6 Costly Medicare Surprises to Avoid

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Most people know they become eligible for Medicare at age 65, and that it will help pay a large portion of their hospital and doctors’ bills. But they might not be aware of exactly what Medicare does—and doesn’t—cover and what they could end up paying out-of-pocket.

It’s important to understand your Medicare options because you can help reduce these unanticipated expenses with careful planning.

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First, Know the Basics

Original, or traditional, Medicare is made up of two parts. Part A is hospital insurance; Part B covers outpatient care, such as doctors’ visits and medical tests.

You also have the option to enroll in Medicare Advantage plans (Part C) from private insurers. (You’ll still have Parts A and B of Medicare.) Medicare Advantage plans cover everything that traditional Medicare does, but they typically also offer coverage for other expenses such as prescription drugs, dental care, and routine care for vision and hearing. Your costs may be lower with Medicare Advantage, but you are generally limited to seeing doctors who are in your plan’s network. On the other hand, traditional Medicare allows you to go to any doctor who accepts Medicare.

If you elect to go with traditional Medicare, learn how to watch out for and minimize the impact of six surprise expenses.

1. Late-enrollment Penalties

You have a seven-month window to sign up for Medicare. It starts three months prior to the month of your 65th birthday and extends for three months after your birthday month. For example, if you have a June birthday, your initial enrollment period runs from March 1 through September 30.

Miss your enrollment deadline, however, and you’ll owe some hefty late penalties. For instance, if you fail to sign up for Part B on time, your premium will rise by 10% for each 12- month period you did not have Part B.1 And the penalty is lifelong.

An exception: If you or your spouse works for an employer with at least 20 employees and you are covered under its group plan (not counting coverage under COBRA), you can delay enrolling in Medicare. However, starting with the month after your employment or group coverage ends, you have eight months to enroll in Medicare to avoid penalties.

You may also get hit with a late penalty if you don’t sign up for prescription drug coverage (Part D) when enrolling in Medicare and later decide you want Part D. The penalty is triggered if you have gone more than 63 consecutive days without Part D or other “creditable” coverage – meaning as good or better than Part D. You’ll pay 1% of the base beneficiary premium ($33.06 in 2021) for every full month you didn’t have drug coverage. That penalty generally is added to your Part D premium and you’ll pay it for as long as you have Medicare drug coverage.

To learn more about Medicare enrollment periods, see When to Enroll in Medicare.

2. Deductibles and Co-Insurance

As with workplace insurance, traditional Medicare also has co-pays, deductibles and coinsurance (a percentage of covered health care costs that you pay after the deductible). For example, Part B pays 80% of the approved amount for doctor and other medical services, while you are responsible for the remaining 20%.

To help with these expenses and others, you can choose to buy Medicare supplement insurance sold by private insurers. The six-month Medicare Open Enrollment period for a Medicare supplement insurance policy starts the first day of the month in which you are at least 65 and enrolled in Part B. During this time, you can’t be denied a Medicare supplement policy or charged more because of your health.

3. Prescription Drugs

Most outpatient prescription drugs are not covered by Medicare. However, you can buy a separate Medicare Part D prescription drug plan that does cover them, or a Medicare Advantage plan that covers both medical and drug costs.

To enroll in Part D, you must be enrolled in original Medicare. Be aware, private insurers offering Part D have their own list of covered drugs, called a formulary, and the price of medications can differ under each plan. Make sure the Part D plan you choose covers your medications. To shop for Part D plans – and compare the cost of your medications under each – you can use Medicare’s Plan Finder.

4. Long-term Care

One of the big misconceptions about Medicare is that it will cover long-term care.

Medicare covers skilled nursing care for a limited period, such as when you’re recovering from an injury or illness. But it won’t pay for the kind of extended custodial care – help with bathing, dressing, eating and other daily activities – that nursing homes provide.

Medicaid is a joint state and federal program that will pick up nursing home costs for those with very limited assets. Otherwise your options will be to pay for long-term care out-of-pocket, with long-term care insurance or with a hybrid policy that combines long-term care and life insurance benefits.

For some people, long-term care could be the biggest health care bill they may have in retirement. Use our calculator to find the projected cost of care in your area and receive a price estimate for a long-term care policy.

5. Dental, Vision and Hearing

Medicare doesn’t cover routine dental care such as cleanings, fillings, tooth extractions, root canals, bridges and dentures. It also won’t pay for routine eye exams or eyeglasses and contact lenses. And if you need hearing aids, you’ll be responsible for the cost.

Some Medicare Advantage plans may offer limited coverage for some of these expenses, or you can help cover the costs with an insurance policy that covers one or more of these services.

Another option? Fund a tax friendly health savings account now that can help you pay for these expenses later. If you’re not enrolled in Medicare yet and have a high deductible insurance policy, you can set aside pre-tax money in an HSA. (The maximum contribution in 2021 is $3,600 for single health coverage and $7,200 for family coverage.)2 The invested dollars grow tax-deferred and can be withdrawn tax free at any age for a wide range of medical expenses, including eyeglasses, hearing aids and dental treatment in retirement. You can also use HSA money to pay premiums for Medicare and Medicare Advantage, but not Medicare supplement insurance.

6. Overseas Coverage

Many people travel more widely in retirement. But their Medicare coverage generally doesn’t go with them, except in a few medical emergencies.

That doesn’t mean you have to travel uninsured. Most Medicare supplement insurance policies cover 80% of emergency care outside of the US, although the lifetime limit is $50,000. Or, you can purchase a travel insurance policy with medical coverage, which might also include emergency evacuations.

Get to know the basics about Medicare, so that you can be prepared to choose the coverage that best fits your needs. Learn more at Medicare 101.


1 Part B Late Enrollment Penalty, Medicare.gov. Accessed August 2020.

2 IRS Announces 2021 HSA Contribution Limits, HDHP Minimum Deductibles, and HDHP Out-of-Pocket Maximums, Thomson Reuters, June 8, 2020.

Mutual of Omaha and its representatives do not provide tax and legal advice, and the information provided herein is general in nature and should not be considered tax and legal advice. Consult a qualified professional regarding your specific situation.