The four Medicare costs people forget to budget for

Part A is premium-free for most people because they paid into it for forty quarters. That fact leads a lot of people to assume Medicare as a whole is free. It is not, and the gap between the expectation and the first year of bills is where a lot of retirement budgets go sideways.

1. The income-related monthly adjustment amount

If your modified adjusted gross income is above a threshold, Social Security adds a surcharge — IRMAA — to both your Part B and your Part D premiums. It is calculated from your tax return two years back, which means your first year of Medicare is priced on the income you earned while you were still working full time.

If your income dropped because of a life-changing event such as retirement, the sale of a business, divorce or the death of a spouse, you can file Form SSA-44 to have the surcharge recalculated on your current income. A lot of people pay a surcharge for a full year because nobody told them that form exists.

2. The Part A hospital deductible, per benefit period

The Part A deductible is not annual. It applies per benefit period, and a new benefit period begins once you have been out of a hospital or skilled nursing facility for 60 consecutive days. Two separate hospitalizations in the same year, far enough apart, means paying the deductible twice.

3. Dental, vision and hearing

Original Medicare does not cover routine dental care, eyeglasses or hearing aids. For most people this is the largest predictable out-of-pocket category in retirement healthcare, and hearing aids in particular are a substantial purchase. Many Medicare Advantage plans include allowances for these, which is a genuine reason people choose them — just read what the allowance actually covers, because a dental benefit often has separate annual caps by service type.

4. Long-term custodial care

Medicare covers skilled nursing care after a qualifying hospital stay, for a limited number of days, when you are actively improving. It does not cover custodial care — help with bathing, dressing, eating and moving around — which is what most people actually need as they age.

This is the single biggest misunderstanding in retirement planning. Medicare is health insurance. It was never designed to be long-term care insurance, and no plan letter or Advantage plan changes that.

Putting a number on it

• Budget your Part B premium, plus any IRMAA surcharge, as a fixed monthly line item.
• Add either your supplement premium or a realistic estimate of Advantage copays for a moderately bad year.
• Add your Part D premium and your actual expected drug copays from the Plan Finder.
• Set aside a separate annual figure for dental, vision and hearing.
• Have a plan — insurance, savings or family — for custodial care, and make it before you need it.

None of these numbers are catastrophic on their own. They are just larger together than the picture most people carry into their 65th birthday, and they are much easier to absorb when you see them a year early.

This article is general education and is not advice about your individual situation. Plan availability, costs and formularies change annually and vary by county. We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov, 1-800-MEDICARE, or your local State Health Insurance Assistance Program to get information on all of your options.