When you're thinking about how you'll spend your money as a retiree, chances are good that one of the biggest expenses isn't even on your radar. It's the cost of healthcare, which more than two-thirds of Americans have no plan to cover, according to a study.

Why are so few people preparing for medical costs as they age? One big reason is that far too many pre-retirees don't understand some basic facts about Medicare. 

Doctor talking with older male patient.

Image source: Getty Images.

Medicare comes with more costs than you'd think

For many future retirees, planning for healthcare isn't on their radar because of misunderstandings about Medicare. Specifically, far too many Americans think healthcare is "free" under a comprehensive Medicare plan. The reality is that this insurance isn't free, and it doesn't cover as much as many seniors think it does.

Medicare Part B, which pays for outpatient services, has monthly premiums retirees must cover (usually through deductions from Social Security checks). For most retirees, premiums will total $148.50 in 2021 (up $3.90 from $144.60 in 2020). Higher earners pay more. Medicare Part D, which covers prescription drugs, also costs money. Monthly premiums for a Part D plan vary depending on which policy you choose and how comprehensive your coverage is. 

Premiums are just the start of the costs. There are also deductibles, which have to be paid before your insurance kicks in for most care. For Medicare Part A (which covers hospital services and is premium-free for most retirees), the deductible is $1,484 in 2021, up from $1,408 in 2020. Part B's deductible is $203 in 2021, up from $198 in 2020. And deductibles for Medicare Part D will vary by plan. 

We're not done yet

There are a few other reasons medical care will probably be more expensive than you think.

First, you'll owe 20% co-insurance costs under Part B. That means if you receive $1,000 in treatment, you'd have to pay for $200 of it. Obviously, this can add up very quickly if you need a lot of medical care as you age.

Many people choose a Medigap plan to cover some co-insurance costs, but that means paying more premiums. You'd also have the option to pay for a Medicare Advantage Plan, which is an alternative to traditional Medicare and may cover more. But there are premiums, co-pays, and co-insurance costs for most of these plans as well. 

As if all this isn't enough, you'll likely be on your own to pay for any services Medicare doesn't cover, including dental care, hearing aids, eye care, and long-term care. Medigap plans or Advantage plans may provide coverage for some of these expenses, but it depends on your plan.

Preparing for medical expenses is a must

While Medicare still serves a vitally important role in protecting you from astronomical healthcare costs as a senior, you need to know about all the expenses you could incur even when you're covered by it.

In fact, you should be planning throughout your working life for how you'll pay for medical services in your later years. By preparing for the out-of-pocket expenditures you're likely to face -- generally by investing in a health savings account or earmarking some other retirement funds specifically for healthcare costs -- you can avoid financial disaster.