Some soon-to-be retirees may assume that Medicare will cover all their medical costs after retirement. What they may not realize is Medicare only covers specific services and there will likely be some additional medical expenses incurred such as dental, vision, and more. It’s important your employees consider these expenses when planning their retirement savings goals, otherwise, they may be in for a surprise.

Explaining Medicare Misconceptions

There are a few common misconceptions about Medicare that can adversely affect retirees:

  • Eligibility age vs. retirement age
  • Medicare Parts B & D costs
  • Medicare out-of-pocket expenses
  • Medicare coverage limitations

Some may assume that because their retirement system or social security allows for early retirement, Medicare will automatically do so also. This is not true. Medicare eligibility begins at age 65, unless there is a disability or specific covered disease involved, which means that those who may be eligible to retire early (say at 55) will be responsible to pay the full price of their medical coverage and costs until they reach Medicare eligibility age. It’s important for your employees to understand there will be costs associated with Medicare, and there are still deductibles and co-pays for almost everything.

Although Medicare is there to assist, it is not completely free. Retirees will still be responsible for a portion of their medical expenses. Medicare part A is free for eligible citizens, but this only covers specific hospital services such as hospital stays, skilled nursing facilities, some home health visits and hospice care.1 Both Medicare Part B, the doctor and preventive coverage and Medicare Part D, the prescription drug coverage, are not completely free. Medicare also doesn’t provide financial assistance for every medical expense. Medicare Parts A, B & D do not include coverage for long-term care, most dental care, hearing tests, vision care or cosmetic care. 

All of these will be considered out-of-pocket expenses or will require additional personal insurance coverage to fill in the gaps. There are solutions to help retirees deal financially with these coverage gaps, but most retirees are not aware of their optional coverage needs nor do they know where to go for information.

Supplementing Gaps in Medicare

Because of benefit gaps and cost-sharing requirements, most beneficiaries in traditional Medicare have some form of supplemental coverage to help. Medigap, Medicare Advantage and individual insurance plans are common forms of financial protection that many retirees may take advantage of. Both Medigap and Medicare Advantage are health insurance plans that can be purchased from a private health company to help offset gaps in Medicare coverage. Medigap can be combined with Medicare to help offset gaps in coverage for Parts A and B. Medicare Advantage is an alternative plan that covers all the services of original Medicare, and may also include prescription coverage (Part D), dental, hearing or vision coverage.

The main difference between Medicare + Medigap and Medicare Advantage is the way retirees pay for the plans. Medigap charges one set premium price a month, whereas Medicare Advantage charges per service/expense. There are many pros and cons to each plan, so ultimately retirees should evaluate their personal health and financial needs before choosing a plan. The state in which you reside determines which carriers can offer these plans, plan eligibility, and what plans are available. Some states even give discounts for these plans. Retirees should research if Medigap or Medicare Advantage plans are available in their state and evaluate their eligibility, how the plans work, costs, etc. Individual insurance plans can also provide financial assistance during retirement.

It’s important your employees understand what benefits are individually-owned and which are group benefits so they know which benefits they can potentially conserve these policies after retirement. Even when workers know that the benefits are offered, sizable shares (ranging from 1 in 10 to just over 2 in 10) do not know whether their employer contributes to the cost of the coverage or whether it is a voluntary employee-paid benefit.2 Supplemental benefits such as Accident Insurance, Cancer Insurance, Critical Illness Insurance can assist with out-of-pocket expenses, and are often individual policies.

Help Your Employees Prepare

Understanding how health insurance works after retirement is vital in setting savings goals. Encourage your employees to start researching Medicare coverages, Medigap, Medicare Advantage and individual insurance ahead of time. Provide education on your specific state’s Medigap and Medicare Advantage options, as well as any other state-specific pensions and benefits. Encourage your employees to evaluate their savings goals, learn about Social Security benefits, and calculate their personal and medical expenses when planning.   For our education customers, American Fidelity provides and administers retirement savings accounts.

If your group is interested in retirement planning education, contact your local American Fidelity account manager today or visit  

1Other coverages and limitations may apply.
2EBRI: Value of Workplace Benefits: Value of Workplace Benefits; April 18, 2017.