Medicare

At 65, you stop shopping the individual or employer markets for primary health coverage and enter Medicare, the federal program that covers almost every American over that age. (Younger people qualify after 24 months on Social Security Disability, or immediately with ALS or end-stage renal disease.) Medicare is not one product but four, sold under one roof, and the choices you make in your first months of eligibility lock in penalties — and sometimes underwriting protections — that follow you for life. It deserves its own treatment because, unlike everything above, almost none of it can be undone if you get it wrong.

The four parts.

Part A –- Hospital

Covers inpatient stays, skilled nursing after a hospitalization, hospice, and a sliver of home health. Premium-free if you (or a spouse) paid Medicare payroll tax for at least 40 quarters. It has a per-benefit-period deductible and daily coinsurance on long stays, not the annual deductible most people expect.

Part B –- Medical

Covers physician visits, outpatient care, durable medical equipment, and most preventive services. Funded by a monthly premium ($202.90 standard in 2026) plus a $283 annual deductible. The premium is income-tested through IRMAA (below) and rises sharply for high earners.

Part C –- Medicare Advantage

A private bundle that replaces Original Medicare (Parts A+B), usually adds Part D, and often dental/vision/gym extras. Enrollees agree to a network and prior-authorization rules in exchange for capped out-of-pocket exposure and lower or zero premium beyond Part B.

Part D –- Prescription drugs

A standalone drug plan attached to Original Medicare, or bundled inside an Advantage plan. Premium plus deductible plus tiered cost-sharing, with a statutory annual out-of-pocket cap — $2,100 in 2026 — on covered drugs, the indexed descendant of the $2,000 cap that the Inflation Reduction Act of 2022 phased in starting in 2025. Also income-tested through IRMAA.

There is no Part E. “Medigap” is the informal name for Medicare Supplement policies, which are a separate, optional, private insurance product on top of Original Medicare, discussed below.

The structural choice: Original Medicare + Medigap, or Medicare Advantage. This is the decision that matters, and it is not equally reversible in both directions. With Original Medicare you can see any provider in the country who accepts Medicare, with no referrals and no network. The catch is that Parts A and B leave coinsurance and deductibles uncapped — a long hospital stay or a serious illness can run open-ended. You close that hole by buying a Medigap policy which pays most or all of those gaps in exchange for a monthly premium that rises with age. Plans G and N are the common modern choices; Plan F is closed to anyone who became eligible for Medicare on or after January 1, 2020 (if you were eligible before then, you may still buy it). Worth knowing and rarely mentioned: there is also a high-deductible Plan G, which carries the identical benefit set behind an annual deductible in the low thousands and costs a fraction of standard Plan G. For a reader whose whole reason for buying Medigap is catastrophic protection and provider freedom, not first-dollar coverage — which describes anyone with a balance sheet — high-deductible G is frequently the better buy, and almost no agent leads with it because the commission scales with premium. You also buy a standalone Part D drug plan. The result is predictable cost, total provider freedom, and the highest premium total.

With Medicare Advantage (Part C), a private plan administers your benefits. Premiums are low or zero (you still pay the Part B premium underneath), there is a hard annual out-of-pocket maximum, and drugs and extras are bundled in. The cost is a closed network, prior authorization on expensive care, and exposure to coverage decisions made by the plan, not Medicare itself.

The asymmetry that traps people: when you first enroll in Medigap during your six-month Medigap Open Enrollment window — which begins the first month you are both 65 and enrolled in Part B — 42 U.S.C. §1395ss(s)(2)(A) requires insurers to sell you any policy they offer at the standard rate regardless of health. Miss that window and, in most states, you face medical underwriting and can be refused outright or surcharged for a pre-existing condition. Many people choose Advantage at 65 because it is cheaper, develop a condition, try to switch back to Original Medicare plus Medigap to regain provider freedom, and discover Medigap will not take them.

The escape hatches, and their expiry dates. The door is not quite as one-way as the above implies, and the exceptions are worth knowing precisely because they are time-boxed and almost nobody uses them in time.

The 12-month trial right.

If you enrolled in Medicare Advantage the first time you were eligible at 65, you have 12 months from the effective date to drop it and buy any Medigap policy sold in your state on a guaranteed-issue basis. Separately, if you had Original Medicare plus a Medigap policy and switched to Advantage for the first time ever, you have 12 months to switch back — to your original policy if that carrier still sells it, otherwise to one of several federally specified plans. Both rights carry a strict application window: no earlier than 60 days before your Advantage coverage ends and no later than 63 days after. The right attaches to your first time in Advantage only; cycling in and out later does not reset it. Treat month 10 after any first Advantage enrollment as a hard calendar entry.

State birthday and anniversary rules.

A minority of states let you change Medigap policies annually with no underwriting. California’s birthday rule is the most useful: for 60 days beginning on your birthday, you may switch to any Medigap policy of equal or lesser benefit from any carrier, guaranteed issue, every year for life. Oregon, Idaho, Illinois, Louisiana, Nevada, Maryland, and Oklahoma have birthday rules with differing windows and scope; Missouri runs an anniversary rule tied to your policy date. For a California reader this is a standing annual right to re-shop premium without a medical questionnaire — Medigap benefits are federally standardized by letter, so an identical Plan G from a cheaper carrier is genuinely identical, and premiums for the same plan routinely differ by 30% or more across carriers. Re-shop every birthday.

Guaranteed-issue states.

Connecticut, Massachusetts, New York, and Maine require Medigap carriers to issue regardless of health year-round or during defined annual windows. If you live in one, the entire underwriting problem above does not apply to you.

Everyplace else, and for anyone past their trial right, the door really is one-way. Choose at 65 with that in mind.

If you have the capital, do not buy Medicare Advantage. This is not a balanced trade-off if you have liquid assets. Zero-dollar premiums and the gym membership are subsidized by something you actually need: access. Advantage is managed care. The plan owns your network, the plan adjudicates your prior authorizations, and the plan’s medical director — not you and not your physician — decides whether your stage III workup is covered this quarter. The premier referral institutions in the country (MD Anderson, Memorial Sloan Kettering, the Mayo Clinic, and most academic medical centers) routinely refuse or sharply restrict Advantage contracts. When you need a second opinion at one of them, “out of network” becomes the most expensive two words in your life. Buy Original Medicare and pair it with Medigap Plan G (or, if you tolerate small co-pays in exchange for a lower premium, Plan N). Pay the premium. You are buying optionality and immediate access to the best medical infrastructure on the planet, and against the cost of a serious illness the premium is a negligible fraction.

Concierge medicine and opt-out providers. Even Original Medicare plus the best Medigap policy does not insulate you from the tiered system. A growing share of elite primary-care physicians, specialists, and psychiatrists have formally opted out of Medicare. An opted-out provider requires you to sign a private contract acknowledging that Medicare will pay exactly zero for their services — and because Medigap is strictly secondary to Original Medicare, your Medigap policy pays zero too. The bill is yours. For DPC retainers and concierge-medicine memberships this is the entire point; the model exists precisely so the physician can practice without insurance-network friction. Budget for it as a fixed annual cost, the same way you budget for property tax, and stop expecting your Medicare card to function as a universal access pass.

Enrollment windows and the late-enrollment penalties. Three windows matter, and missing the first two costs money for the rest of your life:

Initial Enrollment Period (IEP)

The seven-month window centered on the month you turn 65 (three months before, your birthday month, three months after). Sign up here unless you are still actively covered by an employer plan from an employer of 20 or more, in which case you can delay Part B without penalty and get a Special Enrollment Period when that coverage ends. COBRA and retiree health do not count as active coverage — they will not save you from the penalty.

Special Enrollment Period (SEP)

An eight-month window beginning the month after qualifying active employer coverage ends. Use it; don’t sit on it. (For Part D the equivalent window is only 63 days, which is why people who correctly delay Part B still manage to earn a Part D penalty.)

General Enrollment Period (GEP)

January 1 to March 31 each year, for those who missed both of the above. Coverage begins the month after enrollment.

The employer-size trap that costs more than any penalty. The “employer of 20 or more” qualifier above is not a technicality — it is the Medicare Secondary Payer rule, and getting it backwards produces a catastrophic and entirely silent coverage gap.

• 20 or more employees: your group health plan pays first and Medicare is secondary. You may safely delay Part B while you keep working, and you get a Special Enrollment Period when the job ends.
• Fewer than 20 employees: Medicare pays first and the group plan pays only as secondary. If you did not enroll in Parts A and B at 65, the group plan still pays as though Medicare had paid its share — so it pays its small secondary slice and leaves the rest with you. You are nominally insured and functionally uninsured, and nothing on your insurance card says so. You discover it when a hospital bill arrives.

This is the single most expensive Medicare mistake available to this book’s reader, because it lands precisely on the successful professional working past 65 at a small practice, a boutique partnership, a family business, or their own company. Count the employees — including part-time, and including all employers in a multiple-employer arrangement — and if the answer is under 20, enroll in Part B at 65 regardless of how good the group plan looks.

The penalties are simple, permanent, and addable to your premium:

• Part B: 10% of the standard premium for every full 12 months you were eligible and not enrolled, added to your premium for life.
• Part D: 1% of the national base premium for every month you were eligible and went without “creditable” drug coverage, added for life.
• Part A (rarely owed, since most people get it free): 10% surcharge for twice the number of years you delayed.

HSA contributions stop the moment Medicare starts. Enrollment in any part of Medicare, including premium-free Part A, ends your eligibility to contribute to a Health Savings Account (section “Health Savings Account (HSA)”). Spending the existing balance is fine forever; contributions are not. Two traps catch people who plan to keep working past 65. First, drawing Social Security auto-enrolls you in Part A — and this applies whether you claimed before 65 (in which case Parts A and B both start automatically at 65) or claim at or after 65. You cannot draw Social Security and keep contributing to an HSA; the two are mutually exclusive, full stop. Second, when you eventually do enroll, Part A coverage is backdated up to six months (but not before your 65th birthday). HSA contributions made in that retroactive window become excess contributions and must be removed with earnings before the return due date or face a 6% excise tax each year they remain.

The defense is mechanical: stop all HSA contributions — yours and your employer’s — at least six months before any Medicare or Social Security enrollment date, and prorate your final year’s limit by the number of eligible months. If you intend to keep contributing past 65, do not claim Social Security, and do not let HR enroll you in Part A “because it’s free.”

The Transition to Medicare: A Dated Checklist

Almost everything above is irreversible or expensive to reverse, and the decisions are spread across three years instead of concentrated in the month you turn 65. Run it as a calendar instead of a single decision.

Age 62–63 — the year your first premium is set. IRMAA uses a two-year lookback, so the tax return you file for the year you turn 63 determines your Part B and Part D premium at 65 (section “IRMAA: The Stealth Tax with Cliffs”). This is the last clean year for a large Roth conversion, a business sale, or a concentrated-position unwind before those actions start pricing your Medicare premium. If a big realization event is coming, it is cheaper at 62 than at 64. Model the conversion ladder and the IRMAA tiers together — this is the handoff point to chapter “Tax-Efficient Decumulation”.

Twelve months out — decide the architecture. Original Medicare plus Medigap G (or high-deductible G) plus a standalone Part D, versus Medicare Advantage. Make this decision on access, not premium, and make it knowing the Medigap underwriting door closes six months after Part B starts. If you have a concierge or DPC physician, confirm now whether they participate in, are non-participating with, or have formally opted out of Medicare, because that determines what your Medigap policy will pay them (opted out: nothing).

Seven months out — stop the HSA. Contributions must end at least six months before your Part A effective date to survive the retroactive-coverage rule, and the final year’s limit is prorated by eligible months. Tell payroll; employer contributions count too. This is also the moment to front-load the HSA in prior years if you have not — it is the last wrapper you will lose.

Three months out — the Initial Enrollment Period opens. Enroll at ssa.gov. Two branches:

• Retiring at or before 65, or working for an employer with fewer than 20 employees: enroll in Parts A and B now. No exceptions on the small-employer branch — see the trap above.
• Still working, employer of 20+: enroll in premium-free Part A only if you have stopped HSA contributions; otherwise decline both and delay. Get a written confirmation from your benefits administrator that the plan is active employer coverage and that its drug benefit is creditable for Part D. Keep that letter — it is what defeats a late-enrollment penalty assessment years later. When the job ends you will file Form CMS-40B (Part B application) together with Form CMS-L564 (employer’s proof of coverage) inside the eight-month Special Enrollment Period.

The month Part B starts — the Medigap clock begins. Your six-month Medigap Open Enrollment window runs from the first month you are both 65 and enrolled in Part B. Buy the Medigap policy inside it. This is the only period in your life when every carrier must sell you every policy at the standard rate regardless of health, and there is no way to buy it back.

Month 10 of any first Advantage enrollment — the trial-right deadline. If you chose Advantage, this is the calendar entry that preserves your exit. The guaranteed-issue right to move to Original Medicare plus Medigap expires 12 months after the Advantage effective date, with applications accepted only from 60 days before to 63 days after that end date. Diarize month 10.

Every year thereafter. Three recurring windows:

• October 15–December 7 (Annual Enrollment): re-shop your Part D plan. Formularies and tiers change annually and Part D is the one component where staying put reliably costs money. Run your actual drug list through the Medicare Plan Finder each fall.
• January 1–March 31 (Medicare Advantage Open Enrollment): if you are in Advantage, you may switch plans once or drop to Original Medicare plus Part D — but note that dropping here does not carry a Medigap guaranteed-issue right unless your trial right is still alive.
• Your birthday, in California and the other birthday-rule states: re-shop Medigap carriers with no underwriting. Identical lettered plans, materially different premiums.

The two things people get wrong. First, they treat Advantage as reversible and discover at 72 that it is not. Second, they let a spouse’s timeline drift out of sync with their own — IRMAA is assessed per person, the Medigap window is per person, and a younger spouse still on the employer plan has a completely different calendar. Build one household schedule with both sets of dates on it.

IRMAA: The Stealth Tax with Cliffs

The Income-Related Monthly Adjustment Amount, authorized at 42 U.S.C. §1395r(i), surcharges Part B and Part D premiums for higher earners. Strip away the actuarial language and IRMAA is a progressive wealth tax dressed up as an insurance premium: the standard premium is heavily subsidized for low and middle incomes, and the subsidy is clawed back from successful retirees in escalating tiers. It is not collected by the IRS, but it behaves like a marginal tax sitting on top of your income tax — and unlike the income tax, it has hard cliffs. One dollar of MAGI above a threshold raises your premium by hundreds of dollars a month for the full year, per spouse on Medicare. Sustained over a long retirement, the cliffs are worth real money.

Three features make IRMAA a planning lever, not a passive fact:

Two-year lookback

The Social Security Administration sets your 2026 premium from your 2024 MAGI as reported on your 2024 tax return (sometimes 2023 if the 2024 return is not yet filed). This means a 70-year-old’s Roth conversion this year sets her premium two years from now. It also means a one-time spike — a property sale, a Roth conversion, the year of an inherited IRA distribution — creates a single-year surcharge you can plan around, not a permanent one.

Hard cliffs instead of phase-ins

The brackets step. Crossing a threshold by $1 of MAGI imposes the entire next tier of surcharge on both Part B and Part D, for a full year. The implicit marginal tax on that last dollar can run into the thousands of percent. Treat the threshold like a wall, not a gentle slope.

Per-person, per-year

Each spouse on Medicare owes their own surcharge. A married couple crossing a tier pays roughly twice the published per-person figure. Singles use brackets that are sharply lower than half of the married thresholds (one of the engines of the widow’s penalty in section “The Widow’s Penalty”).

The mathematics of the 2026 cliffs. The 2026 baseline thresholds, set from your 2024 return, begin at $109,000 MAGI for single filers and $218,000 for married couples filing jointly. Consider a married couple sitting at exactly $218,000. Each spouse pays the $202.90 standard Part B premium and no Part D surcharge. Realize one more dollar of income — $218,001 — and they fall into Tier 1. The Part B premium jumps to $284.10 per month per spouse, and a $14.50 Part D surcharge is tacked on. Annualized, that single dollar of extra income costs $974.40 on Part B plus $174.00 on Part D, per spouse: $2,296.80 in new premium for the household. The implicit marginal rate on that last dollar is

At the top tier (MAGI above $500,000 single / $750,000 joint), Part B runs $689.90 per person per month and Part D adds another $91.00 — a married couple at that level pays roughly $18,700 a year in combined Medicare premiums, almost all of it subsidy for the rest of the system. Treat the threshold as a hard wall, not a gradual slope.

Life-changing events. SSA will recompute IRMAA on a current-year estimate if you submit Form SSA-44 citing a qualifying life-changing event: marriage, divorce, death of a spouse, work stoppage or reduction, loss of pension, or loss/reduction of an income-producing property. A one-off realized gain or Roth conversion is not a qualifying event, no matter how much you wish it were. Plan accordingly: events that qualify earn you a refund; voluntary income spikes do not.

Separately from SSA-44, you can file a reconsideration on Form SSA-561 when the agency simply used the wrong data — most often the return from three years back because the two-year-prior return had not posted when the determination ran, or an amended return that superseded the figure SSA used. That is not a hardship appeal, it is a correction, and it is routinely granted. Check the initial determination notice against the actual return it claims to be citing; the mismatch is more common than it should be.

Levers that move IRMAA MAGI. IRMAA MAGI is AGI plus tax-exempt interest. The items that move it most:

• Roth conversions are 100% in.
• Traditional IRA, 401(k), and inherited-IRA distributions are 100% in. RMDs are unavoidable; voluntary distributions are not.
• Realized capital gains and qualified dividends are 100% in — including the gains you harvest in the 0% LTCG bracket, which costs zero federal income tax but can still blow through an IRMAA threshold.
• Tax-exempt municipal-bond interest counts. Munis save income tax, not IRMAA.
• Qualified charitable distributions (QCDs) from an IRA bypass AGI entirely and are one of the few high-leverage tools to suppress IRMAA MAGI after age 70½.
• HSA distributions for qualified medical expenses do not count. Pre-Medicare HSA loading is therefore one of the cleanest ways to pre-pay future medical costs in pre-IRMAA dollars.
• Sales from a taxable brokerage with high basis (or, better, from inherited assets with a stepped-up basis under section “Capital Gains Resets With Inheritance”) generate cash with little MAGI.

Higher-octane levers. The bullets above cover what a textbook would call IRMAA management. The aggressive practice — the practice used by families with serious balance sheets — adds three more:

• Liquidity without realization: buy, borrow, die. The wealthiest retirees do not sell to fund their lives; they borrow against what they already own. A SBLOC against a taxable brokerage, portfolio margin, a home-equity line, or a policy loan against cash-value life insurance generates immediate, tax-free liquidity. Loan proceeds are not income and create exactly $0 of MAGI. You finance the lifestyle from the balance sheet, hold the appreciated assets, and rely on the basis step-up at death (section “Capital Gains Resets With Inheritance”) to wipe out the deferred gain. The interest is a real cost, the leverage is a real risk (margin calls in a drawdown are unpleasant), and the strategy is incompatible with high interest rates — but at the right cost of debt, it is one of the few ways to live a seven-figure lifestyle while sitting in the zero IRMAA tier.
• C-corporation earnings retention. The corporate income tax rate has been a flat 21% since the TCJA of 2017. For an owner of a profitable closely held business, the post-2025 calculus is unchanged on the corporate side and only sharper on the personal side: passing income through an S-corp or partnership stuffs it into your 1040 and detonates IRMAA at retirement when you no longer need the cash to live on. Operating in a C-corp lets you retain post-tax earnings at 21% inside the entity and meter your personal compensation or dividends to land precisely below the IRMAA tier you have chosen. The trade-offs — double-taxation on distributed earnings, accumulated-earnings tax exposure if retention has no business purpose, loss of the QBI deduction, complexity — are discussed in chapter “The Business Owner’s Tax Architecture”; the IRMAA-suppression effect is one input to that choice, not the whole case.
• Asset location. Where an asset lives matters as much as what it is. Ordinary-income producers (taxable bonds, REITs, actively managed funds spinning off short-term gains) belong inside Roth and pre-tax accounts where their distributions never touch your 1040. Taxable brokerage should hold non-dividend or low-dividend growth equities and assets you intend to hold until step-up, since those generate almost no IRMAA MAGI while alive. Municipal bonds are the famous trap: their interest escapes federal income tax but is explicitly added back into IRMAA MAGI, so a muni-heavy taxable account can produce a counterintuitive Medicare surcharge against zero income-tax liability.

The planning move, year by year in retirement, is to fill the income up to — but not over — the IRMAA tier you have chosen to live in, using Roth conversions and discretionary realizations as the filler, while the higher-octane levers above suppress what is otherwise unavoidable. Done well, this turns IRMAA from a stealth tax into a calibration tool. Done badly, or ignored, it is a recurring fine for not paying attention. The integrated treatment lives in chapter “Tax-Efficient Decumulation”.