Medicare Explained
Parts A, B, C, D · Costs · IRMAA surcharges · Medigap · Enrollment rules
Medicare is federal health insurance for Americans aged 65 and older (and some younger people with disabilities). For most retirees it becomes the primary health coverage as soon as they leave employer insurance — making it one of the largest and most important costs in a retirement plan. This page explains every part, what it costs, and what you need to know before you retire.
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The 4 parts at a glance
| Part | What it covers | 2026 premium | Deductible |
|---|---|---|---|
| AHospital | Inpatient hospital stays, skilled nursing, hospice, some home health | $0 for most (if you worked 10+ years) | $1,736 per benefit period |
| BMedical | Doctor visits, outpatient care, preventive services, durable equipment | $$202.90/mo standard (2026) | $283/year, then 20% coinsurance |
| CAdvantage | Combines A + B (often + D) through private insurer; may include dental/vision | Varies; average ~$17/mo above Part B | Plan-specific; has annual out-of-pocket max |
| DDrugs | Prescription drugs through private insurer | Varies; average ~$46/mo (2026) | Up to $590/year (2026) |
Part AHospital Insurance
Part A covers inpatient hospital stays, skilled nursing facility care (after a qualifying hospital stay), hospice care, and limited home health care.
Cost (2026)
- $0 premium if you or your spouse worked and paid Medicare taxes for at least 10 years (40 quarters). About 99% of retirees qualify.
- $311/mo (2026) if you have 30–39 quarters of Medicare-covered employment.
- $565/mo (2026) if you have fewer than 30 quarters.
What you still pay
- $1,736 deductible per benefit period (days 1–60 of a hospital stay).
- $$434.00/day coinsurance for days 61–90.
- $$868.00/day for lifetime reserve days (91+).
- Skilled nursing: $0 for days 1–20, then $$217.00/day for days 21–100 (2026).
Part BMedical Insurance
Part B covers doctor visits, outpatient care, lab tests, preventive services, mental health, and durable medical equipment. This is the part most people interact with day-to-day.
Standard cost (2026)
- $$202.90/month standard premium (deducted automatically from Social Security if you're receiving it).
- $283/year deductible, then Medicare pays 80% — you pay 20% with no cap unless you have supplemental coverage.
Higher earners pay more (IRMAA)
If your income exceeds certain thresholds, you pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of $$202.90. See IRMAA table below.
Part CMedicare Advantage
Medicare Advantage is an alternative to Original Medicare offered by private insurers approved by Medicare. Plans must cover everything Part A and B cover, and most also include Part D drug coverage. Many also bundle dental, vision, and hearing — which Original Medicare does not cover.
How it works
- You still pay your Part B premium ($$202.90/mo) plus any plan premium (often $0–$50/mo).
- Plans have an annual out-of-pocket maximum (capped at $9,250 in-network for 2,026) — providing cost certainty Original Medicare lacks.
- Most are HMO or PPO — you may need referrals and stay in-network.
- Plans vary significantly by region. Compare at medicare.gov/plan-compare.
Advantage vs. Original Medicare + Medigap
| Medicare Advantage (Part C) | Original Medicare + Medigap | |
|---|---|---|
| Monthly cost | Lower (often $0 plan premium) | Higher (~$100–$300/mo for Medigap) |
| Network | Restricted (HMO/PPO) | Any doctor that accepts Medicare |
| Out-of-pocket max | Yes (capped) | None (unless you add Medigap) |
| Extras (dental/vision) | Often included | Not included |
| Predictability | Moderate (plan can change annually) | High (Medigap is very stable) |
Part DPrescription Drug Coverage
Part D covers prescription drugs through private insurers. If you choose Original Medicare (not Advantage), you add a standalone Part D plan.
Cost (2026)
- Average premium: ~$46/month (varies widely by plan and drugs covered).
- Annual deductible: up to $590 (2026).
- $2,100 out-of-pocket cap on drug costs (Inflation Reduction Act).
IRMAA also applies to Part D
Higher-income retirees pay a surcharge on top of their plan premium. See IRMAA table.
IRMAAIncome-Related Monthly Adjustment Amount
IRMAA is a surcharge added to your Part B and Part D premiums if your income from 2 years ago exceeds certain thresholds. Social Security uses your Modified Adjusted Gross Income (MAGI) from your tax return to determine the surcharge. For 2026 premiums, they look at your 2024 tax return.
This is critically important for retirement planning — a large Roth conversion, RMD, or capital gain can push you into a higher IRMAA bracket unexpectedly, adding hundreds of dollars per month to your Medicare costs.
2026 IRMAA brackets — Part B
| 2024 MAGI (Single) | 2024 MAGI (Married Filing Jointly) | Monthly Part B premium | IRMAA surcharge |
|---|---|---|---|
| ≤ $109,000 | ≤ $218,000 | $$202.90 | $0 |
| $109,000+ – $137,000 | $218,000+ – $274,000 | $284.10 | +$$81.20 |
| $137,000+ – $171,000 | $274,000+ – $342,000 | $405.80 | +$$202.90 |
| $171,000+ – $205,000 | $342,000+ – $410,000 | $527.50 | +$$324.60 |
| $205,000+ – $500,000 | $410,000+ – $750,000 | $649.20 | +$$446.30 |
| > $500,000 | > $750,000 | $689.90 | +$$487.00 |
2026 IRMAA brackets — Part D
| 2024 MAGI (Single) | 2024 MAGI (Married Filing Jointly) | Monthly Part D surcharge added to plan premium |
|---|---|---|
| ≤ $109,000 | ≤ $218,000 | $0 |
| $109,000+ – $137,000 | $218,000+ – $274,000 | +$$14.50 |
| $137,000+ – $171,000 | $274,000+ – $342,000 | +$$37.50 |
| $171,000+ – $205,000 | $342,000+ – $410,000 | +$$60.40 |
| $205,000+ – $500,000 | $410,000+ – $750,000 | +$$83.30 |
| > $500,000 | > $750,000 | +$$91.00 |
Medigap (Medicare Supplement Insurance)
Medigap policies are sold by private insurers to fill the gaps in Original Medicare — primarily the 20% Part B coinsurance and various deductibles. With a good Medigap plan your out-of-pocket costs become highly predictable.
How Medigap is structured
- Policies are standardized by letters: Plan G and Plan N are the most popular for new enrollees (Plan F is no longer available to those new to Medicare after Jan 1, 2020).
- Plan G covers almost everything except the Part B deductible ($283). Average premium: $100–$200/mo depending on age and location.
- Plan N has small copays for office visits but lower premiums than G. Average: $80–$160/mo.
- You keep Original Medicare — any doctor in the US who accepts Medicare accepts your Medigap plan. No network restrictions.
Enrollment rules & key dates
Initial Enrollment Period (IEP)
7-month window: 3 months before your 65th birthday month, your birthday month, and 3 months after. Enroll in Parts A and B here.
Special Enrollment Period (SEP)
If you have employer coverage at 65, you can delay Medicare without penalty. You get an 8-month SEP to enroll after your employer coverage ends. COBRA does not count as qualifying employer coverage for this purpose.
General Enrollment Period (GEP)
January 1 – March 31 each year, if you missed IEP. Under the current rule, coverage begins the first day of the month after you enroll. Late enrollment penalty applies.
Annual Open Enrollment (Part C & D)
October 15 – December 7 each year. Switch or join Medicare Advantage or Part D plans. Changes take effect January 1.
Late enrollment penalties
Part B: 10% added to your premium for each 12-month period you could have enrolled but didn’t. This is permanent.
Part D: 1% of the national base premium per month of delay. Also permanent.
How Medicare fits into your retirement plan
📈 Budget $5,000–$8,000/year per person
A typical retiree with Original Medicare + Plan G Medigap + Part D pays roughly $$202.90 (Part B) + $150 (Medigap G) + $46 (Part D) = ~$399/month in premiums alone — about $4,787/year per person before any out-of-pocket costs. Budget $5,000–$8,000/year per person as a conservative planning number.
💡 Roth conversions and IRMAA
Roth conversions increase your MAGI in the year of conversion. Because IRMAA looks back 2 years, a large conversion at age 63 can trigger higher Medicare premiums at age 65. Conversely, doing conversions earlier (before 63) avoids this entirely. Use SmartRetireCalc to model your income in each year.
📋 RMDs and IRMAA
Required Minimum Distributions from pre-tax accounts are ordinary income. Large RMDs starting at age 73 can push your MAGI into a higher IRMAA bracket unexpectedly. This is one of the strongest arguments for pre-retirement Roth conversions — reducing future pre-tax balances reduces future RMDs and potentially keeps Medicare premiums lower.
⚠ The widow/widower IRMAA trap
Married couples file jointly and enjoy the higher IRMAA thresholds. If one spouse passes away, the surviving spouse files single — and the single thresholds are exactly half the joint thresholds. A couple comfortably under the IRMAA threshold at $218,000 joint MAGI suddenly finds the survivor paying surcharges at just over $109,000. Plan for this scenario in your retirement income modeling.
🔐 HSA and Medicare
Once you enroll in Medicare (any part), you cannot contribute to an HSA. However, you can use your existing HSA balance to pay Medicare premiums (Parts A, B, C, and D) and qualified medical expenses tax-free. Delaying Medicare enrollment while still working and on an HSA-eligible plan lets you continue building your HSA.
Premium and bracket figures are for 2026. Amounts change annually. Always verify current figures at medicare.gov or with a licensed insurance broker. This page is for educational purposes only and is not financial or medical advice. See our Disclaimer.