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About 5% of the population accounts for nearly half of total health spending, and many of these are older adults with multiple conditions.
Do seniors (65+) pay as much as perceived for health care?
Seniors pay a lot for health care, but it is not that simple. Many, perhaps most, seniors pay no more, even less, out of pocket, than many younger families.
The bulk of spending by seniors is premiums, not the actual cost of care. That includes Medicare Part B and D premiums, plus for many, Medigap supplemental insurance. These premiums can total about $400 +- per month for an individual with variations by plan and location.
Of course, for 7-8% of beneficiaries there are the dreaded income based IRMAA premiums which can be considerably higher. Our combined total cost for all coverages now exceeds $2,000 per month.
On the other hand, premium expenses are well known, reasonably predictable and should be planned for. For seniors without Medigap it may be quite a different story – more like younger Americans who pay all their deductibles and co-insurance out-of-pocket.
The combination of Medicare/Medigap coverage can virtually eliminate out-of-pocket costs for medical care. Connie and I have incurred well over $500,000 in health care expenses since going on Medicare in 2010. Connie’s eye injury alone resulted – so far – in over $200,000, but our out-of-pocket costs are limited to the annual Part B deductible – currently $257.
One exception is if enrolled in Medigap Plans K and L with lower coverage levels and annual out-of-pocket limits of $3610 or $7220.
Here is a link explaining all the Medigap options (there are some variations by state as well)
Medicare Advantage plans may have low or occasionally no premiums, but often rely on deductibles, co-payments and coinsurance – the exact structure varies by plan. There is more risk for out-of-pocket spending than with original Medicare. Medicare Advantage plans must have an annual out-of-pocket limit (around $8,000). Once you hit the cap, the plan pays 100% of covered services for the rest of the year. Those seniors with Medigap don’t worry about annual out-of-pocket limits.
A Kaiser Family Foundation study found that the typical Medicare beneficiary spends about $6,500 per year out of pocket (mostly in premiums). Within the senior population, costs keep climbing: people over 85 often have 2–3× higher spending than those in their late 60s.
Compare Medicare with the average annual deductible of $1,787 for younger workers in 2024. Data varies, but a Kaiser Family Foundation survey indicates an average family deductible of approximately $3,000–$4,000 in 2024.
The average annual employee only premium was $1,401 in 2024 and the family premium was $6,296 (not counting any employer share).
Prescription drugs are a separate matter. Part D premiums are generally reasonable, but out-of-pocket costs vary significantly based on the Part D plan selected. Seniors may face copays, coinsurance, and deductibles (the maximum permitted deductible is $590). Even with coverage, certain brand-name or specialty drugs can be expensive, really expensive. Talking to your doctor about the medication prescribed and possible lower cost alternatives may be necessary. Your doctor probably does not know how your plan handles a specific Rx based on its formulary.
The good news is that an annual out-of-pocket limit of $2,000 for Medicare Part D was added by the Inflation Reduction Act of 2022 effect in 2025 – but that benefit contributes to higher premiums.
Seniors can now enroll to pay their prescription drug bills on a monthly basis rather then at the pharmacy as used. That smooths out the expense, but doesn’t lower it.
So, planning for health care in post 65 retirement boils down to mostly premiums and possibly $2,000 in Rx costs, but that’s highly variable. Individuals with chronic conditions are most exposed to ongoing expenses. Selecting MA means a possible trade off between premiums and higher out-of-pocket spending.
There are two important steps seniors should take. First assure that premiums plus at least a 6% annual inflation factor are part of the retirement spending plan and second, enter retirement with a dedicated pool of funds for out-of-pocket health care costs-including services not generally covered by insurance- dental and routine vision care (like annual exams and refractions). Ideally, these dedicated funds are accumulating on a tax advantaged basis, such as a health savings account.
Dental, routine vision (refractions/glasses), hearing, and non-rehabilitative long-term care are not covered by traditional Medicare. Seniors pay out of pocket unless they have supplemental coverage. Routine dental, vision and hearing care expenses are generally manageable, but perhaps not if one needs a hearing aid or dental implants. Treatment for diseases of the eye are covered by Medicare.
Purchasing dental insurance is generally not worth the premium for most people because internal fee limits on the services covered and the often sporadic use of the coverage, limit the value when compared with the ongoing monthly premium. We had dental insurance, but after comparing premiums and actual benefits received, I cancelled it. Perhaps save what you would pay in premiums to be used for routine OOP expenses.
According to a BLS report on employee benefits from March 2024 only 43% of private industry workers had access to dental benefits.
Long-term care is a scary outlier. Nursing homes, assisted living, and in-home care are very costly and not covered by Medicare or any health insurance. Medicaid may help, but only after seniors spend down most of their assets.
Some estimates suggest that nearly half (45-56%) of people turning 65 will need some form of paid LTC in their lifetime. However, over 70% of LTC is provided in the home and research says less than 10% of that is paid care. The median daily cost for a home health aide in NJ for example is reported to be $232 – $84,680 a year. The need for LTC is mostly related to those with disabilities or chronic conditions.
Our premiums today are $111 and $152 a month for LTC insurance, but we purchased it in our 40s through a group plan. Several years ago we received a 40% premium increase and the insurer tried to encourage us to drop the coverage. Since then it has been pretty stable. Our insurance will cover about half the cost of in-patient care for up to five years. At age 55 today you could easily pay triple our premium.
It all sounds pretty confusing, but is not really. My view is stick with a Medigap supplement plan (be sure it covers international care if that’s important to you). Medicare doesn’t work outside the US.
If you use many or expensive drugs, consider the monthly payment plan. Be sure your retirement budget includes all expected premiums and potential OOP costs – did I say “budget?”
It your income is over $500K for a single, or $750K for a married couple, you’re really paying high premiums, over $500 a month per person extra. However, at least you don’t have to worry about long term care – you can just pay out of your income.
Remember, less than 9% of retirees pay any IRMAA. So, at those income levels in retirement, that seems fair and affordable. The average working family pays more than $500 a month in premiums typically with a several thousand dollar deductible.
I live in a Birthday Rule state and my plan G premium has been going up twice a year (mid-year and birthday month) for almost 2 years already.
I am thinking of changing to Plan N this year during my birthday month. Should I switch ?
Regarding the dental insurance, I finally bought a retiree dental insurance last year during open enrollment from the company I retired from because my dentist retired and sold his practice. The new dentist charges a lot. I had a broken crown this past spring plus 2 cleanings, I feel $48 a month premium is worth it, no waiting period.
I also bought retiree dental insurance. For me it came down to 2 things: is the max annual benefit large enough to provide a meaningful contribution to any large unplanned services and getting the “in network negotiated price” for services. Basicly, that allows me to have some idea of my max liability in any given year for the kind of services I expect as I get older. At this point 8 years into retirement, I’ve received more benefits than my insurance costs so it’s been a good deal for me so far. But I’m fortunate to have access to a retiree dental policy with a large max annual benefit, so the “potential benefit” in a worst case scenario (ie. a year with major dental work) is significant.
But, are there internal fee maximums aside from the annual maximum? For example, let’s say you need a crown. The plan may allow $300 for that regardless of the annual maximum. The potential benefit may not be what it appears.
Of course you realize your experience is not typical or the insurer would be bankrupt.
what is your monthly premium?
My monthly premium is similar to S S above: $46 a month ($92 total) for myself and spouse. Of course there are “fee maximums” and they’re expressed as the percentage covered for in-network services (whose fees have been negotiated and in-network providers aren’t allowed to charge more than the negotiated amount). For example, my charge for a (in-network) crown is 50%. But the main point of my comment to S S was that an analysis of the value of dental insurance is specific to the plans available to a specific person. It really comes down to understanding the cost versus benefit of the plans available to a specific person. But even if a plan only covers the cost of the preventative services and very limited additional work, writing this I wonder if it might not still have value by affording the insuree access to a network of providers with a negotiated fee structure for major services that can’t be exceeded. This might still provide some cost predictability (ie. peace of mind) regarding unplanned dental expenses.
Twice a year increases are unusual especially for several years in a row. Plan N is going to give you office visit co-pays and there is no guarantee premiums, perhaps lower, will still not increase regularly.
You are paying $576 a year in dental premiums. Do you use that much in dental services on a regular annual basis? Chances are you are not. Whether the $576 is worth it depends on your regular annual dental services.
Remember, as a group the insurer knows the insured will spend 80 to 90% of the premium on dental care.
For example, I am planning to replace my night guard next year (my dentist said I needed to). That alone can cost me at least $500, so it is worth for me to buy the dental insurance again during the open enrollment in Oct. My dental in network benefit is $1250 a year.
Regarding Plan G, many insurance agents on Youtube mention Plan G premiums are going up.
All premiums are going up. The question is does your plan pay $500 for the guard, not what the annual maximum may be. I never heard of a plan that paid 100% of a given service up to the annual max.
An emerging factor in senior health care is the cost of maintaining facilities in rural areas. Already this year healthcare networks in my state have been forced to downsize and to close satellite clinics. The new $300 “visitation fee” for my annual wellness visit this year — which Medicare would not cover and thus could not count towards the annual deductible — was likely related to this. I shrugged the unanticipated fee off as helping to support the hospital, but someone in less fortunate circumstances might not have been so able to do so.
On August 12, 2025 medicareresources.org published their estimate of the 2026 basic part B monthly premium with an approximate 11.6% premium increase-
“The 2026 Part B premium won’t be published by CMS until the fall of 2025. But the Medicare Trustees Report projects that the standard premium (for those not subject to the high-income surcharge) will be $206.50/month. This would be an increase of $21.50/month over the 2025 premium, but again, the exact amount won’t be final until the fall of 2025.”
I think it is likely and I am planning for our 2026 traditional supplemental and part D Medicare premiums to also increase in the 10% to 15% range. My initial planning is that our combined 2026 medical insurance premium dollar increases will fully consume our dollar increases in our social security benefits.
I am not aware of an alternative to accepting these premium increases absent of a radical, for us, decision to change to a Medicare advantage plan.
You could be trading higher OOP costs for (maybe) lower premiums. Not to mention possibly disrupting your doctor relationships.
Plus as was mentioned, you can’t escape the Part B premium in any case.
We have MA and still have the B and D premiums and IRMAA deducted from our SS benefits.
Why are you paying a part D premium if you have MA? MA plans usually include medications.
Because even if choose an Advantage plan with Part D coverage you cannot avoid paying for IRMAA Part D.
BUT…if you have a Medigap plan you can opt out of Part D and not pay the IRMAA surcharge…but you will pay the annual Part D penalty for doing so of 1% a month. and have no Part D coverage.
Between Medicare, my supp, and Part D, I now have the best insurance since the early 80s. We can handle dental and eyes, but we have nothing for possible LTC.
Going through a divorce and starting a new business from scratch during my 50s, I couldn’t afford LTC insurance, and couldn’t have passed underwriting if I could (afford).
I should probably look into an annuity/LTC hybrid policy. The underwriting is easier and at least there would be some protection.
Your summary matches my understanding fully. I went for Medigap Part G after I listened to my colleagues when I retired in 2020. It was with Aetna earlier, but Physicians Mutual now upon recommendations by my broker (Medigap Seminars.)
I have wondered about if dental insurance has been worth the premiums- I have Manhattan Life. I will look into the details and may end up canceling the same.
Thank you for an excellent recap!
So…
I went back to my dental policy and determined that it is worth paying the premiums. For now. Your experience may vary, but I am giving some details so you may compare.
The premiums cost me around $600 per year. The max benefits are $1500 per year. If you meet a deductible of $100 your total cost is $700 of course. If you end up having dental treatments such as root canal, crown etc that exceed the max benefits, that would be worth it, right? In my case, for the last couple of years, it has been. There are still out of pocket costs on top, despite recovering max. benefits.
The thing to note in the fine print are- the policy covers only “usual and customary” charges and only 70-80% of those amounts.
Thank you for your comment. We have Plan G too. We coukd have taken F but the extra premium wasn’t worth it. In the long run the insurer you choose for Medigap doesn’t matter much.
According to the chart, Plan F is not available to those who turned 65 before 2020?
That’s true, if you are not grandfathered by age it is not an option. The rationale was that if seniors could avoid all out of pocket costs, they would be inclined spend more. Go figure 😰
Premiums for Medigap vary by insurer so while the covg is the same it does matter which company you choose. There are also the typical customer service issues.
Aetna had ramped up the premium this year. That was the primary reason. Agreed that Plan G from any insurer is the same with regard to coverage- they make up what is Medicare approved.
My understanding is that some insurers may introduce plans to get into the market and then pull out when things don’t gel; the usual stuff. I hope my broker does his due diligence when he recommends what to do next, not just based on premium.
Couple of points. The foreign coverage in those Medigap plans that include it is capped at $50,000 lifetime with a 20% deductible. It’s inadequate. MA plans need to be checked individually.
There are two issues with the $2,000 year cap on drug costs. My initial reaction was that I would have loved to have it while I was taking a very expensive biologic medication for rheumatoid arthritis. I went into the donut hole in January and came out in February – my drug costs were as much as $6,000/year. However, not only have premiums gone up, but plans that used to cover the drug in question have dropped it from their formularies. There are only two expensive UnitedHealth plans offering it this year.
A bit off. It’s 20% coinsurance after $250 annual deductible with a $50,000 lifetime maximum. Just for emergencies.
Depends on the emergency. Would easily have covered my broken wrist, not so sure about a broken hip or heart attack. Of course, you also need coverage to get you home after the emergency. If you need to lie flat on the plane or have a nurse with you that can get very expensive.
No doubt you would be on the hook for a nice bill, but the good news may be that the fees would be a lot less than the US.
We buy separate travel coverage for the transportation risk.
I agree that the charge anywhere outside the US would be dramatically lower. But since I have Medicare plus Plan F my actual cost in the US would be zero. I buy medical plus evacuation/repatriation insurance, but over 80 some companies won’t cover you and most lower the amount they will pay.
Thanks Richard.
I appreciate your point of view on this topic as it is formed from your work experiences before your retirement and your lived experiences after you retired.
I would add to your commentary that taxes likely will play a major financial role in the net medical costs we incur and pay for during retirement. Related taxes are often an accompanying choice skill set of learning, staying current on and applying that is necessary for a good financial outcome related to medical expenses. Humble Dollar serves us well in that process.
Making aggressive use of pre-retirement flexible spending accounts during working years and saving in health savings accounts that can be used post retirement are usually good financial choices. They were and have been for me.
The informed decisions we make regarding the two major Medicare paths, traditional with a supplement or advantage, will likely be key to access and affordability to our needed medical services. Even when we make the best financial decisions regarding medical expense matters those choices are secondary, in my opinion, to making good health decisions in how we live our life. Even the best health decisions we make do end at a point where there is nothing further that medical professionals can currently offer us. I am grateful for the medical professionals who often share their wisdom and experience on public forums.
Keep beating the drum of encouraging readers to learn and keep current on financial/tax choices regarding medical service expenses to help us all in our choices to have a better chance of a good health span.
Best, Bill
People should keep in mind that if the HSA account holder passes away the account must be closed and the entire retained balance is considered taxable income.
Also since we are not claiming Social Security until, and we are both healthy we pay our Federal part B premiums with the HSA funds to try and reduce the balance. BEWARE you can NOT pay your supplement premiums with your HSA funds. Doesn’t make sense to me, but thems are the rules.
You make a good point about Medigap premiums not being an eligible HSA expense. I would also note that if a surviving spouse is designated as the beneficiary of a deceased HSA owner’s account, the spouse can become the account’s owner, allowing them to continue using the funds for qualified medical expenses tax-free. Not so for anyone else under current tax rules.
My wife and I both had HSA accounts that I funded with tax deductible contributions from back when our medical insurance was from a HDHP from my employer’s PEO plan. After retirement when our coverage changed to traditional Medicare we waited a couple of years to the point when our accumulated Part B and Part D Medicare premiums exceeded the balance in each of our respective HSA account and we reimbursed ourself to the extent of the remaining balances in our HSA accounts and then closed the accounts. In our 1040 tax return for the year of distribution we included a IRS form 8889 for each of us and everything worked smoothly.
For us funding our HSA’s to the maximum allowed, including extra the $1K catch up contributions each which started at attained age 55 for each of us, was a great personal financial decision.
I have encouraged our adult children who participate in a HDHP and are eligible for a HSA to do the maximum every year. Doing so saves federal income tax, state income tax (most states), social security tax and medicare tax. To save the SS and MC taxes you have to make your HSA contributions via a pre-tax deduction from W-2 wages. Doing so is well worth the effort in my opinion.
This was very good, Dick. And helpful. I concur with what you wrote. I am holding my breath for what will happen this year with my mom’s MA plan. I had read recently that her insurer is pulling out of several states. Yes, she pays no premiums other than the Part B amount, but there are deductibles and co-pays. It is kind of a “pay me now vs pay me later” thing. Chris
Chris — It’s good you’re aware of this issue and looking out for your Mom. I’m not an expert on the Medicare rules, but there a LOT of MA plans that are being cancelled nationwide at the end of this year. If your Mom’s MA plan notifies her that they’re cancelling her plan, they’ve done all they can and will do. I could be wrong, but as I understand it the burden is on the individual to sign up for either another MA plan before the end of the year, or a supplement plan and a part D plan. If the individual fails to take action before the end of the year, the default is they revert to original Medicare with NO supplement and NO plan D prescription plan. Then even if they sign up for something after the first of the year, they have a gap in coverage. Then after a short period (I think 63 days) into the new year, they lose their right for guaranteed coverage without underwriting due to the MA cancellation and will be a late entrant for plan D if they sign up later. I’d suggest you or she follow up and find out if her plan is being cancelled and, if so, sign up for a replacement plan (and drug coverage if not included) before the end of this year. Best wishes. Gene
If her plan is canceled she will be able to sign up for a Medigap plan without medical underwriting.
That’s about it Chris. Pay now or later.
And if the government follows through on cuts to MA subsidies, many plans will be forced to raise premiums or reduce the benefits they often advertise.
Dick have you calculated what size nest egg tou would have if those years of premiums had been invested?
My parents financial experience with LTC insurance was abysmal. They started with premium policies sometime in their fifties , I think ( I could never het the company to tell me exactly when. But I did have their premium payments for about ten years before they died in 2012 and 2021
My father like many me. was able to stay home with aides for six months. My mother went into assisted living for 18 months but never Skilled Nursing. They paid into a assisted living community in Texas for about $100,000 in 2012.
Even with 18 months in assisted living, my mother only received reimbursements for about half of the premiums they paid all those years.
Given the huge premium increases that usually come, and your lack of any coverage if you stop paying them, we decided to not sign up.
One key which is overlooked is to retire to a low coast state like Texas. The LTC costs in MA are probably 3 times Texas.
Purchasing LTC insurance is a tough one because premiums are skyrocketing. It’s insurance like no other because of the high cost. If you’re lucky, you wasted a significant amount of money. And if you’re unlucky, you have fewer financial worries, but are living a less desirable life, sometimes for too long.
Health often deteriorates and accidents are hard to predict.
If you can easily afford it, buy it early. If not, try to live a super healthy, accident free life.
My wife’s LTC carrier has paid out 1/2 a million in just 5.5 years. Those increasing costs will continue for 5, 10, 15 years or more. It all started with a hard fall at home.
Yet, we both feel very lucky with her recovery. She could be so much worse.
For me, my current annual premiums are far less than just one month’s payout. So it pays to continue because assistance in my future is a certainty.
You don’t have a dollar or time limit on payments? That is unusual.
Yes, unlimited to both. Payout also increases 5% yearly. Started at $200/day. It’s now $20,000/month (all months are 31 days). I worry they might go out of business, but so far, so good. We have two identical policies that were purchased in 2001.
It’s not enough for 24×7 in-home care at agency prices—plenty for elevated care in our CCRC.
No, I never did. I contemplated canceling perhaps when we were in our early 60s but I was torn between the time it would take to accumulate the premium investment and possibly needing LTC. Now we are in our 80s so it all doesn’t matter. Frankly, I hope we never need to use any of the benefit.