This year I retired from financial planning after 30 years. These days I’m kicking back a little, but for the last six years, I’ve been working with Medicare recipients (and their powers of attorney) to assist them with getting the right plan. Not only can it be confusing to a client, but even seasoned Medicare experts can sometimes get confused.

We all know that medical costs can be high. Fidelity’s latest estimate is that the average 65-year-old couple retiring in 2020 will need a whopping $295,000 for medical expenses. And no, that does NOT include long-term care.

Many Americans tend to think that once they are on Medicare, they’re home free. I personally know of people who work beyond their “financial independence” figure because they are nervous about potential medical costs. What they probably realize is that Medicare doesn’t cover everything. And what it DOES cover often comes with copays and deductibles.

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Medicare Costs

First, let’s give a very short primer on the costs just to have Medicare itself, because many people don’t realize that Medicare Part B comes at a price—a monthly premium. (For a more in-depth primer, go here.) True, Part A, the part of Medicare that covers hospitalization, is normally free, but Part B, which covers doctors, therapies, chemotherapy, etc., comes with a premium.

In 2021 that premium, for most people, is $148.50 per month. But your high-earning clients will have to pay more. This is called the income-related monthly adjustment amount, shortened to IRMAA. If your clients get hit with IRMAA for Part B, they’ll also have to pay IRMAA for Part D, the private part of Medicare that offers prescription drug coverage. Your clients could wind up paying an extra $356.40 per month for Part B and an extra $77.10 per month for Part D, depending on what their income was two years ago, in 2019. If they’ve had a life-changing event, or if their income has gone down, help them fill out the SSA-44, and they’ll be your best friend forever.

Once they’re on Medicare, they must pay copays and deductibles for both Parts A and B. 

In addition to the copays and deductibles for Parts A and B, your client must also understand that there is NO cap on expenses with original Medicare—no out-of-pocket maximum. That’s right; your client can have unlimited expenses with original Medicare.

Your client can choose between Medicare Advantage and Medicare Supplement Plans to set a limit on spending, but the differences between these two plans can be confusing. There are some free resources out there, including this free Medicare Course to help people try to understand the differences between Medicare Supplement Plans and Medicare Advantage Plans. But be careful; there is a lot of misinformation on the internet. I found plenty while conducting research for this article.

Prescription Drugs

You can find a list of what Medicare does NOT cover on the website. I’ll go into some of those things a bit later. But for now, let’s talk about drug costs.

In my experience, drug costs can be the number one cost that smacks your client in the face. Many financial advisors do not understand how much of an impact this will make on certain clients’ financial plans.

The surprising impact is because of the way the drug plans are set up. It’s because of the donut hole and catastrophic coverage. You see, there is also no cap on expenses when it comes to drugs. And your clients will no longer qualify for some manufacturers’ programs once they are on Medicare.

I’ll give you an example of how it works in 2021.

  • Part D deductible is $435.
  • Initial coverage limit is $4,130.
  • Catastrophic threshold is $6,550.

Let’s pretend that your client has a medication that retails for $1,376.67. Your client has a copay amount of $100. The initial coverage limit means that once your client has purchased three doses, he or she has spent $300, but the total spent was $4,130. This puts your client into the “donut hole.”

The next time your client picks up the medication, his or her costs go from $100 to 25% of the cost of the drug. In this case, $1,376.67 multiplied by .25 is $344.17.

That is why your older clients complain about the donut hole. It takes very little to get INTO the donut hole. From their perspective, they only spent $300.

To make matters worse, the “catastrophic threshold” requires that they spend the entire $6,550. The insurance company’s contribution doesn’t count. Once your client spends the entire $6,550, his or her costs will change again, to the GREATER of 5% of the cost of the drug or $3.70 for generics and $9.20 for other drugs.

In this case, once your client has spent $6,550 on drugs, then his or her costs will go to $68.80 per dose (because 5% here is more than $3.70 for generic or $9.20 for non-generic).

Let’s clarify: To get into the donut hole, Medicare COUNTS the insurance company’s contribution, but to get out of the donut hole, Medicare does NOT count the insurance company’s contribution.

If my husband gets prescribed a medication we think he will be prescribed, our costs will be over $10,000 a year, including what his drug plan pays. 

You can estimate what your client will pay for medications here.

Of course, there are other costs we haven’t even discussed in this article. Medicare doesn’t cover everything. Suffice it to say, your clients should be working with a Medicare expert when the time comes. There is a lot to know. If you’re a Strategic Coach fan, you know not to spend your valuable time learning everything there is to know about Medicare. Just find yourself a qualified Medicare expert, and refer your clients.

About the Author, Kathe Kline

Kathe Kline currently lives in South Carolina with her husband and rescue dog, Izzy. She is licensed in 13 states to help your clients with Medicare-related questions through her website,, and through consultations with your clients. For fun, she hosts a monthly podcast about retirement lifestyle called Rock Your Retirement. Check it out!

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