The Medicare Misstep That Can Threaten a Tight Retirement Budget

Medicare can help shield retirees from many medical bills, but paying a monthly premium does not mean every health care expense will disappear.

The true cost of Medicare goes far beyond the amount deducted each month, and many retirees are caught off guard by the extra bills. Knowing what Medicare covers — and what it does not — can help you plan for the additional health care spending that often comes with retirement.

Budget for more than the premium

The standard Medicare Part B premium is only one piece of the cost. If you plan for that amount alone, you may leave yourself exposed to unexpected expenses.

Other charges can apply as well. You may need to meet a deductible before Medicare begins paying for covered care. After that, you can still owe copayments and coinsurance. A copayment is a fixed amount you pay for covered services such as a doctor visit or prescription medication, while coinsurance is a share of the cost based on a percentage of the service price.

Even premiums themselves are not set in stone. They can rise over time because of inflation and other factors, so it helps to leave room in your budget for modest increases from year to year.

Expenses that are easy to overlook

Part B is not the only premium to keep in mind. Part D drug coverage also comes with a monthly premium, and Medicare generally does not pay for routine dental, vision or hearing care.

Some retirees buy Medigap policies to help cover out-of-pocket costs such as deductibles, copayments and coinsurance. If you choose that option, the price of supplemental coverage should also be included in your budget.

How to avoid a retirement budget shock

Many retirees rely on Social Security and withdrawals from investments to pay their bills, so their income is largely fixed. Because Medicare is a major expense, it is wise to include not only premiums but also a monthly allowance for costs beyond the premium when estimating retirement spending.

Reviewing your plan every year can also help you keep track of changes in coverage, premiums, provider networks and covered drugs. Be sure to enroll on time, since late enrollment can bring a 10% penalty added to your Part B premium. That penalty increases for each full 12-month period you were eligible for Part B but did not sign up. Part D can also carry penalties.

Planning for the full cost of health care can help make retirement more manageable. Instead of thinking of Medicare as a single deduction from Social Security, it is better to treat it as a broader household expense.