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Fidelity Has a Blunt Message for Retirees Counting on Medicare

Medicare helps, but 2026 costs show why your retirement health care budget still needs room for premiums, deductibles, drugs, and uncovered care.

By Sara Albertelli , Edited by Laura Hohenstein

Updated Aug. 4, 2026

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If your retirement plan assumes Medicare takes over your health care bills at 65, your budget could be carrying more risk than you think.

Fidelity's latest retiree health care estimate, released in July 2026, put the lifetime cost at $185,500 for a 65-year-old retiring in 2026. That figure is meant to cover expenses Medicare doesn't fully handle, including premiums, cost sharing, and out-of-pocket bills.

Here's the practical takeaway: Medicare is important protection, but it isn't a blank check. You still need a plan for the costs that can land back in your lap.

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The blunt warning

The blunt message is simple: Medicare usually reduces health care risk in retirement, but it doesn't erase it.

That matters because health care costs are one of the budget items that often rises just when your income becomes more fixed. You might have Social Security, retirement account withdrawals, a pension, or some mix of all three. Medical bills can still show up monthly, yearly, and sometimes all at once.

Fidelity's estimate is useful because it looks past the idea that turning 65 solves the problem. Its 2026 State of Retirement Planning study found that 54% of pre-retirees incorrectly believe Medicare will cover all of their health expenses.

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What Medicare covers

Medicare covers a lot, especially compared with going uninsured. Original Medicare includes Part A for hospital care and Part B for doctor visits and outpatient services. Many retirees also add Part D for prescription drugs or choose a Medicare Advantage plan instead.

But Original Medicare generally doesn't include a yearly cap on what you might pay out of pocket for covered Part A and Part B services. That gap matters. If you need frequent care, 20% coinsurance for many Part B services can become a serious line item.

Some expenses sit outside Original Medicare altogether. Routine dental care, routine vision care, hearing aids, and most long-term custodial care generally are not covered. The gap is real and built into the basic design of the program.

2026 cost reality

For 2026, the standard Medicare Part B premium is $202.90 a month, and the Part B deductible is $283. Those numbers apply before any late enrollment penalties or high-income surcharges.

Part A also has cost sharing. In 2026, the inpatient hospital deductible is $1,736 for each benefit period. That wording matters because a benefit period differs from a calendar year. You could face more than one Part A deductible in a year if you have separate hospital stays that fall into different benefit periods.

This is why your Medicare budget should include both predictable and unpredictable costs. Premiums are predictable. Deductibles and coinsurance depend on your health needs, timing, and the type of coverage you choose.

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Drug costs changed

There is one bright spot for 2026: Part D has a prescription drug out-of-pocket cap. The limit is $2,100 in 2026 for covered Part D drugs.

That cap could help if you take expensive medications, but it doesn't mean every drug cost disappears. The cap applies to covered Part D drugs, and your plan's rules still matter. Formularies, preferred pharmacies, prior authorization, and tier placement can affect what you pay and how easy it is to fill a prescription.

So the gap is often narrower for many drug users than it used to be, but it still exists. The best move is to compare your Part D or Medicare Advantage drug coverage during open enrollment using your actual prescription list, not a guess.

Advantage trade-offs

Medicare Advantage plans must include an annual out-of-pocket maximum for covered medical services. That can be attractive if you're worried about Original Medicare's lack of a built-in annual spending cap.

The trade-off is that Medicare Advantage usually uses provider networks and plan rules. Your doctors, hospitals, referrals, and prior authorization requirements could matter more than they would under Original Medicare. Each path shifts risk in a different direction.

If you choose Medicare Advantage, the gap to check is access. If you choose Original Medicare, the gap to check is exposure to cost sharing. Either way, the gap is identifiable, and you can compare it before you enroll.

Medigap choices

A Medigap policy can help cover some out-of-pocket costs under Original Medicare, such as certain deductibles, copays, or coinsurance. That can make bills more predictable.

But Medigap has its own monthly premium, and it doesn't cover everything. It also doesn't replace Part D drug coverage, and it generally doesn't solve routine dental, vision, hearing, or long-term care costs.

The timing matters, too. Your Medigap open enrollment window generally starts when you're 65 or older and enrolled in Part B. During that window, insurers generally have more limits on using your health history. Afterward, medical underwriting could apply in many states if you try to buy or switch coverage.

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Your planning number

A useful planning number should include more than Medicare premiums. Fidelity breaks its $185,500 estimate into three pieces: 45% goes to Medicare Part B and Part D premiums, 48% goes to cost sharing and excluded benefits like vision and hearing exams, and 7% goes to out-of-pocket prescription drug costs.

Your own number should add what Fidelity leaves out. That means possible Medigap premiums, dental care, over-the-counter medications, and long-term care exposure.

Your retirement income plan should make space for health care as a recurring cost, even if you don't keep the full Fidelity estimate sitting in cash.

If you have a health savings account and you're not yet enrolled in Medicare, that account can be especially valuable because qualified medical withdrawals are tax-free. Once you're enrolled in Medicare, you generally can't contribute to an HSA, but you can still use existing HSA money for eligible expenses.

Bottom line

Medicare is a major retirement benefit, but it likely won't cover every health care cost you face. The gaps are clear: premiums, deductibles, coinsurance, uncovered dental and vision care, hearing aids, and long-term care can still affect your budget.

Before you lock in your retirement plan, price out your Medicare options using your doctors, prescriptions, and likely care needs. Then build a separate health care cushion into your monthly and annual budget.

Use Medicare wisely, with your eyes open and your check protected as much as possible.

FAQs

Can you still contribute to an HSA after you enroll in Medicare?

No. Once you enroll in any part of Medicare, including premium-free Part A, you can no longer make HSA contributions. However, the money already in your HSA remains yours, continues growing tax-free, and can still be used tax-free for qualified expenses, including Medicare Part B, Part D, and Medicare Advantage premiums, deductibles, copays, dental, vision, and hearing care. Medigap premiums do not qualify.

One important caveat: because Part A can be backdated up to six months, it's generally best to stop HSA contributions about six months before enrolling to avoid excess contribution penalties.

Does Medicare have an out-of-pocket maximum?

Original Medicare has no annual out-of-pocket maximum for Part A and Part B services, meaning costs can add up significantly during a serious illness. Medicare Advantage plans, however, must cap annual out-of-pocket costs. In 2026, that limit is no more than $9,250 for in-network care or $13,900 for combined in- and out-of-network care, though many plans have lower caps.

Prescription drug costs under Part D have a separate $2,100 annual cap. If you stay with Original Medicare, a Medigap policy is the primary way to limit your out-of-pocket medical costs.

Does Medicare cover dental work?

Original Medicare does not cover routine dental care, so services like cleanings, exams, fillings, crowns, dentures, and implants are generally paid out of pocket. Standard Medigap plans don't cover these costs either. Part B only covers certain dental services when they're medically necessary as part of a covered procedure, such as before an organ transplant, heart valve replacement, or some cancer treatments.

Most Medicare Advantage plans include limited dental benefits, often with annual caps and network restrictions. If you have Original Medicare, a standalone dental plan or discount program may help reduce costs.

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