prescription drug plans increasing by more than $50 a month,” said Juliette Cubanski, director of the program on Medicare policy at KFF, “and some will have an increase of as much as $100 a month.”

Most Part D enrollees will also face a deductible for drug coverage in 2027. The standard Part D deductible will rise to $700 next year from $615. And in 2027, annual out-of-pocket drug costs for everyone enrolled in Part D plans will be capped at $2,400.

Even with broad coverage, traditional Medicare does not impose a yearly maximum out-of-pocket limit.

For many people with original Medicare, the biggest gap is that Part B pays only 80% of covered costs for doctor visits, outpatient care, and durable medical equipment.

To fill that gap, many people buy a Medigap policy from a private insurer to help cover the remaining expenses.

Fact: Medicare does not pay for nursing homes and other long-term care.

Long-term care expenses are generally the responsibility of the individual. An apartment in an assisted-living facility averages $87,000 this year, according to the National Investment Center for Seniors Housing & Care, and those costs rise as residents age and require more assistance. Units for dementia patients average $105,000.

“The long-term care misconception may be the most concerning,” LaVigne said.

“Medicare can cover some nursing and rehab after a three-day hospital stay, but it does not pay for long-term care. That’s a critical distinction, because a single long-term care event can wipe out a lifetime of retirement savings virtually overnight.”

Fact: Medicare eligibility generally begins at 65.

Medicare is not tied to the day you stop working. For most Americans who are not covered by an employer health plan, it starts at 65.

The initial enrollment period runs for the three months before your 65th birthday, the month of your birthday, and the three months after it. Missing that window can lead to late enrollment penalties and gaps in coverage.

“Medical expenses only increase as you age,” LaVigne said. “Understanding what Medicare does and doesn't pay for is an important part of building a retirement strategy.”