Plan for Healthcare Costs: Medicare, Medigap, and Long-Term Care

A 65-year-old retiring in 2025 should plan on roughly $172,500 in after-tax savings to cover healthcare through retirement, according to Fidelity’s 2025 Retiree Health Care Cost Estimate, and that figure leaves out long-term care, most dental services, and over-the-counter medications.¹ Planning for healthcare costs in retirement means building around that number: bridging coverage if you retire before 65, budgeting realistically for Medicare premiums and out-of-pocket costs, funding a health savings account while you’re still working, and deciding how you’ll handle long-term care if you need it. Each piece has its own timing and its own price tag, and getting them in the right order matters as much as the total.

If You’re Retiring Before 65

Medicare doesn’t start until age 65, so early retirees need to bridge the gap themselves. Losing job-based coverage triggers a Special Enrollment Period on the ACA Marketplace, with 60 days before or after your separation date to sign up.²

That bridge got substantially more expensive in 2026. Enhanced premium tax credits first put in place by the American Rescue Plan and extended through 2025 by the Inflation Reduction Act expired at the end of 2025. Average net premium payments for subsidized enrollees jumped 58%, from $113 to $178 per month, and the average deductible reached $3,786.³

Older adults saw the worst of it. Adults 50 to 64 make up half of individual market enrollees with incomes above 400% of the federal poverty level, and people above that threshold lost eligibility for federal financial assistance entirely. A 60-year-old earning $65,000 a year faces an annual premium increase of roughly $10,389 compared to 2025. Nationally, the lowest-cost bronze plan for a 60-year-old averages $11,625 per year, and a benchmark silver plan averages $15,914.⁴

Beyond the Marketplace, three other routes are worth considering:

A spouse’s employer plan is often the cheapest option available, because employer subsidies keep premiums below individual market rates.⁵
COBRA extends your former employer’s plan for up to 18 months (36 months for a spouse), but you pay the full premium plus a 2% administrative fee.⁶
Private insurance sold through agents, associations, or private exchanges offers more plan variety but does not qualify for premium tax credits.⁵

One planning point that catches people off guard: IRA and 401(k) withdrawals generally count as income when the Marketplace calculates your subsidy.² The size and timing of retirement account distributions in your early retirement years directly affect what you pay for coverage.

What Medicare Actually Costs in 2026

Medicare eligibility at 65 doesn’t mean free healthcare. It means a stack of premiums, deductibles, and coinsurance that varies with your income.

Part A

Most people pay no premium for Part A because they or a spouse paid Medicare taxes for at least 10 years. Those who didn’t qualify pay up to $565 per month.⁷ The inpatient hospital deductible is $1,736 per benefit period. After 60 days in the hospital, coinsurance is $434 per day through day 90 and $868 per day for lifetime reserve days. Skilled nursing facility care costs $217 per day for days 21 through 100.⁸

Part B

The standard 2026 Part B premium is $202.90 per month, with an annual deductible of $283.⁷ After the deductible, you generally pay 20% of the Medicare-approved amount for covered services.

Part D

Part D premiums vary by plan, with a national base beneficiary premium of $38.99 in 2026 and a maximum plan deductible of $615. The change most retirees will feel is the annual out-of-pocket cap. Once you spend $2,100 out of pocket on covered drugs in 2026, you enter catastrophic coverage and pay nothing more for those drugs the rest of the year.⁹ A new Medicare Prescription Payment Plan also lets you spread out-of-pocket drug costs across monthly installments, though it doesn’t reduce total costs.¹⁰

IRMAA if Your Income Is Higher

Retirees whose modified adjusted gross income clears certain thresholds pay income-related monthly adjustment amounts on top of standard Part B and Part D premiums. Surcharges are based on tax returns from two years prior, so 2024 income determines your 2026 surcharges. For single filers in 2026:

$109,001 to $137,000: Part B rises to $284.10; Part D surcharge $14.50
$137,001 to $171,000: Part B $405.80; Part D surcharge $37.50
$171,001 to $205,000: Part B $527.50; Part D surcharge $60.40
$205,001 to under $500,000: Part B $649.20; Part D surcharge $83.30
$500,000 and above: Part B $689.90; Part D surcharge $91.00

Joint filer thresholds are roughly double.⁸ IRMAA is a cliff. Exceeding a threshold by a single dollar triggers the full surcharge for that tier. If you’ve had a qualifying life-changing event (retirement, loss of income, divorce, death of a spouse), you can request a reduction by filing Form SSA-44.¹¹ Common strategies to manage IRMAA include spreading Roth conversions over multiple years rather than doing one large conversion, making qualified charitable distributions from an IRA (up to $110,000 in 2026), and harvesting losses to offset gains.¹²

Medigap vs. Medicare Advantage

Original Medicare’s deductibles and 20% coinsurance can leave you with large bills. Most retirees close the gap with either a Medigap policy or a Medicare Advantage plan, and the choice shapes both cost and access.

Medigap

Medigap policies are sold by private insurers but standardized by letter — Plan G, Plan N, Plan K, and so on. The benefits of a given letter are identical regardless of which company sells it, so the only real difference between carriers is price.¹³ Plans C and F, which covered the Part B deductible, are unavailable to anyone who became eligible for Medicare on or after January 1, 2020, making Plan G the most comprehensive widely available option. High-deductible versions of Plans F and G require you to pay $2,950 out of pocket in 2026 before coverage begins.¹⁴ Medigap does not cover prescription drugs, so you’ll need a separate Part D plan alongside it.

Medicare Advantage

Medicare Advantage plans, offered by private insurers as an alternative to Original Medicare, bundle Parts A and B with Part D and typically add dental, vision, and hearing benefits. In 2026, 75% of individual Medicare Advantage enrollees pay no premium beyond the standard Part B amount, and the average supplemental premium across all enrollees is $15 per month. Average in-network out-of-pocket limits are $5,421, though HMOs average lower ($4,636) than PPOs ($6,592).¹⁵

The trade-off is access. About 61% of Medicare Advantage enrollees are in HMOs, which typically limit coverage to in-network providers, and 99% of enrollees are in plans that require prior authorization for at least some services, including 97% for inpatient hospital stays and 95% for skilled nursing facility care.¹⁵

Dental, Vision, and Hearing

Original Medicare does not cover routine dental care, routine eye exams, glasses, or hearing aids. Limited exceptions apply: Medicare covers eye exams for diabetic retinopathy, cataract surgery and one pair of post-surgery glasses, and certain dental procedures tied to organ transplants or cancer treatment. Hearing coverage is limited to one audiology visit per year for issues lasting 12 months or more.¹⁶

Medicare Advantage plans frequently include these benefits: 99% offer vision, 98% offer dental, and 98% offer hearing coverage in 2026. Dental benefits are often capped at a fixed annual dollar amount, and the scope varies widely by plan.¹⁷ If you stay on Original Medicare, you’ll pay out of pocket or buy standalone dental and vision coverage.

Long-Term Care Is the Big Wildcard

Fidelity’s $172,500 figure deliberately leaves out long-term care, but nearly half of Americans over 65 will need some form of paid long-term care, and the average duration is about 33 months.¹⁸ Current national averages:

Nursing home semi-private room: $112,420 per year
Assisted living: $66,000 per year
Home care: $51,000 per year (six hours a day, five days a week)¹⁹

Historical inflation for these services has averaged about 2.54% annually, meaning that $112,420 nursing home room could approach $186,000 in 20 years.¹⁹ Medicare covers only limited skilled nursing (up to 100 days following a qualifying hospital stay) and does not cover custodial long-term care at all. That leaves four funding paths:

Traditional long-term care insurance pays for covered care but returns nothing if you never use the benefit. Premiums rise sharply with age: waiting from 55 to 65 to buy can increase costs by 50%. A healthy 55-year-old single man pays roughly $2,200 per year for a $165,000 benefit pool; a woman the same age pays about $3,750.²⁰
Hybrid life insurance and LTC policies combine a death benefit with long-term care coverage. If you never need care, beneficiaries get the death benefit. Premiums are usually guaranteed not to increase but are higher upfront than standalone LTC policies.²¹
Self-insurance means relying on savings. Financial planners sometimes suggest budgeting an additional $150,000 to $300,000 beyond standard healthcare savings for possible long-term care needs.¹⁸
Medicaid covers long-term care for people who have exhausted most personal resources, generally after spending down assets to very low levels. Many states run partnership programs that let purchasers of qualifying long-term care policies shield assets dollar-for-dollar from Medicaid’s spend-down. Spousal impoverishment protections allow a community spouse to retain a portion of the couple’s resources and income.²²

Evaluating these options in your mid-50s is a common recommendation, since premiums are still manageable then and insurability is less likely to be an issue.

Use an HSA While You’re Still Working

A health savings account is the most tax-advantaged way to accumulate money specifically for retirement healthcare. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.²³

For 2026, contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up contribution if you’re 55 or older.²³ To contribute, you must be enrolled in a high-deductible health plan with a minimum annual deductible of $1,700 (self-only) or $3,400 (family) in 2026.²⁴

Unlike flexible spending accounts, HSA funds roll over indefinitely and can be invested. After 65 you can use the money for non-medical expenses without penalty, though those withdrawals are taxable as income like a traditional IRA distribution. Medical withdrawals stay tax-free at any age. The catch: once you enroll in Medicare, you can no longer contribute. Working years are the window.²³

The Medical Expense Deduction

Unreimbursed medical and dental expenses exceeding 7.5% of adjusted gross income can be deducted by taxpayers who itemize on Schedule A.²⁵ Qualifying expenses include physician and hospital services, prescription drugs, medical equipment, long-term care services, and health insurance premiums including Medicare Part A, Part B, and Part D. Home modifications made for medical necessity, such as wheelchair ramps or widened doorways, are deductible to the extent they exceed any increase in the home’s property value.²⁶

Because the standard deduction is high, this deduction usually helps most when large medical expenses combine with other itemizable deductions to clear the standard deduction. Expenses below the 7.5% threshold can still be paid with pre-tax HSA dollars if you have a balance.

Enrollment Deadlines That Cost Real Money

Miss a Medicare enrollment window and you can pay for it permanently.

The Initial Enrollment Period is a seven-month window covering the three months before, the month of, and the three months after your 65th birthday. Delaying Part B without qualifying coverage triggers a 10% premium increase for each 12-month period of delay. Delaying Part D for 63 or more days without creditable coverage adds a permanent 1% monthly penalty.⁵
The annual Open Enrollment Period runs October 15 through December 7 and lets you switch between Original Medicare and Medicare Advantage, change Medicare Advantage plans, or join or switch Part D plans. Changes take effect January 1.²⁷
The Medicare Advantage Open Enrollment Period runs January 1 through March 31 and is available only if you’re already in a Medicare Advantage plan. You can switch Advantage plans or return to Original Medicare with a standalone Part D plan.²⁷

For the 2026 plan year specifically, beneficiaries who chose a Medicare Advantage plan based on inaccurate provider directory information in the Medicare Plan Finder may qualify for a three-month Special Enrollment Period to switch or return to Original Medicare.²⁸ Free unbiased counseling on Medicare options is available through the State Health Insurance Assistance Program (SHIP) at 1-877-839-2675.²⁹

A Realistic Total

The average monthly healthcare cost for a 65-year-old couple in their first year of retirement runs about $1,070, covering premiums, copays, and other out-of-pocket costs.¹⁸ That figure climbs with age, inflation, and care needs.

Fidelity’s $172,500 estimate is a useful anchor, but it assumes Original Medicare and excludes long-term care, most dental, and over-the-counter medications.¹ Your actual need depends on your health, where you live, how long you live, your income (which drives IRMAA), and whether long-term care becomes necessary. For a couple where one spouse needs extended care, the total across retirement could realistically approach twice the individual estimate or more, which is why the long-term care decision usually deserves its own line in the plan rather than a hopeful assumption folded into the healthcare number.

1
Fidelity Investments. Plan for Rising Health Care Costs
2
HealthCare.gov. Health Coverage for Retirees
3
KFF. What We Know So Far About 2026 ACA Marketplace Enrollment, Premiums, and Deductibles
4
KFF. How Will the Loss of Enhanced Premium Tax Credits Affect Older Adults
5
Fidelity Investments. Transition to Medicare
6
AARP. Health Considerations for Retirement
7
CMS. 2026 Medicare Parts A and B Premiums and Deductibles
8
Medicare.gov. 2026 Medicare Costs
9
Medicare.gov. Part D Costs
10
Medicare.gov. Medicare Prescription Payment Plan
11
SSA. Lower Your IRMAA
12
Kiplinger. You Can Appeal a Medicare Premium Surcharge
13
Medicare.gov. Medigap Costs
14
Medicare.gov. Compare Medigap Plan Benefits
15
KFF. Medicare Advantage in 2026
16
NCOA. What Medicare Covers for Dental, Vision, and Hearing
17
KFF. Medicare Advantage 2026 Spotlight
18
Creative Planning. Budget for Healthcare in Retirement
19
FLTCIP. Long-Term Care Costs
20
Fidelity Investments. Long-Term Care Overview
21
Nationwide. Hybrid vs. Standalone LTC
22
Medicaid.gov. Spousal Impoverishment
23
Fidelity Investments. HSA Contribution Limits
24
IRS. Notice 2026-5
25
IRS. Topic 502 – Medical and Dental Expenses
26
IRS. Publication 502 – Medical and Dental Expenses
27
Medicare.gov. Joining a Plan
28
KFF. What to Know About the Medicare Open Enrollment Period
29
NCOA. A Complete Guide to Medicare Open Enrollment