Medicare Made Simple: Key Insights and 2025 Updates

Have you ever tried putting together a piece of furniture? At first, it seems straightforward. You start strong, pulling out all of the pieces and you begin reading the instructions. You may even be thinking, “This isn’t so bad.” But then something’s off, and the pieces stop aligning, you lose screws or nails, and what you think should have taken 30 minutes ends up taking you an hour or longer! That’s how Medicare can feel—what sounds simple can quickly get complicated. In this blog, I’ll walk you through the Medicare basics and common challenges retirees face, so you can feel confident that you’re building a healthcare plan that’s strong, dependable, and most importantly tailored specifically for your family’s health insurance needs.

Medicare Isn’t as Simple (or Free) as You Think

A common misconception about Medicare is that it will cover all healthcare needs in retirement at little to no cost. While Medicare offers solid coverage, it doesn’t cover everything and is far from free. According to the 2022 Retirement Healthcare Costs Data Report by HealthView Services, Medicare covers only about two-thirds of healthcare costs, leaving retirees responsible for the remaining third. Out-of-pocket expenses can add up quickly, especially for those with chronic conditions or high prescription drug costs.

Many retirees are surprised by the Medicare costs that they are responsible to cover. These costs include premiums, deductibles, copays, and other gaps in coverage. To help cover these gaps, we must first understand the four main parts of Medicare.

Breaking Down the Four Parts of Medicare

Medicare is structured into four main parts, each covering different types of healthcare expenses. Here’s a quick breakdown:

• Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing care, hospice, and some home health care. Part A is usually premium-free if you or your spouse worked at least 10 years and paid Medicare taxes.
• Part B (Medical Insurance): Covers doctor visits, outpatient care, preventive services, and medical equipment, with a monthly premium that’s income dependent. In 2025, the standard premium is $185 per month, however, Part B premiums are based on the gross income you report on your tax return and can be as high as $628.90 per month per person. This means that higher-income individuals (couples) will pay more for Part B. If you are curious to know what the Medicare Part B premiums will be next year (2025), I’ve included a chart with the updated numbers that were just released.
• Part C (Medicare Advantage): Offered by private insurers, Medicare Advantage bundles Parts A and B, often with Part D and extras like dental, vision, and fitness benefits. However, Advantage plans usually require you to stay within a specific network of providers.
• Part D (Prescription Drug Coverage): Provides coverage for prescription medications. Each Part D plan has a formulary, or list of covered drugs, which varies by plan.

Medicare Essentials vs. Optional Add-Ons: What Do You Really Need?

Now that you have traditional Medicare (Parts A and B), the next step is to purchase additional coverage to cover the additional services that you need. Here are the three different ways you can get additional coverage:

• Medigap (Medicare Supplement) Plans: These plans help cover out-of-pocket costs that Parts A and B don’t cover. These out-of-pocket costs may include deductibles, coinsurance, and more. Medigap plans do not include prescription drug coverage, so you would need a separate Part D plan as well.
• Medicare Advantage (Part C) Plans: Medicare Advantage is an alternative to Medigap, combining Parts A and B and often D. I like to think of Medicare Advantage plans as a one-stop shop for Medicare. By combining all of the different parts of Medicare, it makes it an easier option to obtain the additional coverage that you need. Some Advantage plans even include extras such as dental, vision, gym memberships, and more.
• Part D (Prescription Drug Coverage): If you decide to go with a Medigap (supplement plan) over an Advantage plan, you may also need to find a separate prescription drug plan. Part D is essential if you take regular medications, as it helps reduce prescription drug costs. Even if you don’t take regular medications, you should still consider enrolling in a Part D plan to avoid unnecessary penalties.

If you are wondering what is NOT covered by Medicare. Here is a summary of some (not all) of the services that traditional Medicare does not cover:

• Long-term care
• Care delivered outside the U.S.
• Dental care
• Vision care
• Hearing aids
• Cosmetic surgery
• Acupuncture and other alternative care
• Amounts over the Medicare-approved amount
• Amounts not covered by deductibles and coinsurance (20%)

The Real Costs of Medicare: What to Expect

While Parts A and B provide a solid foundation, average annual healthcare expenses for retirees with Medicare are still around $4,300, according to the Center for Retirement Research. If you need extensive care, retirees should expect higher costs, especially for non-covered items like dental, vision, hearing care, and long-term care. Planning for these expenses is essential, and options like Medigap or Medicare Advantage can help manage out-of-pocket costs.

Medigap vs. Medicare Advantage: Which Should You Choose?

The decision to choose between a Medigap (supplement) plan and a Medicare Advantage plan is one of the most challenging Medicare decisions a retiree will have to make. There are many factors that come into play depending on your health, finances, and what you plan on doing during your retirement. Here are a few important takeaways that can help you with your decision:

• Medigap Plans: Medigap plans often provide excellent coverage, but it does come at a cost. These plans typically will have higher monthly premiums, but they will generally provide more comprehensive coverage. Additionally, if you plan to travel frequently during your retirement, a Medigap policy may be an excellent choice because it will provide you coverage nationwide unlike Medicare Advantage plans which restrict what doctors, clinics, or hospitals you can visit.
• Medicare Advantage Plans: Medicare Advantage plans are generally more cost-effective. They typically have lower monthly Medicare and can be even zero dollars per month (keep in mind you still have Medicare Part B premiums). These plans may be beneficial for those who are healthy and prefer lower upfront costs. However, if you decide to go with a Medicare Advantage plan it may be difficult or even impossible for you to go to a Medigap policy later in retirement if your health declines.

Enrolling in Medicare: When and How to Avoid Costly Mistakes

Missing Medicare enrollment deadlines can result in permanent penalties. Here’s what you need to know:

1. Initial Enrollment Period: The initial enrollment period is a 7-month window around your 65th birthday. The 7-month window begins three months before your 65^th birth month, your birth month, and three months after your birth month. If your birthday falls on the 1^st of the month, then that 7-month window begins one month earlier (i.e. if your 65^th birthday is on December 1^st, then your 65^th birth month is actually November). I would highly suggest that you enroll early to avoid not being covered by a plan and unnecessary penalties.

2. Special Enrollment Period: This enrollment period is for those who have delayed Medicare until they lose employer health insurance coverage. This window begins after your employer coverage ends and lasts seven months.

Note: This period applies only if you have appropriate employer coverage from a company with at least 20 employees. You should speak with your employer to know if your employer coverage qualifies.

3. General Enrollment Period: Most people are familiar with the general open enrollment period. This period runs from January 1 to March 31 each year. If you missed the Initial or Special Enrollment periods, then this enrollment period would be your next option. Once you are enrolled, coverage will begin the following month.

Medicare Part B and Part D Penalties

If you miss your enrollment window, your Medicare Part B and D will be significantly penalized! Medicare Part B premiums will increase by 10% for each 12-month period you go without coverage. For Part D, the penalty is 1% of the standard premium for each month you go without creditable drug coverage. These penalties are permanent, so be sure that you enroll early and avoid gaps in coverage.

Understanding the Impact of Your Income on Medicare Premiums

Many retirees may not realize that the income that they report on their tax return will determine what they will pay for Parts B and D of Medicare. Premiums are based on your Modified Adjusted Gross Income (MAGI) reported two years prior. For example, the income you reported in 2023 will determine your Medicare Part B and D premiums in 2025. If you file a joint tax return and have a MAGI over $212,000, you’ll pay the first surcharge. The surcharges continue to increase the higher the income you report on your tax return. Fortunately, if your income has dropped due to your retirement, the passing of your spouse, or other life events, you can request an adjustment to lower your Medicare premium based on what your income will be going forward. You can Google form SSA-44 to learn more.

Tip: Certain events will increase your taxable income, like Roth conversions or selling appreciated investments in a non-retirement investment account. Be mindful as you make these financial decisions that impact your taxable income each year. The results of these decisions will not just impact the taxes you pay annually but will additionally impact the premiums that you will end up paying for your Medicare coverage. By being strategic with your tax strategies and putting a plan in place that considers the impact your taxable income can have on Medicare premiums, you can save yourself thousands of dollars in Medicare Premiums during your lifetime.

Upcoming Changes to Medicare in 2025

The information shared so far hopefully gives you a basic overview of Medicare and can help you create a solid Medicare foundation that you can build upon. Now, let’s talk about some important upcoming changes to Medicare starting next year.

The 2025 Inflation Reduction Act introduces new Medicare changes, especially for prescription drug coverage. Here’s what to expect:

• $2,000 Annual Out-of-Pocket Cap: For the first time in Medicare history, retirees with high drug expenses will see an annual cap on prescription costs.
• Spread Out-of-Pocket Payments: You’ll be able to spread out-of-pocket prescription drug costs over the year instead of paying a lump sum.
• More Transparency for Medicare Advantage: Plans must disclose unused supplemental benefits, like dental and vision.
• Higher Costs for Insurers: Insurance companies will cover a larger share of drug costs.

These updates may seem like all good things and provide significant savings, but they may also impact premiums and plan options. Because there is more financial pressure on insurance companies, this will likely lead to increased premiums, reduced benefits, or the exclusion of certain services. Even if you are satisfied with your current Medicare plan, I would highly recommend that you review your plan for this upcoming year to see if there are any noticeable changes that may impact your lifestyle.

Disclosure: Many of the insurance companies and drug plans are still navigating these changes which means the changes to plans may not happen immediately. Each Medicare plan is unique to each individual and the area in which you live so please work with a Medicare specialist who can discuss how these changes may impact you.

Consider Working with a Medicare Agent—and Us!

Medicare can feel overwhelming, but it doesn’t have to be. At Peterson Wealth Advisors, we help clients understand their options—such as Parts A and B, the differences between Medicare Advantage and Medigap, and how to align Medicare with their overall financial strategy. For specific details, like selecting the right plan, identifying in-network doctors, or evaluating prescription coverage, we recommend working with a trusted Medicare specialist in your area. Working with a Medicare specialist in your area will be of great benefit to you because they will be familiar with the plans, networks, doctors that pertain to the area in which you live.

Medicare specialists typically do not charge clients directly for their services. Instead, they are compensated by the insurance companies when you enroll in a plan through them. This means their guidance in selecting a plan is often provided at no additional cost to you. Their primary role is to help match you with a plan that meets your healthcare needs and preferences, including doctors, prescriptions, and network options available in your area. By combining our strategic guidance with a specialist’s detailed expertise, you’ll have the comprehensive support needed to navigate Medicare confidently. If you are in need of a Medicare specialist, feel free to send us an email and we can send you some resources to help find a trusted Medicare specialist in your area.

Conclusion

Medicare may feel complicated at first, just like assembling a piece of furniture. But like any complex project, it becomes manageable with the right guidance. Remember, Medicare is not a “once and done” kind of project. You should continuously review your Medicare plan each year to ensure that it meets your needs in retirement. As you align yourself with expert support, you can avoid costly mistakes and feel confident in your healthcare plan throughout retirement. Do you feel ready to talk about your retirement plan? Schedule a consultation here.

If you would like to learn more about health insurance, we have previously recorded webinars available on our website you can watch. The links to these webinars are below.

• Medicare Made Simple: Understanding the Basics and Upcoming Changes in 2025
• Marketplace and Medicare: What to know for open enrollment
• Health Insurance Options for the Early Retiree