Chapter 5: Healthcare Before and After Medicare
Healthcare Before & After Medicare
The least predictable major expense in retirement, and how to plan for it in phases.
Healthcare is the least predictable major expense in retirement, and it arrives in phases. If you retire before 65, you first need to bridge coverage from your last day of work to Medicare eligibility. Then you need to enroll in Medicare on time, because several of its deadlines carry penalties that never go away. Then you choose between Medigap and Medicare Advantage, a decision that depends on your health, your doctors, and how much certainty you want in your budget. Two more pieces complete the picture: a plan for long-term care, which Medicare does not cover, and disciplined use of a Health Savings Account while you are still eligible to fund one. Fidelity estimates that a 65-year-old retiring in 2026 will spend about $185,500 on healthcare over the course of retirement, and that figure excludes long-term care.
Bridge coverage from your last day of work to Medicare. COBRA runs up to 18 months at up to 102% of full cost.
Enroll on time. The Part B and Part D late penalties are permanent, and COBRA does not protect you from them.
The largest uninsured risk left in most retirement plans. Decide how to handle it in your 50s or early 60s.
Figures reflect published 2026 amounts. Medicare rules, premiums, and subsidy limits change annually; confirm current details before acting.
The Pre-Medicare Bridge: COBRA and Marketplace Coverage
If you retire before 65, you lose your employer plan and you are on your own until Medicare begins. This is a real planning problem, not a formality, and it is worth solving before you give notice. COBRA lets you keep your employer group coverage for up to 18 months, and the employer may charge you up to 102% of the full cost of that coverage, meaning both the employer and employee shares plus a 2% administrative fee. COBRA premiums are often substantial, and they buy you something specific: the same plan, the same network, and the same deductible progress you already have this year. That continuity matters if you are mid-treatment or want to keep a relationship with a particular specialist. One more piece of timing to note: because COBRA runs 18 months, retiring at about 63 and a half can carry you to 65 on a single plan. If your employer had fewer than 20 employees, federal COBRA may not apply and Maine continuation rules may govern instead, so confirm the details with your plan administrator.
The other main option is an individual plan through the Health Insurance Marketplace, which in Maine is CoverME.gov. Here the rules changed for 2026, and the change is significant enough that older guidance is now misleading. The enhanced premium tax credits in place from 2021 through 2025 expired at the end of 2025, and Congress has not extended them. That means the subsidy cliff is back. For 2026 coverage, premium tax credits generally end at 400% of the federal poverty level, which works out to roughly $62,600 for a single person and $84,600 for a couple. Below that line, subsidies can make marketplace coverage dramatically less expensive than COBRA. One dollar above it, you receive nothing, no matter how expensive the plan is.
The practical consequence is that managing Modified Adjusted Gross Income matters more now than it did two years ago, not less. Which accounts you draw from, whether you convert to a Roth this year or next, when you realize a capital gain, and whether you sell a property all move your MAGI and can move you across that line. Roth withdrawals, Health Savings Account distributions, and return of basis do not count toward MAGI, which gives you real levers if the accounts are in place before you retire. This is where healthcare planning and tax planning stop being separate exercises. We coordinate these decisions with your tax professional, since the tax treatment of any specific move is a question for your CPA.
Medicare Enrollment: Parts A, B, C, and D
Medicare has four parts, and each has its own enrollment rules. Your Initial Enrollment Period is a seven-month window: the three months before the month you turn 65, your birthday month, and the three months after. Part A covers hospital and skilled nursing care and is premium-free for most people who paid Medicare taxes for at least 10 years. If you are already receiving Social Security or Railroad Retirement benefits, you are enrolled in Parts A and B automatically. If you have deferred Social Security, nothing happens automatically and you have to enroll yourself.
Part B covers doctor visits, outpatient care, and preventive services, and it always requires you to act. The standard Part B premium is $202.90 per month in 2026, with an annual deductible of $283. Higher earners pay more, which we cover below. Missing Part B is the expensive mistake: the late enrollment penalty is 10% of the standard premium for each full 12-month period you could have had Part B and did not, and you pay it for as long as you have Part B. The exception that protects you is active employer coverage. If you or your spouse are still working and covered by a group plan through that employment at an employer with 20 or more employees, you can delay Part B without penalty and enroll later through an eight-month Special Enrollment Period. Read that exception carefully, because COBRA and retiree coverage are not active employer coverage. Relying on either one to justify delaying Part B is one of the most common and most costly errors we see.
Part D covers prescription drugs and also requires you to act. Its late enrollment penalty is 1% of the national base beneficiary premium for each full month you went without creditable drug coverage, added permanently to your premium. The Part D Special Enrollment Period after employer coverage ends is only two months, not eight, which catches people who assume the Part B timeline applies everywhere. Part D has improved meaningfully: out-of-pocket spending on covered drugs is capped at $2,100 in 2026, and plans may charge a deductible of up to $615. Part C, better known as Medicare Advantage, is the private alternative that bundles Parts A and B and usually Part D into one plan. Whichever path you choose, you can review it each year during Medicare Open Enrollment from October 15 to December 7, and Medicare Advantage enrollees have an additional window from January 1 to March 31. Compare the drug formularies, not just the premiums, since a single medication can outweigh every other difference between two plans.
Medigap vs. Medicare Advantage: The Trade-off Analysis
Original Medicare has no cap on what you can spend out of pocket, so most people pair it with a Medigap policy or choose Medicare Advantage instead. This is one of the more consequential decisions in your retirement plan, and there is no single right answer. Medigap policies work alongside Original Medicare to pick up deductibles, copayments, and coinsurance. Plan G, the most common choice for people newly eligible today, covers nearly all of that cost sharing except the annual Part B deductible. What you get for the premium is freedom and predictability: any provider in the country who accepts Medicare, no networks, no referrals, and no prior authorization.
Medicare Advantage plans are offered by private insurers and take the opposite trade. Premiums are low, averaging about $11.50 per month across plans in 2026, and many plans add dental, vision, and hearing benefits that Original Medicare does not cover. Every plan caps your annual in-network out-of-pocket exposure, and that cap cannot exceed $9,250 in 2026. In exchange, you use a provider network, you may need referrals and prior authorization, and your costs vary with how much care you actually use. For someone with stable health, local doctors already in network, and a tolerance for year-to-year plan changes, Medicare Advantage can be a sound choice. For someone who travels extensively, sees specialists at multiple health systems, or simply wants a fixed and knowable cost, Medigap usually fits better.
Timing is where this decision becomes hard to undo, and Maine residents have advantages that most national guidance will not tell you about. Federally, you get a six-month Medigap open enrollment window that starts when your Part B coverage begins, and during that window insurers must accept you regardless of your health. Maine goes further. Maine requires Medigap premiums to be community rated, so your premium does not increase simply because you get older, and rates vary only by tobacco use. Every Medigap insurer in Maine must designate at least one month each year during which it accepts all applicants for Plan A regardless of medical history, and at least two carriers offer that access year-round. Maine also extends the trial right to move from Medicare Advantage back to Original Medicare with a Medigap policy from one year to three. And if you have not had a coverage gap of more than 90 days, you can generally move to a policy with equal or lesser benefits without medical underwriting. None of this makes the initial window unimportant, but it does mean the door is not permanently closed here the way it is in many states. Confirm your own situation with the Maine Bureau of Insurance or your carrier before you rely on any of these provisions.
Long-Term Care: The Risk Medicare Does Not Cover
This is the gap that surprises people most. Medicare covers up to 100 days of skilled nursing care per benefit period following a qualifying hospital stay, and it starts charging daily coinsurance after day 20. What it does not cover is custodial care, meaning ongoing help with the activities of daily living such as bathing, dressing, eating, and moving around. That is the kind of care most people actually end up needing, and for most families it is the single largest uninsured risk left in an otherwise well-built retirement plan.
The scale is worth understanding plainly. Research from the U.S. Department of Health and Human Services estimates that about 56% of adults turning 65 will develop a disability serious enough to require long-term services and supports, that the average person turning 65 can expect to need such care for about 3.1 years, and that roughly 22% will need it for more than five years. On cost, the 2025 CareScout Cost of Care Survey put the national median at $129,575 a year for a private room in a nursing home, $114,975 for a semi-private room, and $74,400 for assisted living, with home health aides at a median of about $35 an hour. Long-term care costs in Maine have generally run above the national medians, so treat those figures as a floor rather than an estimate for planning here.
There are three broad ways to handle this, and the right one depends on your balance sheet and your preferences rather than on any general rule. Traditional long-term care insurance transfers the risk but carries premiums that can rise over time. Hybrid policies that combine life insurance or an annuity with long-term care benefits give you a defined benefit either way, usually at a higher cost. Deliberate self-funding, meaning a designated reserve you actually earmark and invest for this purpose, can be reasonable when your liquid assets are large relative to projected care costs, but only if the decision is explicit rather than the result of never deciding. Most people should work through this in their 50s or early 60s, when health still qualifies them for coverage and premiums are lower. Because PFA is fee-only, we receive no compensation from any insurer, so our role is to model the trade-off in your plan and let the numbers and your preferences decide. If Medicaid or MaineCare rules could come into play for a spouse, that is a conversation for an elder law attorney.
Health Savings Accounts: Pre-Funding Healthcare Tax-Efficiently
A Health Savings Account is the most tax-efficient way to set aside money for healthcare, and the window to fund one closes when Medicare begins. Contributions are deductible, growth is untaxed, and withdrawals for qualified medical expenses are untaxed as well. There are no required minimum distributions, so an HSA can sit and compound for decades. In 2026 you can contribute $4,400 with self-only high-deductible coverage or $8,750 with family coverage, plus a $1,000 catch-up contribution once you reach 55. To be eligible, your plan must have a deductible of at least $1,700 for self-only or $3,400 for family coverage, with out-of-pocket maximums no higher than $8,500 and $17,000 respectively.
Two rules make the difference between using an HSA well and using it poorly. First, if your cash flow allows it, pay smaller current medical costs from other funds and let the HSA grow, keeping your receipts so you retain the option to reimburse yourself tax-free years later. Second, and this one is easy to get wrong: you cannot contribute to an HSA once you are enrolled in any part of Medicare. If you claim Social Security after 65, Part A enrollment can be applied retroactively for up to six months, which can turn contributions you already made into excess contributions. The practical rule is to stop HSA contributions six months before your Medicare coverage will begin. After you are on Medicare you can still spend the balance, and HSA funds can reimburse Part B, Part D, and Medicare Advantage premiums, though not Medigap premiums. Confirm the tax treatment of your own contributions and withdrawals with your CPA.
Key takeaways
Penobscot Financial Advisors helps successful professionals and families in Maine treat healthcare as a funded line in the plan rather than a worry. We model your pre-Medicare bridge alongside your withdrawal sequence and Roth conversion schedule, so you can see what a coverage choice does to your income taxes and your subsidy eligibility before you commit to it. We map your Medicare deadlines, stress-test your plan against a long-term care event, and coordinate with your CPA and estate attorney so the pieces fit together. Because we are fee-only fiduciaries who accept no compensation from insurers or plan sponsors, our only interest in your Medicare or long-term care decision is that it is the right one for you.
Schedule a free meeting »This chapter is general education, not individualized investment, tax, or legal advice. Medicare rules, premiums, subsidy limits, and care costs change, and the figures here reflect published 2026 amounts and the most recent surveys available as of September 2026. Your own situation may differ. Please consult your own attorney or CPA on legal and tax questions and confirm coverage details with Medicare, the Maine Bureau of Insurance, or the plan carrier before acting.
