Healthcare spending and premiums during a post age-65 retirement- facts and ideas.

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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.

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?”