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February 13, 2021

Optimizing Medicare Spending in Retirement: 6 Tips for people age 63 and up

Healthcare costs are a non-negotiable line item in your retirement budget, but understanding how Medicare works can help you optimize your spending. This article covers six tips for keeping healthcare spending costs low while keeping quality high.

Healthcare costs are a non-negotiable line item in every retiree’s budget. You can always cancel a vacation or sell an RV, but your medications and trips to the doctor are necessities. While you can’t reduce healthcare costs to $0, you can optimize your spending by understanding Medicare and the cost structure. Below you’ll find six tips to help you optimize your healthcare spending in retirement.

Look for help with Medicare’s Alphabet Soup

Medicare is a complex system with many moving parts. Figuring out the right plan is tricky. Evidence shows that just 1 in 20 people choose the drug plan that minimizes their out-of-pocket expenses. Figuring out how the system works can be a full-time job. Thankfully, many people volunteer their time to help retirees figure this system out. You can find local resources by entering your zip code at ElderCare.gov.

As you prepare to meet with someone locally, it can help to know

  • Medicare Part A. Covers hospitalizations, skilled nursing facility, hospice, lab tests, surgery, home health care. Anyone who paid into Medicare for at least 30 quarters will receive Medicare Part A without paying a premium.
  • Medicare Part B. Is most similar to health insurance from an employer-sponsored health insurance plan. It covers doctor’s visits, outpatient care, home health care, durable medical equipment, and some preventive services. The standard rate for Medicare Part B is $148.50 per month.
  • Medicare Part D. Covers prescription drug costs. The average monthly cost is $42 per month, but premiums vary based on coverage.
  • Medigap. Medigap isn’t part of Medicare. Instead, these supplemental plans cover services that aren’t covered by Medicare Parts A, B and D. These are standardized plans (with letters A-N in most states) that offer a variety of coverage options. You can learn more about the plan offerings on Medicare.gov. Medigap plans can help you save money overall, but you need to be careful to find the right plan to fit your needs and the best deal on the right plan. Research from ValuePenguin showed that premiums for Plan A ranged from $147 to $784  per month.
  • Medicare Part C. Medicare Part C (also known as Medicare Advantage) are plans that Bundle Medicare Parts A, B, and D into a single plan. Enrollees can opt for a Medicare Advantage Plan rather than paying for each part individually.

Enroll on time

People who are 65 years old must enroll in Medicare Part A and B unless they have a qualified exception. Anyone who fails to enroll faces steep penalties for the remainder of their time in Medicare. Those who do not sign up for Medicare on-time will pay a 10% Penalty for each 12-month period that they were not enrolled in Medicare Part B. They will pay a 12% Penalty for each 12-month period they were not enrolled in Medicare Part D.

Those penalties can stack up over time. A person who enrolls 3 years late for Medicare Part B will pay a 30% penalty for life. In 2021, a 3-year late enrollee will pay $193.05 per month instead of the standard $148.50. The average Prescription Drug Plan (Part D) cost $42 per month in 2020. A person who enrolls three years too late will pay $57.12 per month.

Medicare.gov gives detailed information about when each person must enroll in Medicare, so check out the site around age 63-64 to determine whether you should enroll.

  • If you already receive Social Security Benefits, enrollment is automatic. The Social Security Administration handles enrollment for them. Everyone else needs to think about enrollment, even those who are still working.
  • If you aren’t covered by an employer plan, enroll at age 65. Even if you aren’t taking Social Security Checks, you need to enroll in Medicare Part A and B at age 65. You can start enrolling 3 months before you turn 65.
  • If you are working, don’t assume you have an exemption. People who are covered by an employer-sponsored health insurance plan may be allowed to defer Medicare enrollment, but that isn’t always the case. People who work for a company with fewer than 20 employees who are part of the health plan must enroll in Medicare at age 65. Those who work for larger companies should check with HR to ensure that their health plan qualifies them for exemption. Once you stop working, you need to enroll within 8 months of your coverage ceasing.

Know the deadlines

People on Medicare always have options to change plans once per year between October 15th and December 7th. If your health status has changed, or prices have gone up, try to find a better plan during this window.

Those who are enrolled in Medicare Advantage Plans can change plans between January 1st and the end of March.

People who want to switch between “Standard” Medicare and Medicare Advantage Plans should not stop enrollment in one plan until they have confirmed that new coverage has started with the other plan.

Consider your total cost

People trying to save money on healthcare costs may often choose the plans with the lowest premiums. This is a good way to cut costs, but it can backfire. People who have regular doctors visits or who require medication may see their out-of-pocket costs overshadow premium costs.

When you’re considering which plan, consider the whole cost, not just the upfront premium costs. The Medicare website makes it easy to compare real costs between various plans.

Seek financial assistance

If you’re struggling to pay for prescription drug costs, you may qualify for Medicare Extra Help. This benefit can be worth up to $5,000 per year. If you have limited assets, and you have a lower income, this assistance can help you obtain needed medications at a reasonable price. Be sure to keep this resource in mind if your retirement budget is slim.

Ask for reconsideration

If you’re someone who has a high income before retirement, you may be faced with unexpectedly high Medicare costs. Those with incomes above $88,000 ($176,000 for filing jointly) will pay higher premiums for Medicare Part B. The income that Medicare considers is your Social Security Income from 2 years previous. So people who retire after a few years of high earning may see higher premiums unless they request reconsideration.

However, Medicare allows enrollees to request reconsideration based on a change in circumstances. Qualifying changes include stopping work, divorce, death, marriage, or a loss of income.

If you earned $95,000 in your last year of work, but expect to have a retirement income of $42,000, you may qualify for a reduction in premiums. To do this you must request an IRMAA (Income Related Monthly Adjustment Amount) which can be done through the Social Security Administration.

Healthcare in Retirement Takeaways

Planning for healthcare costs in retirement is intimidating. With out-of-pocket costs rising quickly, many people worry that a limited nest egg won’t be able to cover all their costs. But by understanding the Medicare system, and regularly evaluating your needs, you can find the coverage that optimizes costs and coverage during your retirement years.


Part B Late Enrollment Penalty. Medicare, https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-late-enrollment-penalty. Accessed Feb. 13, 2021.

How do Medicare Advantage Plans Work? Medicare, https://www.medicare.gov/sign-up-change-plans/types-of-medicare-health-plans/medicare-advantage-plans/how-do-medicare-advantage-plans-work. Accessed Feb. 13, 2021.

Taking the Mystery out of Medicare with Dr. Katy Votava. Sound Retirement Planning. http://soundretirementplanning.com/231-taking-the-mystery-out-of-medicare-with-dr-katy-votava Accessed Feb. 13, 2021.

4 Best Medicare Supplement Plans for 2021. Sterling Price, ValuePenguin. https://www.valuepenguin.com/best-medicare-supplement-plans Accessed Feb. 13, 2021.

Medicare Part D: A First Look at Prescription Drug Plans in 2020- Issue Brief. Kaiser Family Foundation. https://www.kff.org/report-section/medicare-part-d-a-first-look-at-prescription-drug-plans-in-2020-issue-brief/. Accessed Feb. 13, 2021.

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