Medicare covers a lot, but it is not enough to handle all your healthcare costs in retirement. A 65-year-old retiring today can expect to spend roughly $165,000 out of pocket on healthcare over the course of retirement, even with Medicare coverage. That figure, from Fidelity’s 2024 annual estimate, has more than doubled since 2002 and rose nearly 5% in just the past year. Understanding where Medicare falls short is the first step toward planning for what it won’t pay.
What Medicare Actually Covers
Original Medicare (Parts A and B) handles the big-ticket medical events: hospital stays, doctor visits, lab work, surgeries, and some home health services. Part A covers inpatient hospital care, and most people pay no monthly premium for it. Part B covers outpatient care and costs $185 per month in 2025, with a $257 annual deductible. After that deductible, you typically pay 20% of the Medicare-approved amount for most services, with no annual cap on what that 20% can add up to.
Part D, which you buy separately, covers prescription drugs. Starting in 2025, a new federal cap limits your out-of-pocket drug spending to $2,000 per year. That’s a significant improvement. Before this change, enrollees taking expensive brand-name medications could face around $3,300 or more annually at the catastrophic threshold. The $2,000 cap will rise each year with Part D cost growth, but it still represents savings of about $1,300 per year for people on costly medications.
Major Gaps in Medicare Coverage
The list of things Medicare does not cover is longer than most people expect. Original Medicare excludes:
- Most dental care: cleanings, fillings, extractions, and dentures
- Vision: eye exams for glasses and the glasses themselves
- Hearing aids and the exams to fit them
- Long-term care: assisted living, custodial nursing home stays, and most in-home personal care
- Routine physical exams (though Medicare does cover an annual wellness visit, which is a different, more limited check-in)
These aren’t minor expenses. Among Medicare beneficiaries who used dental services in 2018, average out-of-pocket spending was $874 per year. For hearing care, it was $914. And those are averages. The top 10% of dental spenders paid $2,136 or more, while the top 10% of hearing care spenders hit $3,600 or more. A single pair of hearing aids can cost several thousand dollars and typically needs replacing every few years.
Long-Term Care Is the Biggest Financial Risk
This is the gap that can devastate a retirement plan. Medicare does not pay for long-term custodial care, which is the kind of help you need if you can no longer bathe, dress, or manage daily life on your own. Medicare covers skilled nursing facility stays only after a qualifying hospital stay of at least three days, and even then, coverage is limited to 100 days per benefit period. For days 21 through 100, you pay $217 per day in coinsurance. After day 100, Medicare pays nothing.
The average nursing home stay lasts considerably longer than 100 days, and costs in many parts of the country run $8,000 to $10,000 per month or more. This single category of expense is why financial planners treat long-term care as a separate planning challenge from general healthcare costs. Options include long-term care insurance, hybrid life insurance policies with care riders, or simply earmarking a significant portion of savings for this possibility.
Supplemental Coverage Options
Most retirees add at least one layer of coverage on top of Original Medicare. The two main paths are Medigap (Medicare Supplement) plans and Medicare Advantage plans, and they work very differently.
Medigap Plans
Medigap policies fill in the cost-sharing gaps in Original Medicare: deductibles, coinsurance, and copayments. Monthly premiums range roughly from $44 to $392 depending on your plan type, location, and age. The most popular plan, Plan G, covers nearly all out-of-pocket costs except the Part B annual deductible. You keep Original Medicare and can see any doctor who accepts Medicare nationwide. Most Medigap plans also include foreign travel emergency coverage, paying 80% of emergency care costs abroad after a $250 annual deductible, up to a $50,000 lifetime limit.
Medicare Advantage Plans
Medicare Advantage (Part C) plans are offered by private insurers and replace Original Medicare. Premiums range from $0 to about $295 per month, and many plans bundle prescription drug coverage along with dental, vision, and hearing benefits that Original Medicare lacks. The tradeoff is that you’re typically limited to a network of providers, and you may need referrals to see specialists. These plans do cap your annual out-of-pocket spending, which Original Medicare does not.
Neither Medigap nor Medicare Advantage covers long-term custodial care. And while Medicare Advantage plans often include some dental and vision, the coverage tends to be basic, with annual dollar caps that may not stretch far for major work like crowns, implants, or premium hearing aids.
Medicare Doesn’t Travel Well
If you plan to spend time abroad in retirement, this matters. Medicare generally pays nothing for healthcare outside the United States. There are only three narrow exceptions, all involving emergencies where a foreign hospital is closer than the nearest U.S. hospital. Medicare won’t cover prescription drugs purchased outside the country, and it won’t cover dialysis abroad at all. If you’re on a cruise, coverage stops once the ship is more than six hours from a U.S. port.
Most Medigap plans do offer limited foreign travel emergency coverage for trips under 60 days, but that’s emergency care only, not routine medical needs. Retirees who travel internationally often purchase separate travel medical insurance.
What This Means for Your Retirement Budget
Fidelity’s $165,000 estimate assumes a single person with Original Medicare, factoring in Part B premiums, Part A and B cost-sharing, Part D premiums and out-of-pocket drug costs, and some services Medicare doesn’t cover. It does not include the cost of supplemental insurance premiums, long-term care, or over-the-counter medications. For a couple, the number is roughly double.
Higher-income retirees face an additional cost. If your modified adjusted gross income exceeds certain thresholds (based on your tax return from two years prior), you pay income-related surcharges on both Part B and Part D premiums. These surcharges can more than double the standard Part B premium for the highest earners.
A reasonable way to think about it: Medicare serves as a strong foundation that covers the majority of your medical care. But between premiums, deductibles, coinsurance, dental, vision, hearing, supplemental insurance, and the possibility of long-term care, you should plan for healthcare to be one of the largest line items in your retirement budget. For most people, that means setting aside dedicated savings specifically for health costs, separate from the money that funds everyday living expenses.