Making Sense of Your Healthcare Options in Retirement

A healthy retirement requires more than a well-diversified portfolio. It also requires a plan to manage healthcare costs, navigate Medicare, and prepare for potential long-term care needs.

For many retirees, healthcare may be their largest expense.

While Medicare provides an important safety net, it does not cover every medical expense, and out-of-pocket costs can add up. That surprises some folks.

A just-released survey by eHealth notes that 88% of current Medicare beneficiaries incorrectly believe there is an annual cap on out-of-pocket costs under Original Medicare Parts A and B, while 63% of current Medicare beneficiaries do not understand that they will typically pay 20% for covered medical charges if enrolled solely in Original Medicare.

How are healthcare costs divvied up?

According to Fidelity Benefits Consulting, 44% is funneled into Medicare Part B and D premiums, 47% goes to medical expenses such as co-payments, deductibles, and hospital visits, and the remainder goes to prescription drugs.

The challenge is that healthcare expenses are often unpredictable. A serious illness, injury, or extended stay in a nursing facility can place significant strain on your finances.

As a result, view healthcare planning not as a separate exercise but as an integral part of your overall financial strategy.

Fortunately, investors can take steps to prepare.

Understanding Medicare options, incorporating healthcare expenses into retirement projections, evaluating long-term care strategies, and making thoughtful use of tax-advantaged accounts such as Health Savings Accounts (HSAs) can improve both financial flexibility and peace of mind.

Your options under Medicare

You become eligible for Medicare at age 65. Enrollment occurs within a 7-month window around your 65^th birthday. Miss that window, and you may incur a penalty when you enroll, unless you have coverage through a qualifying employer-sponsored plan.

Let’s review the ABCs (and D) of Medicare:

• Part A—Hospital insurance (free for most)
• Part B—Medical insurance
• Part D—Prescription drug coverage
• Medigap supplemental insurance
• Part C—Medicare Advantage Plans

While Medicare provides generous coverage for hospital stays, you’ll still be responsible for some out-of-pocket expenses.

For a hospital inpatient stay in 2026, you pay:

• $1,736 deductible per benefit period
• $0 for the first 60 days of each benefit period (after you pay the deductible)
• $434 per day for days 61–90 of each benefit period
• $868 per “lifetime reserve day” after day 90 of each benefit period (up to a maximum of 60 days over your lifetime)
• All costs for each day after day 150 of the benefit period

But nursing care support is limited, as traditional Medicare covers only a skilled facility, medically necessary treatment, or rehabilitation provided by licensed nurses or therapists.

To obtain these benefits, you must meet Medicare’s rules, such as a recent hospital stay for at least three days in a row, and coverage is limited.

In 2026, you pay:

• $0 for the first 20 days of each benefit period
• $217 per day for days 21–100 of each benefit period
• All costs for each day after day 100 of the benefit period

Medicare does not provide custodial care, or everyday activities that include bathing, dressing, bathroom use, or eating in a nursing home.

Medical costs for Part B

The Part B annual deductible is $283. For most folks, that’s reasonable.

But Part B also requires a copay once expenses surpass the initial deductible—20% of the cost for each Medicare-approved service or item.

Enter Medigap

Parts A and B pay your medical bills, but when traditional coverage ends, a Medigap policy helps bridge the gap.

Medigap policies are standardized in most states (Plans A, B, D, G, K, L, M, and N). In other words, coverage is the same no matter which company sells it. Prices, however, can vary.

Once you buy a policy, you’ll keep it as long as you pay your Medigap premiums. All Medigap policies are automatically renewed every year. They can’t be canceled by your insurance company unless:

• You stop paying your premiums.
• You weren’t truthful on the Medigap policy application.
• The insurance company goes bankrupt.

What is the upside to traditional Medicare?

• There are no worries about in-network doctors, PPOs, and HMOs that are so prevalent today. You may see any specialist (no referral needed) or doctor or go to any hospital in the country that accepts Medicare.
• You’ll rarely need prior authorization as long as the procedure is medically necessary.
• You have coverage throughout the country. It’s a great option for those who reside in different states during the year.
• Medigap coverage allows for a greater degree of certainty regarding premiums and medical costs.

But be aware of the downsides:

• There is no out-of-pocket limit to Part A and Part B. Therefore, you need a Medigap supplement to mitigate unlimited financial risk.
• You must purchase Part D for drug coverage.
• Dental, vision, and hearing are not covered.

A private alternative

Medicare Part C is increasing in popularity. Part C combines Parts A and B. Private insurance companies offer these plans, which Medicare must approve.

Part C often includes Part D drug coverage and usually includes routine dental care, eye exams, and glasses, but it depends on the plan you choose. Besides, you don’t need a Medigap plan.

Benefits

• The convenience of in-network coverage managed by one insurance company
• Maximum annual out-of-pocket costs
• No need for Medigap
• Added benefits such as dental, vision, hearing, fitness club memberships, and more, depending on your plan
• Typically, lower monthly premiums

Drawbacks

• In-network restrictions
• Insurance company pre-approval for a procedure
• Specialist referrals may be required
• Possible co-pays
• Annual changes to plans

Open enrollment

Each year, open enrollment runs from October 15 through December 7.

This allows you to:

• Join, drop, or switch to another Medicare Advantage Plan with or without drug coverage (or add or drop drug coverage).
• Switch from Original Medicare to a Medicare Advantage Plan or from a Medicare Advantage Plan to Original Medicare.
• Join, drop, or switch to another Medicare drug plan (Part D) if you’re in Original Medicare.

Can’t I just default to my current plan? The short answer is usually yes.

But first, those in a Medicare Advantage or a prescription drug plan should always review the materials their plans send them, like the “Evidence of Coverage” and “Annual Notice of Change.”

If your plan is changing, make sure it still meets your needs for 2027. If you’re satisfied with your current coverage and it’s still being offered, renewal is typically automatic.

If you are content with Medicare A and B, renewal is automatic. The same is true for Medigap coverage.

If you have questions during open enrollment, please feel free to check in with us. While we are not insurance brokers, we can help you think through the financial implications of your choices, consider alternatives, and, if needed, point you toward the appropriate resources.

Exploring long-term care

Long-term care is often an overlooked retirement expense. Unlike traditional medical care, long-term care assists with daily activities, such as bathing, dressing, eating, and managing medications.

Planning ahead can help protect both your finances and your independence. Start by understanding what Medicare covers and where gaps exist.

Then explore how you would fund extended care. Might it be through savings, long-term care insurance, hybrid insurance that includes long-term care benefits, or a combination of approaches?

It’s also important to convey your wishes with loved ones and ensure key legal documents are in place. By preparing before a health event occurs, you can reduce financial stress and protect assets.

If long-term care planning is a missing puzzle piece in your retirement strategy, now is a good time to start the conversation.

Contact us to discuss your options and develop a plan that aligns with your goals, circumstances, and personal care preferences.

HSAs

Do you have a Health Savings Account (HSA), which you can fund when paired with certain high-deductible insurance plans?

You can use HSA funds to pay for a wide range of qualified healthcare costs. In addition, you may use HSA funds to pay Medicare Part B, C, and Part D premiums. You cannot use tax-free funds to pay Medigap premiums.

But at 65, you may withdraw from your HSA for any non-medical expense without incurring a penalty.

Like distributions from a traditional IRA, however, those withdrawals are subject to ordinary income taxes. In this way, an HSA can serve a dual purpose: it functions as a retirement savings account while still offering tax-free withdrawals for qualified medical expenses.

Incorporating an HSA into your retirement strategy may help preserve other retirement assets and offer you more flexibility to meet future healthcare needs.

Bottom line

While no one can predict future healthcare needs with certainty, proactive planning can help reduce surprises and better position you to focus on what matters most: enjoying retirement with confidence and maintaining the quality of life you’ve worked hard to achieve.

As your advisor, we’re here to help you evaluate your options, navigate the complexities of healthcare planning, and develop a financial strategy tailored to your goals and circumstances.