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Blog » Retirement Planning » Managing Healthcare Costs in Retirement: A Comprehensive Guide

Managing Healthcare Costs in Retirement: A Comprehensive Guide

maintain health in retirement

We all wish for those extra years, but what’s the point if we’re not taking care of ourselves? Without a solid healthcare plan, living longer might turn into a burden. As you age, heathcare costs can eat up a big chunk of your spending, and that’s not the retirement dream anyone has in mind.

One study showed that between 2009 and 2019, out-of-pocket healthcare costs for adults over age 65 rose by 41% to well over $6,000 a year. Today, older Americans are spending 13% of their annual expenditures on healthcare costs. For younger Americans that number is just 8%. 

Of course, these numbers shouldn’t shock you given that surgeries, unexpected falls, memory loss, hearing or vision loss, and other routine medical expenses increase with age. However, that doesn’t mean you’re ready for them. 

As you think about how to prioritize your retirement savings, you’ll want to understand your health insurance options, plan for your potential future medical costs, find ways to protect your health (and by extension your wallet), and consider your long-term care options. 

Understanding Medicare

Medicare is the cheapest and best option for Americans over the age of 65. It is the government’s health insurance program which comes with four parts: Parts A, B, C and D. 

If you are already claiming social security benefits, you will be automatically enrolled in Medicare. This is great news because if you or your spouse paid into Medicare for at least 10 years, you get Medicare Part A at no cost. 

If you’re 65 but not yet retired, you’ll need to choose which parts of Medicare to enroll in and can begin enrolling three months before your 65th birthday. You can sign up online or at your local social security office. 

After you enroll, you may want to change your plans. For Medicare, Parts A, B, and D, the open enrollment period begins on October 15 and ends on December 7. If you enroll by December 7, your coverage begins on January 1. For Part C (Medicare Advantage) the open enrollment period happens between January 1 and March 31.

  • Medicare Part A
    Part A, also known as hospital insurance, covers inpatient hospital care, nursing facility care, and even home health care for up to 100 days. While these may sound like long-term care services, the 100 day limit means that it comes with limitations. At the end of life, Part A also pays for hospice care. 
  • Medicare Part B
    Part B, also known as medical insurance, covers your typical appointments including doctors, outpatient procedures, and preventive services for a monthly premium of $164.90 as of 2023. 
  • Medicare Part D
    Part D, also known as drug coverage, covers prescription drugs. Prices will vary by your plan and income. While you are required to have both Part A and B under original Medicare, Part D is not required. 
  • Medicare Part C
    If you’re interested in specialized plans, Part C, or the Medicare Advantage plan, are private plans that replace A and B, and sometimes Part D. We’ll discuss these options in the next section. 

Adding Medigap or Switching to Medicare Advantage

As mentioned above, even with Medicare, you have some options regarding how much insurance to get. Medigap and Medicare Advantage expand those options.


If you want to stay on the standard Medicare A, B, and D plan, you can add on Medigap. Medigap (or Medicare Supplement)  is a medicare supplement sold by private insurance companies to help fill the “gaps” in the medicare system. The government provides a full guide to all your medigap options. 

Medicare Advantage

Medicare Advantage plans are also private plans that contract with Medicare. These plans must offer all the benefits of Medicare Parts A, B, and usually D, but they also offer things that normal Medicare does not cover. If you have Medicare Advantage, you cannot buy and do not need any Medigap. 

Medicare Advantage makes the most sense if you have generally good health and do not anticipate requiring complex services. You’ll have a yearly limit on what you have to pay out of pocket for services and, once you hit that limit, you’ll pay nothing for the rest of the year, except for drug costs. However, Medicare Advantage can be more difficult to use given that all doctors are in-network for original Medicare but not Medicare Advantage. 

Managing Healthcare Bills and Prescription Drug Costs 

At the end of the day, some medical costs are inevitable, but there are strategies to get the best deals when you go to the doctor, pick up prescriptions, or encounter other medical expenses. While healthcare pricing is not always transparent, you can control some of the variables by doing a little homework. 

Ask questions ahead of the appointment. 

Before you head to the doctor, make sure you’re going in-network. Websites, like ZocDoc, can help you find doctors who take your insurance. If you’re going for a check-up, making sure it’s in-network should be enough, but if you’re going for a specialist, call ahead to ask for a price estimate. If the procedure is not urgent, this can give you time to shop around to different hospitals or save up. 

Always make sure a procedure is necessary. 

Sometimes, doctors will offer you something, like an ibuprofen, to make you more comfortable. While a single ibuprofen might be worth 2 cents from a grocery store, if you get it during an appointment you could be charged $60 or more. No matter how nice the offer sounds, don’t forget to ask how much it costs. 

Double check your bill. 

If you just got a medical bill bigger than you were expecting, you have a few options. First, make sure to check your charges. Big medical procedures can be chaotic, both for you and for the staff, there’s always a chance someone wrote something wrong and charged you for a service that you did not receive. Second, even if the bill is as big as you thought, sometimes you can negotiate with the hospital and work out a payment plan. 

Ask for the right drug for your budget. 

Prescription drugs can be another huge cost. If you’re starting a new medication, check with your doctor to make sure the insurance covers your medication. If it doesn’t, ask about generic alternatives, mail-order pharmacies or prescription assistance programs that might provide discounts. 

Investing in Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) offer an opportunity to save early and make sure you have funds to cover your medical expenses. You cannot contribute to an HSA while you are enrolled in Medicare, so you should be contributing to your HSA through a High Deductible Health Plan (HDHP) now.

Because HSA balances roll over year after year, contributing while you’re young and you have fewer medical expenses will build you a solid, tax-free pot of money to pull from, especially if you were meeting your maximum annual contribution. If you meet a certain threshold, your HSA contributions also become investable and any money you earn through those investments will also be tax free. 

When you’re retired and your medical expenses are growing, you can use the HSA to pay for medical expenses like copayments, coinsurance, and qualified medical expenses like dental, drug and vision expenses. 

Staying Healthy in Retirement

Even with good medical insurance and a full HSA, big medical bills can wreak havoc on your finances. Medical bills account for two-thirds of bankruptcies in the U.S. and the best way to avoid surprise medical bills is to avoid medical surprises whenever you can. Preventive care, i.e. proactively improving your health, not only prolongs your life, but also saves you money. 

Medical expenses get higher when you’re going in for emergencies or expensive surgeries. Comparing the cost of an ambulance ride–about $1,000 depending on insurance–to the cost of an annual checkup–about $40 depending on insurance–tells you just how expensive medicine can get when things get bad. Much like contributing to your HSA, investing in your health can pay dividends down the road. 

Preventive care can be as easy as getting a good night’s sleep. Taking steps to plan healthy meals, incorporate regular exercise, manage your stress, and prioritize regular doctor’s visits will all go a long way to keeping you healthy. Studies show that people who get just 150 minutes of exercise a week can reduce risk of both heart disease and stroke, the leading causes of death in the U.S. Just think about every trip to the gym as a contribution to your retirement fund. 

Employers and insurance companies also know the value of preventive care. Talk to your boss or your insurance about incentive programs to see if they give discounts for gym memberships or for you meeting “healthy standards.”

Planning for Long-Term Healthcare

At some point, most Americans will invest in long-term care. Nearly eighty percent of retirees require long-term support while one-quarter of retirees will have severe needs. As we already know, when it comes to medicine, severe means expensive. The annual national cost of a private room in a nursing home was $108,405 in 2021. 

Most insurances, including Medicare, would not cover these long-term care expenses because they are not explicitly medical care. However, you can invest in long-term care insurance

If you choose to invest in long-term care insurance, you should buy your plan young given that prices will increase as you near retirement age or start experiencing health problems. 

Even with the insurance, you will not get unlimited coverage. To cover the full cost, you’ll likely need to draw on other savings, like your HSA savings.

Not all long-term care will look the same or cost the same. Long-term care can include everything from having a nurse come to your house once a day to living in a nursing home. The type of care you need will depend on your health, your budget, and your family. 

Taking the Next Steps 

While some questions, like exactly what type of Medicare you want or managing costs with your doctor, can wait until you are approaching retirement, some investments need to happen now. Buying long-term care insurance (this AARP guide is a good place to start) while you’re young will save you money. Similarly, investing in your HSA ensures you have tax free funds to spend when you need them the most. 

Of course, taking care of your physical and mental health will always save you money in the long run. You can also consider looking at your family history and assessing your personal risks to help you anticipate what’s coming your way. 

Reducing Your Healthcare Worries

The healthcare system in the U.S. is no joke, especially as you get older. Understanding your insurance options, prioritizing your health, and setting aside a medical “nest-egg” in your HSA will help you avoid coming up short when it’s time to pay your medical bills. 

The more you can do now, the less you and your children will need to worry and the more time you can spend together. After all, most of us just want more years of family movie nights and fewer tough conversations about how to pay for a hospital stay. 

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We uphold a strict editorial policy that focuses on factual accuracy, relevance, and impartiality. Our content, created by leading finance and industry experts, is reviewed by a team of seasoned editors to ensure compliance with the highest standards in reporting and publishing.

Senior Writer at Due
John Boitnott graduated from UC Santa Barbara with a Masters Degree in Education. He worked for 14 years as a broadcast news writer for ABC, NBC, and CBS News where he covered finance, business and real estate. He covered financial news for SAP for four years. Boitnott is now working as a columnist for The Motley Fool where he covers personal financial and investing strategies.

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