Medicare explained: Answering common questions about health care in retirement

Summary

• Common Medicare misconceptions leave retirees vulnerable to unexpected health care costs and expensive enrollment mistakes—only 20% of Americans understand original Medicare.
  
• Medicare has four main parts plus a Medigap option, each with different costs, coverage areas, and enrollment requirements.
• MAGI and income brackets affect Medicare surcharges, but understanding how to navigate these rules and planning ahead can help you avoid unnecessarily high premiums.
  

Planning for health care in retirement

It’s hard to plan for retirement if you don’t know how much health care will cost you. Yet survey after survey shows that many Americans don’t understand the ins and outs of Medicare—the government health insurance program for people 65 and older.

According to a survey from health care consultancy Sage Growth Partners, only 20% of Americans understand original Medicare, and fewer than a third understand supplemental Medicare programs.¹ A more recent TIAA Institute study revealed that 40% of Americans believe—wrongly—that Medicare will pay for nursing homes or other long-term care.²

“When it comes to budgeting, the cost of Medicare is something many clients struggle with—particularly what supplemental coverage will cost,” says Melody Evans, a vice president wealth management advisor in TIAA Wealth Management’s Portsmouth, NH office. “Clients come to planning meetings with a great understanding of their fixed expenses—or even how much they’ll spend on travel—but the cost of health care is still a big question mark.”

The Medicare breakdown

Medicare is the federal health insurance program in the United States for those 65 or older and people with qualifying disabilities. It is funded through payroll taxes, premiums, and general government revenue and provides health insurance for more than 60 million Americans. Established in 1965 as part of the Social Security Act, the program has four parts, plus another option known as Medigap:

• Part A, often referred to as “hospital insurance,” covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care.
• Part B, sometimes called “medical insurance,” covers doctor visits, outpatient care, medical supplies, and preventive services.
• Part C is an alternative way to receive Medicare benefits through private insurance companies approved by Medicare. Also known as Medicare Advantage, these plans typically include Parts A, B, and D, but differ from standard Medicare in that they may have limited provider networks.
• Part D helps cover the cost of prescription drugs and is offered through private insurance companies.
• Medigap is a supplemental plan for those who don’t sign up for Medicare Advantage. Available through private insurers, Medigap covers expenses not covered by Parts A and B, such as copayments, deductibles, and excess medical charges beyond Medicare’s approved amounts. (The choice between Medigap and Medicare Advantage is one of the more important Medicare decisions. Consider consulting with a licensed insurance agent or Medicare counselor to understand what works best for your situation.)

Of course, knowing the basics still leaves plenty of unanswered questions. Below we address the four Medicare questions Evans hears most from clients.

1. How much does Medicare cost?

You can find a complete breakdown of current costs (and 2026 ones, when released) on the Medicare website, but here are the basics:

• For Part A, the answer is easy: $0 for most people. In this case, most people generally means anyone (and their spouse) who has worked and paid Medicare taxes for at least 10 years. For 2025, however, there’s a $1,676 deductible for each inpatient hospital stay. This deductible covers the first 60 days of a benefit period, after which a daily coinsurance payment is required. TIAA Wealth Management clients have access to multiple insurance solutions including long-term care and disability insurance. Your TIAA Wealth Management advisor can help you identify possible coverage gaps and connect you with best-in-class insurance carriers.
• Part B is where things get more complicated. For 2025, the base premium is $185 a month (with a $257 annual deductible). However, if your modified adjusted gross income (MAGI) from two years prior, as reported on your federal tax return, is above $106,000 for individuals or $212,000 for joint filers, you’ll have to pay an escalating surcharge known as the income-related monthly adjustment amount (IRMAA). MAGI is different from adjusted taxable income as it adds back in certain deductions such as those for student loan interest or IRA contributions. In 2025, the highest monthly premium for Part B is $628.90 a month for single filers earning $500,000 or more and joint filers earning $750,000 or more.
• Parts C and D are offered through private providers, so costs vary. (Click here to find providers in your area.)

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