With Medicare open enrollment approaching, it's important to have a solid understanding of how the program works.
<<This article was first published by Franklin Templeton>>
Medicare is the most important health care resource for those 65 and older, but many seniors find navigating the program and its multiple plan choices confusing.
More than 67 million individuals are enrolled in Medicare today, and that number will surpass 80 million in 20 years as more people retire. Since Medicare is a key component of meeting health care needs in retirement, it is important to understand how the program works before enrolling.
Individuals may want to review the key elements of Medicare to get started. There are several components of Medicare that participants need to understand.
Understanding the basics
Source: Centers for Medicare & Medicaid Services, 2025.
1. Enroll at the right time
To avoid potential penalties and coverage gaps, it’s critical to understand when to enroll. Most individuals should consider enrolling during their initial enrollment period (IEP), which is the seven-month period around their 65th birthday. Those already receiving benefits from Social Security are automatically enrolled in Part A and Part B starting the first day of the month they turn 65.
General enrollment period
If an individual is not automatically enrolled and missed their IEP, they can still apply for Part A and Part B during the general enrollment period, which runs from January 1 to March 31 each year. Coverage would begin in July.
Special enrollment period (SEP)
If an individual is covered under a group health plan through employment, there is a SEP to sign up, as long as they (or their spouse) is still working. This enrollment period is only available if the company has more than 20 employees. The eight-month special enrollment period starts the month after the employment ends or the group health plan insurance based on current employment ends, whichever happens first.
Penalties for missed enrollment deadlines
Medicare imposes late enrollment penalties to encourage retirees to sign up when enrollment is available. Monthly premiums may go up 10% for each full 12-month period that an individual could have had coverage but didn’t sign up for it. Although the Part B premium amount is based on income, the penalty is calculated based on the standard Part B premium regardless of income.
2. You may pay higher monthly premiums depending on income
Those approaching retirement should be aware that at higher income levels, they may pay higher Medicare premiums. This should be factored into planning for income and expenses in retirement.
2025 Medicare Part B premiums start at $185 per month
Source: Centers for Medicare & Medicaid Services. Income based on modified adjusted gross income (MAGI), which includes tax-exempt interest income. MAGI is based on income reported on the tax return from two years prior.
3. Supplemental coverage is critical
Medicare does not cover everything. Since original Medicare includes deductibles and coinsurance that could lead to significant out-of-pocket expenses in retirement, it’s important to consider supplemental insurance to cover these costs. There are two options to consider – a Medicare Advantage plan (otherwise known as Medicare Part C) or Medigap coverage.
Medicare Advantage plans
Medicare Part A, Part B and often Part D coverage are bundled together in one plan. These private plans generally offer additional benefits such as vision, dental and hearing. Some Medicare co-payments and deductibles are eliminated, and there are also limits on annual out-of-pocket expenses (cannot exceed $9,350 per year). Most plans offer coverage through a health maintenance organization (HMO) or preferred provider organization (PPO). HMO plans generally require the use of health care providers within the plan’s network. PPO plans do not require that individuals see in-network providers or obtain a referral to consult a specialist.
Medigap policies
Private insurance companies offer these plans to cover certain expenses not covered by Medicare such as deductibles, copays and uncovered services. Premiums will vary depending on the area and type of plan and are paid separately from Medicare Part B premiums. Medigap policies do not usually offer prescription drug coverage. Individuals should consider enrolling at age 65 since they cannot be charged a higher premium based on their health situation. If they enroll later, they may be charged a higher premium if there are pre-existing health conditions.
Seek advice and plan for health care in retirement
To understand the basics of how Medicare works, read, “Three key things to understand about Medicare.”
Future health costs are a critical component of a retirement plan. When considering health coverage in retirement, it’s important to assess current health conditions and the potential for significant out-of-pocket expenses. Research available Medicare plans in the area and be mindful of important deadlines. As with any planning decision, securing professional advice from an expert with an understanding of your financial situation can help.
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