Chapter 14: Medicare Basics

Navigating health care in retirement can be complex, but a solid understanding of Medicare can make it easier. Welcome to Chapter 14, where we’ll break down the basics of this crucial program for retirees.

Medicare is a federal health insurance program primarily for people aged 65 or older, though some younger people with disabilities and people with End-Stage Renal Disease (permanent kidney failure) may also qualify. It was established in 1965 as a way to ensure that older adults would have access to necessary health care, and today, millions of Americans rely on it for a significant portion of their health care needs.

Medicare is divided into several parts, each covering different aspects of healthcare.

  • Part A (Hospital Insurance): This covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
  • Part B (Medical Insurance): Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services.

Together, Parts A and B are known as Original Medicare.

Understanding Medicare Part C and Part D

  • Part C (Medicare Advantage Plans): These are health plan options approved by Medicare but run by private companies. They are part of Medicare and sometimes called “MA Plans” or “Part C Plans.” Medicare Advantage Plans provide all of your Part A and Part B coverage and may offer extra coverage, like vision, hearing, dental, and/or health and wellness programs. Most include Medicare prescription drug coverage (Part D).
  • Part D (Prescription Drug Coverage): Medicare prescription drug coverage is an optional benefit offered to everyone who has Medicare. It’s provided through private companies that contract with Medicare. It helps cover the cost of prescription drugs and may help protect against higher costs in the future.

Eligibility and Enrollment

Generally, you’re eligible for Medicare if you or your spouse worked for at least 10 years in Medicare-covered employment, you’re 65 years or older, and a citizen or permanent resident of the United States. Some people under 65 can also qualify if they have certain disabilities or conditions.

There are specific periods when you can sign up for Medicare for the first time, known as enrollment periods. The Initial Enrollment Period is a seven-month window that begins three months before you turn 65, includes your birth month, and extends three months after your birth month.

It’s important to sign up during this period, or you could face penalties in the form of higher premiums, unless you qualify for a Special Enrollment Period due to certain circumstances such as losing health coverage from your employer. If you miss these periods, you can also sign up during the General Enrollment Period from January 1 to March 31 each year, with coverage starting July 1.

Costs Associated with Medicare

While Medicare can cover a significant portion of your healthcare costs in retirement, it’s not free, and it’s important to plan for these costs as part of your overall retirement strategy.

The costs of Medicare depend on a few factors, including how much you’ve paid into the system during your working years, how much healthcare you use, and the specifics of your plan.

For Medicare Part A, most people don’t have to pay a monthly premium because they or their spouse paid Medicare taxes while working. However, there is a deductible per benefit period, as well as potential coinsurance for hospital stays that exceed 60 days.

Medicare Part B has a monthly premium, which varies depending on your income. In addition, there is an annual deductible and after it is met, you typically pay 20% of the Medicare-approved amount for most doctor services, including those while you’re a hospital inpatient, outpatient therapy, and durable medical equipment.

Medicare Part C (Medicare Advantage) costs vary by the plan and include the Part B premium, along with any premiums the plan charges. Out-of-pocket costs also differ depending on the services you use and the type of plan you choose.

Medicare Part D (prescription drug coverage) also comes with a monthly premium that varies by plan and income, along with costs for each prescription, which can vary by plan and pharmacy.

Budgeting for Medicare in Retirement

In order to effectively budget for Medicare costs in retirement, it’s crucial to understand the basics of Medicare outlined in the previous sections. This includes not only understanding the structure of Medicare and what each part covers but also understanding the associated costs.

When budgeting for healthcare in retirement, consider both the predictable costs, such as premiums and deductibles, as well as less predictable costs, like coinsurance and out-of-pocket maximums. You might also want to factor in the potential for healthcare inflation, which could increase your costs over time.

Consider setting aside a specific amount of your retirement savings for healthcare costs, or consider purchasing a supplemental insurance policy (Medigap) to help cover out-of-pocket costs not covered by Medicare. These strategies can help ensure you’re financially prepared for healthcare in retirement and can provide peace of mind.

In the next chapter, we will dive deeper into Medicare Advantage Plans, Supplements, and other alternatives to help you make an informed decision about your healthcare coverage in retirement.


  • Lily Kensington

    Lily Kensington is a financial psychologist, a proud member of the ANZA Psychological Society, and a passionate advocate for financial wellness. A former high school English teacher and psychology graduate, Lily brings a unique perspective to her writing that blends the intricacies of psychology with the world of finance.Over the past decade, Lily has dedicated her life to helping individuals and couples navigate their emotional relationship with money. Her empathetic and intuitive approach, honed through her counselling practice, breaks down complex financial concepts into relatable and practical advice. Lily's writing often reflects her personal journey as a single mother, providing valuable insights and support for fellow single parents navigating the world of personal finance.In addition to her numerous contributions to wellness and personal development blogs, Lily is the author of the book "The Heart of Money: A Psychological Guide to Financial Wellness."In front of the camera or behind the pen, Lily's mission remains the same: to help others achieve financial peace by understanding the psychology of money.

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