Planning for Medicare

Medicare arrives at 65 for almost everyone, and the most expensive Medicare mistakes are made in the few months around that birthday: missing a deadline that triggers a penalty for life, choosing a path that cannot easily be reversed, or realizing too late that income from two years earlier has raised the premium. This chapter explains the parts of Medicare and what they cost in 2026, the enrollment windows and penalties, how an HSA fits, the choice between Original Medicare and Medicare Advantage, and the income-related surcharge known as IRMAA.

The parts, and what they cost in 2026

Part A (hospital insurance) covers inpatient hospital care, skilled nursing after a hospital stay, hospice and some home health care. It is premium-free if you or your spouse have about ten years of Medicare-covered work. In 2026 you pay a deductible of $1,736 for each benefit period, which starts when you are admitted and ends after 60 days out of the hospital, so it can apply more than once a year.

Part B (medical insurance) covers doctors, outpatient care, tests, preventive services and medical equipment. The standard 2026 premium is about $203 a month, more at higher incomes, and the yearly deductible is $283. After the deductible you generally pay 20% of the approved amount, with no yearly limit.

Part D (drugs) is sold by private plans. Since 2025 there is a hard cap on what you pay for covered drugs; in 2026, after $2,100 out of pocket, you pay nothing more for covered drugs that year. Plans may also let you spread drug costs into monthly payments through the Medicare Prescription Payment Plan.

Part C (Medicare Advantage) is a private plan that replaces Parts A and B, and usually D, in one package. It has a network and a yearly out-of-pocket limit, which Original Medicare does not.

Enrolling on time: the windows and the penalties

Your initial enrollment period lasts seven months: the three months before the month you turn 65, that month, and the three months after. If you already receive Social Security, you are enrolled in Parts A and B automatically. Otherwise you sign up through Social Security.

Working past 65. If you or your spouse are still working and covered by that employer's group plan, and the employer has 20 or more employees, you can usually delay Part B without penalty. You then have an eight-month special enrollment period after the job or the coverage ends, whichever comes first. COBRA and retiree coverage do not count as coverage from current work; relying on them to delay Part B is one of the most common and costly mistakes. At a smaller employer, Medicare usually pays first from 65, so you generally need Part B on time.

The penalties last for life. The Part B premium rises by 10% for each full 12 months you could have had Part B but did not, for as long as you have Part B. The Part D penalty adds 1% of the national base premium for each month without Part D or other creditable drug coverage. Ask your employer's plan each year for its creditable coverage notice and keep it.

Your HSA and Medicare

You cannot contribute to an HSA in any month you are enrolled in Medicare, including Part A alone. Two rules make this harder than it looks:

• Applying for Social Security at 65 or later enrolls you in Part A automatically.
• If you enroll in Part A after 65, coverage is backdated up to six months, though not earlier than the month you turned 65. Contributions made during those backdated months become excess contributions.

The usual approach is to stop HSA contributions six months before you apply for Medicare or Social Security. The money already in the account stays yours and becomes more useful after 65: it can pay Part B, Part D and Medicare Advantage premiums, deductibles, copays and drugs tax-free. It cannot pay Medigap premiums tax-free.

An HSA holding $10,000 at 50, with $300 a month added and earning 5.0% a year, reaches about $100,237 by 65. Every dollar of that spent on Medicare premiums and care is never taxed, which makes it one of the most efficient ways to pay health costs in retirement.

Original Medicare with Medigap, or Medicare Advantage

This is the biggest choice, and it is easier to make the first time than to undo later.

Original Medicare, plus a Medigap policy and a Part D plan. You can see any doctor or hospital in the country that accepts Medicare, with no referrals. Medigap, sold by private insurers in standardized lettered plans, pays much of the 20% coinsurance and the deductibles that Original Medicare leaves to you. Premiums are higher, but costs at the point of care are low and predictable.

Medicare Advantage. Often a low or even zero extra premium, with a yearly out-of-pocket limit, drug coverage, and frequently dental, vision or hearing benefits. In exchange you use a network, may need referrals and prior authorization, and pay copays as you go.

The timing rule that decides it: your Medigap open enrollment period is the six months starting the month you are 65 or older and enrolled in Part B. In that window an insurer must sell you any Medigap policy it offers at its standard rate, whatever your health. After it, in most states insurers can ask health questions, charge more or refuse you, so someone who picks Medicare Advantage and later wants to switch back may not be able to get Medigap. There are exceptions: a trial right lets you return to Original Medicare and buy Medigap if you leave a Medicare Advantage plan within its first year when you first joined Medicare, and some states give broader rights. Your State Health Insurance Assistance Program (SHIP) gives free, unbiased advice on your state's rules.

Each year you can change plans between October 15 and December 7, and someone in Medicare Advantage can switch once between January 1 and March 31.

IRMAA: premiums that rise with income

If your income is high, you pay an income-related monthly adjustment amount (IRMAA) on top of the standard Part B and Part D premiums. It is based on modified adjusted gross income from two years earlier: 2026 premiums use your 2024 tax return. For 2026 it starts above $109,000 for a single filer and $218,000 for a married couple filing jointly.

Each IRMAA level is a cliff: one dollar over a line moves you to the next tier for the whole year. That makes the years from about 63 onward worth planning carefully. A large Roth conversion, a big capital gain or a lump-sum retirement withdrawal at 63 can raise premiums at 65. Spreading such income across years, or doing conversions earlier, can keep you under a line; the Roth conversion calculator shows when a conversion crosses one.

If your income has fallen because of a life-changing event, such as retirement, the loss of a spouse, divorce or the end of a pension, you can ask Social Security to use a more recent year's income with Form SSA-44. Retirement itself counts, so many people can have their first year's IRMAA reduced.