Healthcare can be one of the most significant expenses in retirement, making Medicare decisions an important part of a broader financial plan. The coverage you choose—and when you enroll—can affect everything from your out-of-pocket costs and access to providers to your prescription expenses and, for higher earners, your Medicare premiums. Understanding those trade-offs can help you make more informed decisions today while planning for healthcare costs over the long term.

Key Takeaways

  • Original Medicare leaves beneficiaries responsible for 20% of approved medical costs with no out-of-pocket maximum
  • Medigap and Medicare Advantage offer different trade-offs in cost, provider access, and coverage
  • Enrollment timing matters because missed deadlines can lead to penalties, coverage gaps, or fewer Medigap options
  • Review coverage each year before December 7 to confirm doctors, prescriptions, costs, and benefits still meet your needs

Medicare is often an essential component of a retirement plan, especially as healthcare costs continue to rise. But navigating its coverage options, costs, and enrollment rules can be challenging for retirees and those approaching retirement.

Ari Parker, co-founder and head Medicare advisor at Chapter, outlined several key considerations when signing up for Medicare or evaluating existing coverage.

The As and Bs of Medicare

Specific coverage under Part A and Part B:

Medicare Part A: Hospital Insurance (Inpatient)

  • Inpatient hospital care
  • Inpatient mental health care
  • Skilled nursing facility care
  • Home health care
  • Hospice
Premiums: Typically, full prepaid		 Medicare Part B: Medical Insurance (Outpatient)

  • Doctors’ visits
  • Lab work, x-rays, MRI/CT scan
  • Durable medical equipment
  • Preventative services (flu shots, certain disease screenings, etc.)
Premiums: Monthly premiums

Original Medicare includes both Part A and Part B, combining hospital insurance and medical insurance. It does not cover long-term care, defined by the activities of daily living, such as eating, bathing, or dressing oneself. While Medicare generally pays 80% of medical costs under Parts A and B, you are responsible for the other 20%, with no annual out-of-pocket maximum.

Cost: More than 99% of people do not pay a premium for Part A, as long as they or their spouse have paid federal payroll taxes for at least 10 years. However, because the nearly $2,000 Part A deductible applies to each benefit period rather than each calendar year, you may owe it more than once in a year. The Part B premium is about $200 per month and uses an 80/20 coinsurance structure. Medicare pays 80% of most approved costs, while you pay the remaining 20%.

The critical detail: Original Medicare has no out-of-pocket maximum, so your 20% portion has no ceiling. For a major illness or extended treatment, that exposure can grow quickly. For this reason, Parker explained most beneficiaries may want to consider some form of supplemental coverage.

Medicare Part D: Prescription Drug Coverage

Medicare Part D covers prescription drugs. Private insurers offer these plans, which are subsidized by the federal government. Several meaningful changes are in effect for 2027:

  • Out-of-pocket cap: Annual out-of-pocket drug costs are capped at $2,400
  • Payment flexibility: You can spread your eligible out-of-pocket prescription costs across the year in monthly payments instead of paying large amounts upfront
  • Negotiated prices: The first 10 negotiated drug prices took effect in 2026. Negotiated prices for another 15 drugs, including Ozempic, Rybelsus, Wegovy, and certain other high-cost medications, are scheduled to take effect January 1, 2027.

These changes may give beneficiaries with high drug costs a more predictable spending limit and smoother cash flow.

How Can I Achieve Comprehensive Coverage?

Parker noted two primary ways beneficiaries can supplement or replace Original Medicare coverage to help manage out-of-pocket costs. Medigap, also called a Medicare Supplement, is private insurance that supplements Original Medicare and can help cover some of the costs Original Medicare does not pay. Plan G is one of the most comprehensive Medigap options available to new Medicare beneficiaries.

Comparing Your Options

Feature Original Medicare with Medigap (Plan G) Medicare Advantage (Part C)
Premium Monthly Medigap premium plus Part B premium About 65% of plans have a $0 premium
Out-of-pocket exposure Usually limited to the Part B deductible for Medicare-covered services once Plan G benefits apply Varies by plan
Provider access Any provider who accepts Medicare Generally subject to network requirements
Prior authorizations Generally, not required Often required
Drug coverage Requires a standalone Part D plan Often included
International travel Limited foreign travel emergency benefits may be available Varies by plan

The right choice depends on your health needs, budget, travel plans, and how much you value provider flexibility.

Key Enrollment Periods

Timing matters with Medicare. Missing a window can lead to penalties or gaps in coverage.

  • Initial Enrollment Period (IEP): A seven-month window around your 65th birthday. Includes the three months before your birthday month, the birthday month itself, and the three months after
  • Special Enrollment Period (SEP): If you work past 65 at a company with 20 or more employees, you can delay Medicare without penalty and enroll later
  • Annual Open Enrollment Period: Runs each fall and ends on December 7. During this period, you can review and change your coverage

High Earners: Understanding IRMAA

The Income-Related Monthly Adjustment Amount (IRMAA) adds graduated surcharges to Part B and Part D premiums for higher-income beneficiaries. Key details include:

  • Income thresholds: Surcharges begin when your modified adjusted gross income (MAGI) exceeds $109,000 for single filers or $218,000 for joint filers
  • Two-year look-back: Medicare bases IRMAA on your tax return from two years prior. For example, your 2024 tax return determines your 2026 surcharges
  • Appeals: You can request a reduction using Form SSA-44 if you experience one of eight qualifying life-changing events. The most common are retirement and reduced work hours

For Medicare beneficiaries, this look-back can have important planning implications. Large income events, such as asset sales or Roth conversions, can raise your Medicare premiums two years later. Coordinating these decisions with your William Blair wealth advisor can help you understand and plan for the potential impact.

Common Pitfalls to Avoid

Parker highlighted several mistakes that can prove costly:

  • Relying on COBRA: COBRA does not count as active employer coverage. It may not protect you from late enrollment penalties if you delay Medicare
  • Missing the Medigap window: Outside your initial Medigap enrollment window, underwriting rules may apply in most states, potentially resulting in higher premiums or denial of coverage depending on state regulations and individual health history.
  • Contributing to an HSA: You cannot contribute to a Health Savings Account while enrolled in any part of Medicare, so it’s important to stop contributions six months before you apply
  • Skipping the annual review: According to Parker, the biggest mistake beneficiaries often make is failing to review their drug and health plans each year during Open Enrollment

Open Enrollment Ends December 7

Premiums, benefits, drug formularies, and provider networks can change from year to year. A plan that worked well last year may no longer fit your needs. Use the Open Enrollment Period to:

  • Confirm your doctors remain in network
  • Check your prescriptions are still covered at a reasonable cost
  • Compare premiums and out-of-pocket limits across plans
  • Consider how your coverage fits within your broader financial plan

Make any changes before December 7 to secure your coverage for the coming year.

Resources

Each client’s circumstances are different, and William Blair is pleased to provide general insights and perspectives on key elements of Medicare. For questions regarding your particular circumstances, or to access additional Medicare resources, including the webinar featuring Ari Parker, please contact your William Blair wealth advisor.

Disclosure

This content is for informational and educational purposes only and not intended as advice or a recommendation. Recommendations can be provided only after careful consideration of an individual’s specific personal situation and needs. The factual statements herein have been taken from sources believed to be reliable, but such statements are made without any representation as to accuracy or completeness and are subject to change.