Even with Medicare, the Cost of Health Care Can Be Shocking

Episode 353 – People might think that health care is cheaper once you’re covered by Medicare. Maybe, but the cost of health care in retirement is higher than many people think. A recent study by Fidelity gives us some real numbers.

More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 353

Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, even with Medicare, the cost of health care can be shocking.

Many people, even before they reach the age of 65, are concerned about how much they will have to pay for health care. The average cost of health insurance is approximately $7,000 a year if you use an Affordable Care Act marketplace plan.[1]  Keep in mind that the cost of insurance can vary significantly based on the type of coverage, deductible, insured age, family size and ages, local cost of living and insurer availability, and whether you’re a smoker.

But many people also believe that there’s hope for the future. After all, when they get to 65, and are more likely to really need health care, Medicare steps in. And Medicare is “free,” yes?

It is true that if you qualify for Medicare when you reach age 65, as most people do, it is free to enroll in Part A, which is the Hospital Insurance portion. But Part A doesn’t cover everything.[2] For one thing, there are co-pays and deductibles that aren’t covered. That’s why some people opt for Medicare supplement plans, which require premium payments.

Even worse, there are other forms for Medicare, Part B for doctor’s visits and Part D for prescription drugs, which have additional premiums: up to $628.90 per month for Part B and up to $85.80 per month for Part D in 2025.[3] These maximums apply to people with modified adjusted gross income of over $500,000 (single) or $750,000 (married filing jointly).

And even still, Medicare doesn’t cover long-term care, most dental, hearing and vision care or cosmetic procedures.[4]

Then there’s Medicare Advantage plans, also known as Part C. These plans have become popular because of their advertised low premiums and extra benefits, sometimes even including vision and dental coverage. These plans are not run by Medicare itself but by private insurance companies, and are often treated as an alternative to “original Medicare,” which is parts A and B.

But there are drawbacks. There can be high out-of-pocket costs, restrictions on doctors or hospitals you can use, and limited coverage for travelers. Also, rates and plans are subject to change every year.[5]

So, either way, health care still costs a lot of money, even after you enroll in Medicare. A recent study by Fidelity gives us some concrete figures. According to the study, the average 65-year-old who retires in 2025 can expect to spend $172,500 on health care throughout their retirement.[6] This continues a steady increase that began when Fidelity first started measuring the costs back in 2002. At that time, the projected figure was $80,000.[7]

This comes as a shock to many. Fidelity points out further that, among retirees, 57 percent of those who did not plan for health care costs in retirement now say that they are higher than they anticipated. Further, 43 percent have found that Medicare covers less than they expected.[8]

For some, a Health Savings Account (or HSA) can be a valuable tool for dealing with health care costs in retirement. An HSA is considered “triple-tax advantaged.” Contributions are tax deductible, the money isn’t taxed while it grows in the account, and as long as you use it for qualified medical expenses, the money comes out tax-free.[9]

But not everyone is eligible. To be able to contribute to an HSA, you must be a participant in a so-called “high-deductible health plan.” A high-deductible health plan is defined by the Internal Revenue Service in 2025 as having a minimum deductible of $1,650 for an individual, and $3,300 for a family.[10] And once you’re enrolled in Medicare, you cannot contribute to an HSA, even if you could before.

The simple, undeniable fact is that even if you’re covered by Medicare, out-of-pocket expenses can be significant. It’s best to understand this in advance, and plan for it now. You might have to adjust your retirement planning strategy.

[1] Masterson, Les. “How Much Does Health Insurance Cost In 2025?” Forbes.com. https://www.forbes.com/advisor/health-insurance/how-much-does-health-insurance-cost/ (accessed August 27, 2025).

[2] Centers for Medicare & Medicaid Services. “2025 Medicare Parts A & B Premiums and Deductibles. Cms.gov. https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles (accessed October 3, 2025).

[3] Medicare.gov. “Fact sheet 2025 Medicare costs.” Medicare.gov. https://www.medicare.gov/publications/11579-medicare-costs.pdf?mod=article_inline (accessed August 27, 2025).

[4] Fitzpatrick, Mark. “What Does Medicare Cover and Not Cover? (2025 Guide)” Moneygeek.com. https://www.moneygeek.com/insurance/health/what-does-medicare-not-cover/ (accessed August 27, 2025).

[5] Medicare.org. “5 Hidden Disadvantages of Medicare Advantage Plans.” Medicare.org. https://www.medicare.org/articles/five-hidden-disadvantages-of-medicare-advantage-plans/ (accessed August 27, 2025).

[6] Fidelity Investments. “Fidelity Investments® Releases 2025 Retiree Health Care Cost Estimate, a Timely Reminder for All Generations to Begin Planning.” Fidelity.com. https://newsroom.fidelity.com/pressreleases/fidelity-investments–releases-2025-retiree-health-care-cost-estimate–a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e (accessed August 27, 2025).

[7] Financial Advisor Staff. “65-Year-Old Retirees Can Expect $172.5K In Healthcare Costs, Fidelity Says.” fa-mag.com. https://www.fa-mag.com/news/fidelity-publishes-2025-retiree-health-care-cost-estimate-83487.html (accessed August 27, 2025).

[8] Fidelity Investments. “Fidelity Investments® Research: While Over 70% of Retirees Say Retirement is Going as Planned, Confidence in Retirement Outlook is Down Among Pre-Retirees.” Fidelity.com. https://newsroom.fidelity.com/pressreleases/fidelity-investments–research–while-over-70–of-retirees-say-retirement-is-going-as-planned–confi/s/d9799b30-b28e-4b8b-842e-ca2d8fcd143d (accessed August 27, 2025).

[9] Fidelity Smart Money. “What is an HSA, and how does it work?” Fidelity.com. https://www.fidelity.com/learning-center/smart-money/what-is-an-hsa (accessed August 27, 2025).

[10] Healthinsurance.org. “high-deductible health plan (HDHP).” Healthinsurance.org. https://www.healthinsurance.org/glossary/high-deductible-health-plan/ (accessed August 27, 2025).

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