Planning for Healthcare Costs in Retirement: Filling Medicare Gaps

Why Medicare often leaves gaps

Original Medicare (Parts A and B) covers many acute medical needs but intentionally leaves cost and coverage responsibilities with the enrollee. Common gaps include:

• Long‑term custodial care (most nursing‑home and home‑care services)
• Routine dental, vision and hearing services
• Prescription drugs (unless you enroll in Part D or a Medicare Advantage plan that includes drugs)
• Copayments, coinsurance and deductibles for many services
• Out‑of‑network costs if you use providers outside a Medicare Advantage plan’s network

Understanding these limits is the first planning step. Official guidance from Medicare (Medicare.gov) and CMS explains enrollment windows, plan rules, and consumer protections—reviewing those resources annually is essential (Medicare.gov).

Practical strategies to fill Medicare gaps

Below are strategies I use with clients. They are organized by purpose: reduce ongoing monthly costs, limit catastrophic risk, and cover services Original Medicare excludes.

1) Compare Medigap (Medicare Supplement) vs. Medicare Advantage (Part C)

• Medigap: Supplements Original Medicare and helps cover deductibles, coinsurance, and excess charges. Medigap plans can limit unexpected out‑of‑pocket costs and offer nationwide provider access. However, Medigap requires a separate Part D plan for prescription drug coverage and typically has a higher premium than some Advantage plans.
• Medicare Advantage (Part C): Bundles Parts A and B, often includes Part D and extra benefits (dental, vision, hearing, fitness) but uses networks and may require prior authorizations. Out‑of‑pocket maximums exist, which can protect against catastrophic costs, but you may face more restricted provider choice. For a deep dive on options, see our Medicare Part C (Medicare Advantage) guide.

Choose based on your care patterns: if you travel or prefer broad provider access, Medigap + Part D can be better. If you want lower monthly premiums and extra wellness benefits, an Advantage plan may suit you. See our related article on Medicare Enrollment Planning for timing and penalties.

Internal links:

• Medicare Part C (Medicare Advantage): https://finhelp.io/glossary/medicare-part-c-medicare-advantage/
• Medicare Enrollment Planning: https://finhelp.io/glossary/medicare-enrollment-planning/

2) Optimize prescription drug coverage (Part D)

• Enroll in a Part D plan if you have Original Medicare, or confirm your Medicare Advantage plan’s formulary if you enroll in Part C. Check plan formularies annually—drugs move between tiers and plans change pricing each year.
• If you have limited income, verify eligibility for Extra Help (the low‑income subsidy) which can greatly reduce Part D premiums and cost‑sharing (Medicare.gov).

3) Explore Medicaid and Medicare Savings Programs for those who qualify

• Medicaid can cover services Medicare doesn’t, including certain long‑term supports and personal care, depending on state rules. Dual‑eligible beneficiaries (Medicare + Medicaid) can see significant out‑of‑pocket reductions. Check your state Medicaid office and the Medicare Savings Programs which can pay Part B premiums and reduce cost sharing.

Internal link:

• Medicare Savings Program: https://finhelp.io/glossary/medicare-savings-program/

4) Use Health Savings Accounts (HSAs) strategically

• If you’re eligible before Medicare, max out your HSA to build a tax‑advantaged healthcare bucket. Important rule: you cannot contribute to an HSA once you enroll in any part of Medicare (see IRS Pub 969), but you can use HSA funds tax‑free for qualified medical expenses at any age. Many clients treat an HSA as a dedicated, flexible source to pay premiums, dental, vision, hearing, and other qualified costs in retirement.

5) Consider long‑term care (LTC) planning

• Medicare generally does not cover custodial long‑term care. Options to manage LTC risk include traditional LTC insurance (buy younger, shorter elimination periods), hybrid life/LTC policies, or a dedicated savings bucket. Evaluate costs and underwriting carefully; premiums can be high but may be worth it to protect nest eggs from a prolonged care event.

6) Review employer retiree coverage and COBRA

• Some employers offer retiree health plans that supplement Medicare for a time. If you retire before Medicare eligibility, COBRA can bridge coverage but is often expensive. Assess whether COBRA makes sense short‑term or whether short‑term market plans or moving retirement timing are better.

7) Manage income timing to limit IRMAA and premium shocks

• Income modified‑adjusted gross income (MAGI) determines IRMAA (Income‑Related Monthly Adjustment Amount) for Part B and Part D premiums. If a one‑time event (capital gains, Roth conversion) will spike MAGI, consider timing or splitting income across years to reduce IRMAA exposure. We also discuss timing in our Roth conversions and Medicare planning piece.

Internal link:

• Roth Conversions and Medicare: Timing to Avoid IRMAA Surprises: https://finhelp.io/glossary/roth-conversions-and-medicare-timing-to-avoid-irmaa-surprises/

8) Use appeals, exceptions and drug assistance programs

• If a needed medication is not on a plan’s formulary, request an exception or file an appeal. Manufacturer assistance programs and state pharmaceutical assistance programs can also reduce costs for eligible individuals.

A practical planning process (step‑by‑step)

1. Estimate your baseline: project expected physician visits, hospitalizations, prescriptions, dental, vision and hearing needs, and likely long‑term care exposure. Use past medical bills as a baseline.
2. Build a healthcare bucket: aim to fund at least the first few years of Medicare deductibles, copays and premiums in liquid accounts (including an HSA if available).
3. Compare plans each fall: during Annual Enrollment Period (Oct 15–Dec 7), review Medicare Advantage, Medigap availability and Part D formularies. Check star ratings, provider networks and total out‑of‑pocket maximums.
4. Check eligibility for Medicaid, Medicare Savings Programs, and Extra Help.
5. Decide on LTC approach: insurance, hybrid, self‑funding, or family care plans.
6. Revisit annually or after major life events (marriage, divorce, big capital transactions). Keep a 12–18 month lead time for actions like underwriting for LTC policies or changing retirement timing to affect Medicare enrollment.

Common mistakes and how to avoid them

• Assuming Medicare covers dental/vision/hearing: budget separately or buy supplemental plans.
• Missing enrollment windows: missing Initial or Special Enrollment Periods can create penalties and gaps—check our Medicare Enrollment Planning guide for deadlines.
• Choosing plans on premium alone: low premium Advantage plans may charge high cost sharing or restrict access to specialists.
• Forgetting HSA rules: don’t contribute to an HSA once you enroll in Medicare; however, existing HSA funds remain usable for qualified expenses.

Real‑world examples (anonymized)

• Client A had chronic diabetes and high drug costs. By switching from Original Medicare plus high out‑of‑pocket drug spending to a Medicare Advantage plan with a drug tier aligned to her medications, her net monthly costs fell even after including plan premiums.
• Client B had significant retirement account conversions in one tax year and faced an IRMAA surcharge the following year. We staged conversions across two years and used withholding strategies to reduce MAGI spikes, lowering his Part B/Part D surcharges.

These examples show why an annual review and coordinated tax/benefit planning matter.

Checklist for the first year on Medicare

• Enroll during the Initial Enrollment Period (three months before to three months after your 65th birthday month) unless covered by qualified employer insurance.
• Decide Original Medicare + Medigap and Part D, or Medicare Advantage (Part C).
• If buying Medigap, consider guaranteed issue periods to avoid underwriting denials.
• Review Part D formularies and pharmacy networks.
• Confirm eligibility for Extra Help or Medicaid if income/assets are low.
• If still working, confirm whether employer coverage is primary and whether you should delay Part B to avoid duplicate premiums.

Resources and authoritative references

• Medicare official site: Medicare.gov (enrollment rules, plan finder, and program explanations)
• Centers for Medicare & Medicaid Services (CMS): cms.gov (policy and program details)
• IRS Publication 969 (Health Savings Accounts and other tax‑favored health plans): irs.gov
• State Medicaid office and local SHIP (State Health Insurance Assistance Program) for free counseling

Final thoughts

Filling Medicare gaps is an active, ongoing part of retirement planning. There’s no single best choice for everyone—your health profile, finances, geographic mobility and risk tolerance determine the right mix of Medigap, Advantage, Part D, Medicaid, HSAs and LTC planning. Start early, review annually, and coordinate tax and benefit actions to avoid surprises. In my 15+ years advising retirees, clients who treat healthcare like a long‑term liability (with a funded plan) experience far less stress and better financial outcomes.

Professional disclaimer: This article is educational and general in nature and does not constitute individualized financial, tax, or legal advice. Consult a licensed financial planner, Medicare counselor (SHIP), or tax professional about your specific circumstances.