How to Cover for Healthcare Costs That Are Not Covered by Medicare

Most professionals nearing retirement have a plan for housing, travel, and may even have a bucket list. But how about healthcare costs in retirement? That’s often where things get vague.

According to Fidelity, an average 65-year-old individual retiring in 2024 may need approximately $165,000 in after-tax savings to cover healthcare expenses throughout retirement.

There’s an unspoken assumption that Medicare will handle most of it. After all, that’s what it’s there for, right?

Not quite.

While Medicare does cover a broad range of medical needs, it doesn’t cover everything, and the gaps aren’t trivial. Some of the most common and costly healthcare expenses in retirement fall completely outside its scope.

Here’s what many retirees don’t realize until it’s too late:

• Medicare doesn’t cover long-term care.
• It doesn’t pay for routine dental, vision, or hearing services.
• And if you’re traveling outside the U.S.? No coverage there either.

So, while Medicare forms a solid foundation, it’s not a safety net that catches all. Without a proper plan in place, these uncovered costs can quietly drain your savings, just when you thought the heavy lifting was over.

And let’s be honest: the issue isn’t just the gaps in coverage, but the unpredictability. You don’t know when a health event might occur, how much it will cost, or whether you’ll need specialized care. However, you do know that retirement isn’t the time you want to be worrying about money and healthcare expenses.

That’s why healthcare retirement planning is not optional.

This article breaks down what Medicare doesn’t cover, what those gaps could cost you, and how smart financial planning can help you stay ahead, without draining your retirement savings.

Medicare’s limitations that you should know about

There’s no denying that Medicare does a lot. It covers hospital stays, doctor visits, prescription drugs (if you opt for Part D), and a range of preventive services. For many retirees, it forms the backbone of their healthcare coverage.

But it’s not bulletproof.

There are critical gaps that can catch even the most prepared off guard. And unfortunately, those gaps tend to show up at the worst possible time. Think of times when care is urgent and costs are high!

Here are some of the biggest blind spots in Medicare coverage that every retirement plan needs to account for:

a. Excludes long-term care coverage

This one surprises most people.

Medicare does not cover custodial care, which means you won’t be covered for help with daily tasks like bathing, dressing, or eating. It may cover short-term stays in a skilled nursing facility after hospital admission, but long-term care? That’s on you.

According to the U.S. Department of Health and Human Services, someone turning 65 today has almost a 70% chance of needing long-term care at some point. That’s not a maybe but a near-certainty.

And the cost?

Easily six figures, depending on where you live and the level of care required.

b. Lacks dental, vision, and hearing care

Medicare doesn’t cover routine dental exams, cleanings, or dentures. It won’t help with eye exams for glasses or contact lenses. And hearing aids? Those are out-of-pocket, too.

These aren’t fringe services. They’re the kind of care that directly affects your daily quality of life, and for many retirees, they become more frequent and more essential over time.

Some Medicare Advantage plans offer partial coverage for these needs, but it varies widely. And it’s often not enough.

c. No coverage for overseas medical treatment

Dreaming of spending retirement traveling the world?

That’s wonderful. Just know that Medicare doesn’t follow you overseas. Unless you have supplemental coverage with international benefits, any medical costs you incur while abroad will come directly out of your pocket.

That means even a short hospital stay for a minor emergency in Europe or Southeast Asia could cost you thousands of dollars.

d. Does not include alternative and integrative therapies

Things like acupuncture, naturopathy, or extended chiropractic care, i.e., services that many people turn to for chronic pain or wellness, are either not covered or only partially reimbursed under strict conditions.

Even services that are increasingly accepted in mainstream care fall outside Medicare’s boundaries unless deemed “medically necessary” by very narrow standards.

If you look closely, these aren’t just technical exclusions but represent real, recurring costs that can quietly add up to tens (or hundreds) of thousands of dollars throughout retirement. Ignoring them or assuming you’ll deal with them, “if and when they happen,” is not a strategy. It’s a risk.

And if your retirement plan doesn’t account for these realities?

You could find yourself dipping into savings you meant to use for freedom and fulfillment instead of fillings, walkers, or overseas emergencies.

Smart strategies to cover healthcare costs in retirement

There are several ways to protect your retirement savings and ensure your healthcare needs are met, without the stress of surprise expenses. The key is to understand your options, act early, and align them with your broader retirement goals.

Let’s explore what that can look like:

a. Maximize tax benefits with Health Savings Accounts (HSAs)

If you’re still working and enrolled in a high-deductible health plan (HDHP), an HSA is one of the most tax-efficient savings vehicles out there.

Here’s why:

• Your contributions are tax-deductible.
• The money grows tax-free.
• And when you use it for qualified medical expenses? Withdrawals are tax-free too.

What makes HSAs even more powerful is their flexibility in retirement. Once you turn 65, you can use HSA funds to pay for:

• Medicare premiums (except Medigap)
• Long-term care insurance premiums (within IRS limits)
• Out-of-pocket medical costs not covered by Medicare

You can even use the funds for non-medical expenses, though those will be taxed as income. In short, if you qualify, start funding your HSA now. It’s like giving your future self a safety net.

b. Fill the gaps with Medigap (Medicare Supplement Insurance)

Even with Medicare Parts A and B, you’re still on the hook for copayments, coinsurance, and deductibles. That’s where Medigap comes in.

Medigap policies, sold by private insurers, are specifically designed to cover these leftover costs. Some plans even cover foreign travel emergencies.

One important tip: The best time to buy a Medigap policy is during your six-month Medigap open enrollment period, which begins the month you turn 65 and enroll in Medicare Part B. During this window, insurers can’t deny you coverage or charge more due to pre-existing conditions.

Outside that window?

You may face higher costs or be denied care entirely.

c. Explore Medicare Advantage plans (Part C)

Medicare Advantage plans are bundled alternatives to Original Medicare, offered by private insurers approved by Medicare.

They include all the benefits of Parts A and B and often add extras like:

• Routine dental and vision care
• Hearing aids
• Prescription drug coverage
• Gym memberships and wellness perks

Some plans even come with lower out-of-pocket caps, making costs more predictable. But there’s a tradeoff: these plans often require you to stay in-network. That means your choice of doctors or hospitals may be limited depending on the plan.

So, if continuity of care with your current providers is important to you, make sure they’re in-network before enrolling.

d. Plan for extended care with long-term care insurance

We’ve already discussed how Medicare doesn’t cover long-term care. The financial fallout of needing extended care, whether in a facility or at home, can be devastating.

That’s where long-term care (LTC) insurance can be helpful.

These policies help cover:

• Nursing home stays
• Assisted living costs
• In-home healthcare services

And while LTC insurance isn’t cheap, it’s a lot more affordable if you purchase it in your late 50s or early 60s. Some insurers now offer hybrid plans that combine LTC benefits with life insurance, giving you some flexibility if you never end up needing care.

It’s not for everyone, but if protecting your estate or shielding your spouse from future care costs is a priority, this option deserves serious consideration.

e. Don’t neglect retiree health benefits

If you’re lucky enough to have an employer that offers retiree health coverage, don’t overlook it.

These benefits can supplement Medicare by covering costs that Medicare doesn’t. That includes expenses such as drugs, specialist visits, or coinsurance amounts. In most cases, Medicare pays first, and your retiree plan kicks in to handle what’s left.

The key here is clarity. Don’t assume you know what’s covered. Review the plan documents carefully or speak with your benefits administrator. Remember, coordination between Medicare and employer-sponsored plans can be complex, and missteps may cost you.

f. Bridge any remaining gaps with health insurance marketplace plans

If you plan to retire before age 65, you’ll need to bridge the gap until Medicare kicks in. The health insurance marketplace can act as a safety net here.

These plans vary by state but offer:

• A range of coverage levels (bronze to platinum)
• Premium subsidies based on your income
• Caps on out-of-pocket expenses

Depending on your retirement income, you might qualify for premium tax credits or cost-sharing reductions that lower your monthly payments and deductibles.

Be sure to consider various options and understand how much risk you’re comfortable taking on. A lower premium often comes with a higher deductible. If your health needs are consistent or chronic, the math may favor a higher-tier plan.

However, it is important to remember that there’s no one-size-fits-all solution. Each of these strategies has tradeoffs, eligibility requirements, and implications for the rest of your retirement plan. That said, the bottom line is that you do have options.

And the earlier you explore them, the better positioned you’ll be to avoid the panic that comes with unplanned expenses later.

Incorporating healthcare costs into retirement planning

Let’s face it. Retirement planning isn’t just about vacations, downsizing, or finally picking up a new skill. At its core, it’s about financial control, and few things threaten that control more than unexpected medical bills.

That’s why healthcare expenses in retirement should never be an afterthought. They need to be part of the blueprint, not penciled in later.

Here’s how to make that happen:

a. Budget for healthcare (just like you would for travel or groceries)

You wouldn’t head into retirement without knowing how much you need each month for living expenses, right? Healthcare deserves the same attention.

Set aside a dedicated portion of your retirement savings for medical costs. This calculation should not include just premiums, but also out-of-pocket expenses, deductibles, copays, and services not covered by Medicare (like dental and vision).

Think of it less like “extra spending” and more like building a buffer. You may not need all of it immediately, but when something unexpected occurs (and it likely will), you’ll be glad it’s there.

Start by estimating annual healthcare costs, then adjust for inflation. You may use an online tool for your calculation or the expertise of your financial advisor.

b. Consider delaying retirement

In addition to boosting savings, working a few more years also helps delay withdrawals.

Staying employed longer can help in two major ways:

• You may continue receiving employer-sponsored health insurance, avoiding the need to rely on Marketplace plans or bridge coverage.
• It reduces the number of retirement years you’ll need to self-fund, shrinking the size of your healthcare budget long-term.

Even part-time or consulting roles can provide benefits or additional income, reducing pressure on your savings.

c. Manage your income to manage Medicare premiums

Here’s something most people overlook: your Modified Adjusted Gross Income (MAGI) directly affects how much you’ll pay for Medicare Part B and Part D.

Higher income? Higher premiums.

This is called IRMAA, i.e., income-related monthly adjustment amount, which kicks in once your MAGI crosses certain thresholds. It’s not uncommon for retirees taking large IRA withdrawals, capital gains, or Social Security benefits to trigger these premium hikes without realizing it.

What does that mean for you?

The way you draw income in retirement can influence your healthcare costs more than you think.

Smart withdrawal strategies, such as timing Roth conversions, spreading out taxable income, or harvesting gains strategically, can keep your MAGI in check. It’s another reason why financial planning for healthcare costs should never be done in isolation.

Planning beyond coverage: Your next best move

Here’s the truth: healthcare costs in retirement are an integral part of your financial future. They are usually complex, variable, and often underestimated.

Understanding Medicare’s limitations is just the starting point. The real challenge is figuring out how to fill the gaps without compromising the lifestyle you’ve worked for decades to build.

That’s where proactive planning makes all the difference. All the decisions you make in this process are related.

How you budget, when you retire, and even how you withdraw income can ripple across your retirement plan in ways you may not expect. For example, a few thousand dollars in additional income could push you into a higher Medicare premium bracket. That kind of financial domino effect is exactly why guesswork doesn’t work here.

And that makes a financial advisor invaluable.

A good advisor will help you build a strategy that:

• Accounts for your health history and future risks
• Maximizes your tax-advantaged savings options like HSAs
• Balances insurance costs with actual coverage needs
• Minimizes surprises tied to Medicare premiums and IRMAA surcharges

They will help with the numbers and give you clarity, confidence, and control.

So, if you’re nearing retirement (or already retired), it may be time to discuss healthcare costs with a financial advisor.

Consider our free advisor match tool that can match you with 2 to 3 trusted financial advisors who can help plan for healthcare costs, optimize your retirement strategy, and protect what you’ve worked so hard to build.