A HNW Retiree's Introduction to Medicare's Alphabet Soup

Episode 13

A HNW Retiree's Introduction to Medicare's Alphabet Soup

Published on November 12th, 2025

Episode 12 of Retirement Tax Matters provides a financial planner's 101-level orientation to Medicare, breaking down the alphabet soup of Parts A (Hospital), B (Medical), and D (Drug). We explain the general concepts and common paths retirees consider, such as using a Medicare Supplement to create more predictable fixed monthly costs versus the 20% coinsurance. From a financial planning perspective, we then detail the significant impact of IRMAA (Income-Related Monthly Adjustment Amounts), showing how a high income (ex. $325,000) can trigger premium surcharges for married couples. The key insight, however, is that while these fixed Medicare costs are manageable for most HNW Retirees, the real financial risk is the one Medicare does not cover: The cost of Extended Care (Long-Term Care). We call this "Part E" and provide third-party cost projections that show how this risk, which can exceed $15,000/month in the future, is the more critical component of your long-term financial plan.

Disclaimer: The information provided in this video is for general informational and educational purposes only and does not constitute specific Medicare or insurance advice. All examples of costs and premiums are illustrative. When you are ready to enroll in Medicare, we strongly recommend you speak with a qualified, independent, and AHIP-certified Medicare specialist who can provide specific recommendations based on your personal health situation, prescription drug needs, and up-to-date state-specific plan rules.

Key Tax Planning Questions

Click Below To See The Answer

• What are the biggest financial pitfalls to avoid when enrolling in Medicare?

  From a financial planning perspective, there are two significant pitfalls I see that HNW retirees should be aware of:

  1. The Health Savings Account (HSA) / Medicare Part A Conflict: As HSAs become more prevalent, many HNW retirees have accumulated substantial balances, valuing their powerful triple-tax benefits (tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses). A common mistake occurs for those working past 65 who enroll in Medicare Part A but continue to contribute to their HSA. IRS rules prohibit new HSA contributions once you are a Medicare Part A beneficiary. Furthermore, there is a six-month lookback rule, meaning your Part A enrollment can retroactively disallow HSA contributions made up to six months prior, leading to potential tax penalties. This is a critical timing issue to coordinate with your HR department and a qualified Medicare specialist.

  2. Assuming Medicare Covers Extended (Long-Term) Care: A major gap in Medicare coverage is that it does not pay for long-term custodial care (like assisted living or most nursing home stays). We find that almost every HNW retiree (especially in the $2M-$8M range) should have a specific conversation about how they would pay for a potential extended care event, as it is often the single largest out-of-pocket expense they could face in retirement. While LTC insurance is not the path for everyone, the risk can be overlooked by those who plan to self-insure but may underestimate the future cost. Having a formal plan for this risk—whether through insurance or dedicated assets—is critical. We often find that strategically insuring against this one risk can provide clients with the peace of mind to spend more freely earlier in retirement.

• I've saved over $100,000 in my HSA... How do I strategically incorporate this tax-free account into my overall retirement plan once I'm on Medicare? Can I use it to pay my Part B, Supplement, and IRMAA premiums, and how should I think about using it versus my other accounts to pay for the long-term care costs I know Medicare won't cover?

  This is an excellent position to be in. Many clients who appreciate the powerful triple-tax benefit of an HSA (tax-deductible going in, tax-free growth, tax-free out for qualified medical expenses) find themselves with a substantial balance at retirement.

  My answer to "Did I oversave?" is almost always, "No way! We will use all of it."

  Once you are on Medicare, your HSA becomes a dedicated, tax-free fund for your healthcare costs. Here’s how it works strategically:

  1. Paying for Medicare Premiums IRS rules allow you to use your HSA funds tax-free to pay for Medicare Part B premiums, Part D (prescription) premiums, and any associated IRMAA surcharges. It can also be used for Medicare Advantage (Part C) premiums. However, IRS rules explicitly state that you cannot use HSA funds to pay for Medicare Supplement (Medigap) plan premiums! Of course, the account also remains available for other qualified expenses like co-pays, deductibles, dental, and vision.

  2. Simplicity vs. The Reimbursement Strategy While some strategies involve paying medical expenses before and during retirement out-of-pocket to let the HSA grow tax-free, this requires meticulous, long-term record-keeping for future reimbursement. In my experience, this is not worth the complexity it creates, especially for a surviving spouse. While tax-deferral is powerful during your accumulation years, the value of simplicity in retirement is under appreciated. Using these HSA funds as intended—to pay for qualified healthcare expenses as they arise—is often the more straightforward and practical approach.

  3. Planning for Long-Term Care (LTC) and Legacy This spend-it-down approach is also reinforced by two key strategic factors. First, you can use HSA funds tax-free to pay for qualified Long-Term Care insurance premiums, subject to annual age-based IRS limits, which is an efficient way to use up a large HSA balance if the person was already thinking about LTC insurance anyways. Second, the inheritance rules make this a poor legacy asset for non-spouses. While an HSA is a phenomenal asset for a surviving spouse (who inherits it as their own HSA), it is a terrible asset to leave to a non-spouse beneficiary (like a child), as the entire balance becomes fully taxable as ordinary income to them in a single year. Therefore, it is almost always more tax-efficient to use your HSA during your lifetime rather than preserving it for your children.

Full Episode Transcript

Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, CFP, with us this morning. Hey, good morning, Garrett.

Garrett: Doing good. Ready to go this morning. Ready to rock and roll?

Adam: I feel like we've covered a lot of different financial topics, some different stuff like Social Security. I was just thinking, what if we tackled a different topic this morning and looked at Medicare? Kind of a big piece of the retirement puzzle, right? I think one of the things that stands out to me is that sometimes it's something that can prevent people from retiring. With Social Security, normally they can bridge the gap, especially a lot of our high-net-worth clients. But sometimes we had a client who had a certain drug that he has to take, and the premium is $10,000 a month. He's like, "I'm working until 65 so I can bridge the gap." This can be a pretty significant piece in the puzzle for a lot of people planning for and thinking about retirement.

Garrett: Yeah, absolutely. I want to start off by saying, I wish I could buy into Medicare. It's been in the news recently, but every year I log into the healthcare.gov website to see how much health insurance costs. The bronze plan I was looking at for me—I actually don't know the right answer about the subsidies they're talking about with this shutdown that's happening right now, but I ran a couple of test cases and came up with about $1,500 a month and a $21,000 deductible. Health insurance, hospital costs, it really is kind of a luxury service in 2025. I know Medicare is not cheap, and I know you've paid into it your whole life, but I do think it'll probably be one of the best health coverages you ever have in your life. I think it's a good system, and I think it's probably worth talking about today.

Adam: It's always funny, too. Different industries have standardized things. Apparently, "high deductible plan" is not a standardized word because I had employer insurance back in the day that was really good insurance, and it was like a $3,000 high deductible plan. When we were working in ministry, we had like a $25,000 high deductible plan. So the $3,000 high deductible felt like a very low deductible, but it's all relative to what you're used to. Let's dive into it. I think I heard you say before that Medicare is kind of an alphabet soup. Give me a brief overview starting with Parts A and B. I think sometimes those two get kind of lumped together. What is Part A? What is Part B? With the caveat—and I think we'll touch on this—that we're not the experts here, but just giving a good 101 course level for what Medicare is and how it plays a part in your financial plan into and through retirement.

Garrett: It's funny, as soon as you say that, I was just thinking, "We call it alphabet soup." I've actually never seen alphabet soup! I wonder if that was a thing back in the day.

Adam: We had SpaghettiOs.

Garrett: I was thinking, I think we had some cereal growing up as a kid that had all the different letters in there. So maybe alphabet cereal. But there are a lot of letters when it comes to Medicare, and as I was prepping for this, I think this conversation is going to be a lot like the ones I'm sitting with clients where people are getting ready to retire. They're thinking about Medicare costs. They're thinking about how much to set aside for medical expenses in retirement, which is actually a very good, but also very hard question to try to extrapolate for 20 or 30 years. We here at the office have a Medicare specialist right across the hall, and maybe one of these weeks we'll get them in here to answer some specific questions. If you need Medicare help, you need to find somebody that is as unbiased as possible and really knows their stuff because that can be really helpful. They have to take things like AHIP training. I kind of hear enough in the office to know that it's regulated. There's a lot of studying that has to happen, a lot of tests, a lot of things you can and can't say about Medicare. Anytime I'm talking about the subject, I'm very quick to refer to an AHIP-certified Medicare specialist so they can answer. I've been around the block a time or two, and I think what I want this to be is kind of like an orientation—the big picture things from a financial planner that you need to be thinking about and probably have questions about. We're going to try to tackle that today. My disclosure at the front of this is that while I know a lot about Medicare, I don't take the annual AHIP training. I've never sold a Medicare policy. I don't go into the details of it every single year. We have a person in the office that does that. As I talk about general strategies, I think it will be helpful and valuable, but you're going to want to find somebody specific that knows the updates between 2025 and 2026. We'll do our best to sort out this alphabet soup. Adam, if you're ready, I say we do it. I've got my notes today so that we can do this the right way. From the outset, I'm thinking about the niche of this podcast, which is what we would call high-net-worth retirees—somebody that's probably in that net worth between $2 million and $8 million. Net worth doesn't actually mean your income is high or low, but I'm going to be generally thinking that somebody of that net worth has a pretty sizable income. I'll get into an example; maybe we'll use $325,000 as an income. I realize that's not everybody. We have people that are above that, below that, but that's what we're going to do today. Let's cover Medicare Parts A and B.

Garrett: Part A: You've been paying into your entire life. Just like the Social Security tax, it's 6.2% that comes off your payroll. You also paid a 1.45% Medicare tax during your working career. Some people might say Medicare Part A is free. You've actually been paying for it your entire life, and you've probably contributed a lot to it. Maybe another way to think about Part A is that there is no additional monthly premium that you have to pay once you hit retirement.

Adam: No such thing as a free lunch.

Garrett: Absolutely not. Medicare is cheap, but you've put a lot of money into it. If you're married to somebody who did not work, did not pay Social Security taxes, it's a little bit like Social Security in that your spouse, because they're married to you, can also qualify for Medicare Part A with no additional monthly expense. For people that aren't married and never contributed, Medicare Part A can be really expensive. Medicare Part A is important, and it covers hospital insurance. If you go to the hospital here in town—there's a Park West hospital—and you were receiving services and care inside the hospital, your Medicare Part A would kick in. For a lot of people—not everybody—that are retired at age 65, you're going to want to start thinking about filing for Medicare Part A. Even if you're still working, you may need to consider filing for Medicare Part A. It will just depend; talk to your specialist. Maybe your employer coverage, if you're still working, will pick up first with Medicare being secondary, or maybe it's flip-flopped, or maybe your employer will say you need to sign up for Medicare Part A and drop employer coverage. It's unique to everybody. For most people watching, there's not going to be an additional cost for Medicare Part A, and that's a really good, basic part of Medicare. I wish it covered everything, but unfortunately, Medicare Part A has its limits. So we have more letters to discuss in our alphabet soup.

Garrett: Part B is the other big one that you've probably heard about. The technical term would be it's medical insurance. It's going to cover a lot of doctor services, outpatient care, durable medical equipment. Medicare Part B, you're going to have to pay an additional monthly premium for. That is going to be per person, per spouse. Part B usually goes up every single year, and I think they just announced we eclipsed the $200 a month mark for Medicare Part B. I think it's $206.50 per person starting in 2026. Medicare Part A combined with Medicare Part B is pretty comprehensive, but there's a big gotcha with Part B, and that is that you can be on the hook for a 20% coinsurance amount.

Garrett: My latest inflation thing is I went to a fast food restaurant and I bought a chicken salad. My chicken salad after tip... I think it was $17 for a chicken salad. Things are getting more expensive. Medical care is a luxury good that you are buying and purchasing, and medical costs are skyrocketing at the moment. To be on the hook for a 20% doctor service bill, that can actually be a good chunk of change, and a lot of people don't want to be on the hook for a percentage amount of a doctor bill going forward. Retirees are on a fixed-income budget. What they've done is you really have two different options: one is a Medicare Supplement, and the other is a Medicare Advantage Plan. I think technically the Advantage Plan is Part C, but along with the Part C Advantage Plan, we talk about Medicare supplements. For most people that are watching this that can afford a Medicare supplement, that tends to be the way I see them gravitate most. A Medicare supplement—and we're going to get into cost a little bit later—will be another monthly expense that you pay on top of Medicare Part B. It's not cheap. It does cost money, and it's going to close that 20% coinsurance amount for another fixed monthly premium. Somebody might be glad to pay another $150 a month approximately for a Medicare supplement—a plan, sometimes called Original Medicare. What it does is it gets you off the hook of that 20% coinsurance amount. I'm going to mostly gloss over a Medicare Advantage Plan for today's purposes. Maybe we'll hit that in the future. I'm not even saying that some of you wouldn't get a Medicare Advantage Plan, but I want to focus on the supplement instead today.

Garrett: Then the last one here is a Part D drug plan. Medicare Parts A, B, and a supplement are not going to cover your prescription drug cost. There has been a lot of political rhetoric out there in the past decade about drug costs. I was reading this morning as I was prepping for this, I think they've recently passed a cap on prescription drug costs. You'll want to verify this, but I think for 2026, it's a $2,100 out-of-pocket cost for prescription drugs. From my general knowledge, there used to be this thing called a "donut hole." Boy, was that a mess and complicated! Drug costs can skyrocket and can be a significant expense. So, another piece of Medicare where it's good to be on Medicare because there's a cap on those drug costs. So, Part A is hospital insurance, Part B is doctor services/doctor bills, the supplement plan covers the coinsurance, and then Part D is a drug plan.

Adam: Did you guys get all that? There'll be a test down below!

Garrett: And that's the 101 class, right? There's more to tell.

Adam: I think that gives us a good idea. Probably a lot of people that are watching this are heading into retirement and are doing a lot of research on their own, so they may even be deeper in the weeds than this. But I think we wanted to give that kind of precursor before we get into the financial stuff—the fun stuff that we like to talk about. The stuff we nerd out about. Specifically thinking for a high-net-worth couple—I think you mentioned like $325,000—as they're thinking about Roth conversions, financial planning, some of the tax-efficient decisions and moves they can make in retirement, what are things they should be aware of with Medicare?

Garrett: We toot this horn all the time, and I bet if you went back through our opening episodes of Retirement Tax Matters, we talk about IRMAA a lot: Income-Related Monthly Adjustment Amounts. When you do Roth conversions, you have additional income. A lot of you listening will probably pay more for your Medicare premiums, maybe not every single year, but there will be certain years where your income spikes. Medicare is means-tested, which means that you're going to have to pay more for Medicare than your friends. You can go back and listen to our other episodes. I think if you go to our topics page, you can look for IRMAA-related topics, and they are definitely in there. But I thought what we could do today is we could take a prototype—a married retiree couple. Let's say they're 65, they're both hopping on Medicare this month, and they're a high-net-worth couple. I think I said income $325,000. Let's just get some ballpark estimates of what Medicare would cost and then what type of outlays they might have to pay if certain medical expenses happen.

Garrett: These are general numbers. Once you dive in based on your current health, maybe prescription drugs that you need, talk to your Medicare specialist and confirm all this. But I still find it really helpful for people to know, "What am I going to be on the hook for?" It's complicated, and what are the real dangers that I need to look out for? As we just talked about, Medicare Part A, for a lot of people out there, there's going to be no additional cost, so that one is covered. Let's go with the $206.50 per person Part B cost. That is if your income is below the first Medicare IRMAA threshold. At a $325,000 Modified Adjusted Gross Income (MAGI), you're going to have to pay an extra $185 per month per person for Medicare Part B. So it effectively almost doubles your Medicare Part B cost. The supplement plans, this is something I don't see every day. If you talk to your Medicare person, I think it's very much regional dependent, but let's call it $115 per person for a Medicare supplement. That adds up times two people to a lot of money. If you don't have to pay a percentage coinsurance fee, I think that can be really helpful. Then we're going to estimate a Part D drug plan at $40 per month per person. Although, I've even seen people that have $0 drug plans. It just depends on what prescriptions you need. Could be more than that, could be less than that. That would be a pretty comprehensive Medicare plan for somebody: Part A, Part B, a supplement, and a Part D drug plan. That comes out to be $581 per person or $1,163.60 is what I came up with for a couple. If we multiply that out by 12 months, that's $13,963 a year, guaranteed, that you just have to pay out to be on the Medicare plan. That's over a thousand a month that a married couple is going to have to pay.

Garrett: Sign me up! I'd love to have that plan. I know it sounds like a lot, but where it makes a difference is when we hop in from guaranteed expenses to the amount of money that you have to pay. You don't have to pay a lot out of pocket, so you can go out and get the medical services you need. Again, high level, but I think there's a $288 Part B deductible. Look that one up and confirm it. It's like a deductible with Part B. You're used to thousands of dollars of deductibles—just a little over $200 or $300 that you have to pay for a deductible after that. Then you might have a small Part D deductible. You can imagine this idea where with that fixed cost, you really don't have any out-of-pocket expenses. So where you may be out a guaranteed $13,000-something a year, if you went to the doctor all the time, it wouldn't actually be that much more—maybe a thousand extra dollars. That's pretty cool that you can get the medical service that you need without having to rack up a lot of... losing peace of mind. I think it's just kind of an oasis of relief that you can get the medical care that you require, and it's not going to be a lot more. The other thing that I've heard Ben, our Medicare specialist, say is that the Advantage plans—that I didn't really hit on very much—have a managed care network, so you might not be able to go to the doctor that you want to. It could be cheaper, but you're going to be restricted. If you go the Medicare supplement route, I think you can go to really any Medicare-approved facility, and your flexibility is going to be a lot more. So for the high-net-worth retiree that values control and flexibility, the supplement might be a good way to go.

Adam: No recommendation here, but I think too, it's nice to know, especially for us as financial planners you're working with, it's nice for us to know, "Hey, this is what you're paying each month, each year." Not, "Hey, we're paying less each month each year," and then all of a sudden, "Oh my gosh, we had a catastrophic event and we need $200,000 to pay medical bills." It is nice to have a fixed expense through retirement, even though it's not a small number. It's kind of nice to have a number you can plan on and plan according to.

Garrett: Let's zoom back out from the Medicare. Medicare comes with a lot of emotions, and people know they've paid into it, and healthcare is a challenge in retirement. People don't want to pay extra for Medicare. They get hit in those IRMAA charges, and they're frustrated, and I don't blame them. They're having to pay more for it than other people. People even, very well-off people, will seek to minimize that IRMAA and not trigger the additional threshold. I'd like to reframe this for a high-net-worth person, and I would say the Medicare fixed cost that you're going to have in retirement are probably going to be manageable. It's the unknown cost of what Medicare doesn't cover that I think is going to be the real issue. If I say a thousand dollars a month, somebody that is in the niche of this podcast is probably not comfortable, but they can do it. Anytime I'm talking about Medicare, I add in my own custom letter here, and maybe you see it in the title or the thumbnail in this video. We know A, B, C, and D, but the true unknown cost of healthcare in retirement would be if you needed some type of Extended Care or Long-Term Care help. That would be, if you required skilled nursing care for a long period of time, if you needed to be in an assisted living facility, if you needed to be in a nursing home. A lot of people can handle—well, the people listening to this can probably handle that for a significant duration of time. But where it gets scary would be if somebody had Alzheimer's, maybe a disabling event where they still had a normal life expectancy but required round-the-clock care.

Garrett: The extended care costs are your largest out-of-pocket expense that you could face in retirement. I think people listening to this need to think more about what's your plan for how you would cover long-term care more than the individual Medicare part costs. I like to call it the A, B, C, D, and E of Medicare, with E standing for how are we planning for extended care? There's a book that comes out every year called Medicare and You. I've read through it before, and there are quite a few spots where it says, "Medicare does not cover long-term care services." You can find that in there plenty of times because they want that to be crystal clear. How you would pay for that is really important. Our company has significant roots in the long-term care planning side. Our owners have been doing that since the nineties. Back in the day, these policies, they weren't actually that expensive, and I think they underestimated the cost of healthcare. A lot of these long-term care traditional insurance policies have really had issues paying for things because, as you're about to see, costs have skyrocketed. People have needed this service. Every year they would do this study called the Cost of Care. I went to the website this morning and pulled some numbers for Knoxville, Tennessee, which is where we are. I think it's actually pretty reasonable compared to other big cities across the country. You could Google "cost of care calculator, Care Scout, Genworth," and you would find this. We like to run these by projecting out 15 years. So if somebody's 65, this would be when you are 80. I think 15 years is about the right amount to estimate out. If we go too far, the numbers get crazy. In 2024—and the way this calculator runs, it starts in 2024—15 years from that is 2039. You can think if you're 65 right now.

Garrett: An assisted living community, a private one-bedroom, is $5,100 a month right now in 2024. No small chunk of change, but maybe something out there would be comfortable with that. They say in 2039: $7,946 a month. Home healthcare, homemaker health aide—I think this is the one I hear most commonly, having somebody that would be able to come into your home to take care of you. In 2024, they're saying that's $6,101 a month. In 2039: $9,505 a month. That's quite a bit more. Nursing home, which is where you don't want to be. A private room in 2024 is saying there's a $122,275 annual cost, which comes out to $10,189 a month now. They're predicting in 15 years that to be more like $15,000 to $16,000 a month.

Adam: So it's a 50% increase across the board from when you retire towards when you might be in need of care like that.

Garrett: Medicare is really important. How you would pay for these costs, I would say, unlike Medicare, where it's kind of this fixed, known cost that you're going to have to pay, how you would pay for that, how you would fund it—sometimes it means long-term care insurance. Maybe you're so well off, you feel like you could self-insure that. There are a lot of ways to do it. But I think if I was somebody listening to this and I was in that $2 million to $8 million range, the extended care piece and how you'd pay for that is what you need to really consider. Get the Medicare pieces in place, talk to your Medicare person, but the unknown cost of extended care can, as a financial planner, when I type that in a software, unfortunately wreck a plan.

Adam: I think another non-financial benefit... is the peace of mind of, "Hey, my kids aren't trying to get a DPOA on file and trying to sell off assets to get money for us to go." It is, "Hey, we file a claim, and the checks start showing up to pay for that long-term care insurance and make sure that where we're at is paid." So I think that's another non-financial benefit—just the ease of, "Yep, elimination period's over, we filed a claim, money starts rolling in, and it's taken care of." We don't have to have somebody over here trying to juggle assets, trying to get money to us to then pay for things while we're going through a really hard crisis.

Garrett: Yeah. I would say, too, I don't lead with insurance unnecessarily. I've seen it in the past enough where when I first started working here, these traditional long-term care insurance policies were mostly what people were buying. There have been evolutions in that world where there are more options. They have things called hybrid policies, linked policies. I understand somebody wants to go both ways. You can't buy insurance for everything. "I've got a lot of money. We have a house. We're okay spending down. We're even okay going into a Medicaid facility." Thinking, "Well, it won't be that bad." I get all those arguments. But I also know we've had clients that have purchased long-term care insurance, and did they have to? No. But they just didn't want to be on the hook for that type of risk. I think for some people, insuring that risk actually allows you to spend more money, more freely, especially earlier on in retirement. As a good financial planner, maybe where I leave this is it's good to be informed, and it's good to have lots of tools in your tool belt. Planning for healthcare costs in retirement is very important. But the big question mark for most high-net-worth retirees is the extended care part, and maybe not as much the Part A through D.

Adam: I think that’s a good way to put a bow on things. We appreciate you guys joining us today with Retirement Tax Matters. Check us out on our website, retirementtaxmatters.com. We've got some free resources on there for you guys. Throw your email address in there, and we'll email it to you. Check us out on Spotify, Apple Podcast, here on YouTube. ... But wherever you're checking us out at, check us out: Spotify, Apple Podcast, YouTube. Like, subscribe, follow all the different things. Share with a friend. Thanksgiving is coming up. Sit down at the table and say, "Guys, you are all missing out on Retirement Tax Matters!" Go tell the world. We appreciate y'all listening. Hope y'all have a good rest of your day. Thanks.