Understanding and planning for Medicare enrollment and coverage is crucial to help you build a comprehensive retirement budget. These insights help you get started.
As you inch closer to your mid-60s, you’ll have lots of decisions to make about retirement, from how to budget your savings to when to start receiving Social Security payments. And then there’s Medicare: Nearly everyone becomes Medicare eligible when they reach age 65.
It’s critical to understand (and meet) Medicare enrollment deadlines; not doing so can be costly. Here’s how to understand Medicare coverage and its impact on your retirement budget.
Who does Medicare cover?
In general, Medicare covers everyone starting at age 65, regardless of health status, income, or medical conditions.
When do you have to sign up for Medicare?
Medicare enrollment and eligibility is managed by the Social Security Administration, but you don’t have to be retired or collecting Social Security to sign up. To avoid penalties, sign up during what’s called an Initial Enrollment Period (IEP). This is a seven-month timespan that starts three months before your 65th birthday, and ends three months after. For example, if you turn 65 on June 1, your IEP is February 1-August 31. Coverage begins based on when you sign up during that time period. (There’s a handy calculator to see your IEP at the Social Security Administration website.)
If you are age 65 and still covered by a health plan, you generally have up to 8 months after your group coverage ends. If you miss the required enrollment, you must sign up during the general enrollment period of January 1-March 31 each year, and you will pay a lifetime penalty.
Tip: You may enroll online at Medicare.gov, or call +1-800-772-1213 with questions.
What does Medicare cover?
There are four options, or parts, each of which pays for some type of care.
Option 1: Medicare Part A, commonly referred to as “hospital insurance”
In general, Medicare Part A covers inpatient care at hospitals, skilled nursing facilities, and hospice. If you, or a current or former spouse, worked and paid Medicare taxes for at least 10 years, you receive this at no cost, although you still pay a deductible and coinsurance. (You may see it referred to as “premium-free Part A.”)
Option 2: Medicare Part B, commonly referred to as “medical insurance”
Medicare Part B covers doctor’s visits, outpatient procedures, some medical equipment, and more. You will pay a premium for Medicare Part B; the amount is dependent on your household income. You will also pay a deductible and coinsurance, and you may pay an income-related adjustment based on income levels.
You must enroll in Medicare Part B when you’re first eligible; failure to do so will increase your premiums by 10% each year, permanently, until you enroll. (See more on deadlines below.)
Medicare Part B premiums based on modified adjusted gross income
| File individual tax return | File joint tax return | File married and separate tax return | Total (monthly premium + income-related monthly adjustment) |
|---|---|---|---|
| Up to $106,000 | Up to $212,000 | Up to $106,000 | $185 ($185 + $0) |
| $106,001 to $133,000 | $212,001 to $266,000 | N/A | $333 ($259 + $74) |
| $133,001 to $167,000 | $266,001 to $334,000 | N/A | $555 ($370 + $185) |
| $167,001 to $200,000 | $334,001 to $400,000 | N/A | $776.80 ($480.90 +$295.90) |
| $200,001 to $500,000 | $400,001 to $750,000 | $106,001 to $394,000 | $998.80 ($591.90 + $406.90) |
| $500,000+ | $750,000+ | $394,000+ | $1072.80 ($628.90 + $443.90) |
People who take immunosuppressive drugs may also pay a premium for that coverage.
Option 3: Medicare Part C, or Medicare Advantage
This can be confusing, but here’s a simple overview. Part C is commonly referred to as Medicare Advantage; it is private plans that bundle hospital and medical insurance (Parts A and B) and sometimes drug coverage (Part D) under its own structure and with its own limits. You can choose Parts A and B, or you can opt for Part C—Medicare Advantage.(You must still sign up for Medicare Parts A or Part B to determine eligibility before you can enroll in a Medicare Advantage plan.)
These bundled Medicare Advantage plans vary widely and you should compare them carefully. They may have additional premiums, limit doctors based on plan network, or require approval of certain drugs or services.
Option 4: Medicare Part D, commonly referred to as “drug coverage”
Medicare Part D typically offers prescription drug coverage. In the past, many people experienced a coverage gap—known as the Part D donut hole—after they reached a certain coverage level, but that has been eliminated.
As with Part B, Part D premiums vary based on income. In general, a base premium of $36.78 is in effect for 2025
What is Medigap?
A Medigap plan is supplemental insurance beyond original Medicare (Parts A and B). It offers you additional coverage—for example, on a non-covered fee during a hospital stay, or vision and dental care. Some like it because it may offer more choice than a Medicare Advantage plan, and because policies have a lifetime renewal.
Can you change your Medicare coverage?
For most people, you can change your coverage during the annual enrollment period from October 15 through December 7. That’s when you can switch plans or add or drop coverage. There are also certain circumstances that may qualify you what’s called a Special Enrollment Period; see what those are at the Medicare website.
Can you have Medicare if you’re still working?
It depends on the health insurance you (or your spouse) have. If you can stay on your employer’s health insurance, you do not have to. Take time to compare premiums, deductibles, co-pays, and the network to see the impact on your retirement budget. Your HR administrator can help with the details of eligibility.
How will Medicare enrollment affect your retirement budget?
In general, after you’ve selected the Medicare options that work best for you, you need to plan for the costs, including deductibles and coinsurance. Planning also helps you avoid penalties. These examples illustrate some of the impacts:
| If you … | The cost |
|---|---|
| Sign up for Medicare after the 7-month window | A potential late penalty on Part A unless you qualified for premium-free Part A. Lifetime penalty cost for Parts B and D. |
| Retire at age 64, sign up for 18 months of COBRA, and then sign up for Medicare when you turn 65½ | Lifetime penalties for missing the Medicare sign up window. Remaining COBRA coverage serves as secondary, not primary, insurance once you turn 65. |
| Continue health savings account (HSA) contributions after signing up for Medicare | You must stop contributing to HSA accounts six months before your Medicare effective date or face tax penalties. (You can use HSA funds to pay for qualified medical expenses.) |
| Have prescription drug coverage at your job, so you don’t sign up for Part D | Unless you notify Medicare about your current coverage, you’ll face penalties that equal 1% of what’s called the national base beneficiary premium, which may increase each year. |
What’s next?
Are you saving enough in your retirement budget to meet your estimated Medicare costs? Log in at principal.com to check your savings rate and see how to take advantage of catch-up contributions.
