Personal Finance

Medicare covers less than you might think. Here's how to avoid surprises

This is what Medicare does and doesn’t cover
Medicare coverage explained

It's basically a rite of passage: You blow out the candles on your 65th birthday and get to sign up for Medicare.

Yet it's kind of like one of those birthday gifts that you have to assemble properly for it to work well.

In other words, if you enroll in Medicare without exploring the details of your medical coverage and weighing your options, you could end up on the hook for health care costs that you did not anticipate.

Every day, about 10,000 baby boomers reach age 65 and can join the 49 million or so other older Americans enrolled in Medicare. (The government program also provides coverage to about 9 million younger people with permanent disabilities.)

How health care spending changes later in life

Expense Medicare households Share of spending Non-Medicare households Share of spending
Health care$5,355 14%$3,809 6%
Transportation$5,231 14%$9,547 16%
Food$5,687 15%$8,557 15%
Housing$13,580 36%$19,078 32%
Other$8,109 21%$17,819 30%

Source: Source: Henry J. Kaiser Family Foundation, based on 2016 data

Like Social Security, it's a benefit that you've been funding for years as a working taxpayer.

And as long as your work history (or your spouse's) spans at least 10 years, you'll pay nothing for Medicare's Part A (hospital coverage) and an income-based amount for Part B (doctor's visits).

You should make sure to sign up during your initial enrollment window, which opens three months before your birthday month and ends three months after it.

If you sign up after that, you could end up paying late-enrollment penalties unless you meet an exclusion (i.e., you still have health insurance through work).

Yet even for those who sign up as soon as they can, unanticipated costs and coverage gaps can catch them flat-footed.

Watch the above video to find out what Medicare does and does not cover and how to prepare for extra costs.

WATCH: These retirees may see Medicare costs rise more than 200 percent

These retirees may see their Medicare costs rise by more than 200 percent
These retirees may see their Medicare costs rise by more than 200 percent