As seniors approach age 65, they face a matrix of confusing Medicare options. Planning for health care expenses in retirement is one of the largest hurdles that new retirees face. Making an educated selection can save you thousands down the road.

Consider the Medicare maze through the eyes of Thomas and Martha Jefferson. Thomas expects to work for a few more years but is fast approaching his age 65 eligibility for Medicare. They have no time to lose as they begin to learn the ABCs and Part D of Medicare.

Part A: Hospital Insurance

If health care were performed in a hotel, Part A would cover the daily room rate. It offers reimbursement to hospitals and to nursing or hospice facilities. It even covers some home health costs.

Thomas is planning to work for a while longer, but it’s time to sign up for Part A insurance. Assuming they have paid 10 years (40 quarters) of Medicare taxes, both Thomas and Martha are fully insured and will not need to pay a monthly premium for Part A. However, since Thomas agreed with my three reasons to delay Social Security, he will not be automatically signed up for Medicare Part A at age 65. Instead, he’ll need to schedule an appointment at the Social Security offices or go online to sign up for these benefits.

For people who are still working, Part A can act as a backup to an employer health insurance plan. For example, if Thomas’s employer health plan only covers 50% of a hospital fee, Medicare could possibly help with the remainder of the bill after the deductible has been reached.

Because Martha is five years younger, the Jeffersons will need to plan the timing of their Medicare enrollment carefully. If Thomas drops his employer-sponsored family health coverage before Martha turns 65, she will need to find coverage privately before she becomes eligible. The high cost of private individual policies for seniors often forces retirees to return to work to pay for health insurance until Medicare eligibility.

Part B: Medical Insurance

Part B covers payments for the doctor’s time and also for any tests or other equipment used during a visit. This includes a free “Welcome to Medicare” visit for a comprehensive physical and a preventive health care discussion with your physician.

In 2013, the minimum cost for Part B is $104.90 per month. However, because Thomas earns $185,000, he pays a higher monthly premium of $146.90. This sliding scale hits a ceiling of $335.70 when income reaches over $428,000 on a joint tax return or half that amount for single filers.

Thomas may decide to defer enrolling in Part B because it can be costly. Medicare considers his current employer-sponsored group insurance an eligible substitute. If Thomas defers enrollment in Part B, he’ll need to sign up during the eight-month period (“special enrollment period” in Medicare-speak) that begins after he retires to avoid a late enrollment penalty.

Part A and Part B do not cover all costs. Retirees must still pay coinsurance and deductibles. For example, Thomas would need to pay a $1,184 deductible to a hospital before Part A insurance kicks in. Original Medicare has a 20% coinsurance expectation for the Part B costs of paying doctors and nurses for the care they provide. As you can imagine, this 20% can become a hefty bill when expensive procedures are required. To bridge these gaps, private insurers offer 10 different Medigap plans designed by the federal government to supplement Original Medicare.

Part C: Medicare Advantage

Part C offers the option of receiving all of your Medicare health care services through an approved private insurer. You can either enroll in Part A and Part B through Medicare directly, known as Original Medicare, or enroll in a private Part C plan known as the Medicare Advantage Plan.

Advantage plans can be offered in either an health maintenance organization (HMO) or preferred provider organization (PPO) format. Advantage plans offer many overlapping benefits to Original Medicare, but Advantage enrollees need to be careful because costs can escalate when receiving services outside of a predefined health care network.

Medicare reimburses private insurers who offer Part C Advantage plans for each enrollee. The Advantage plans compete with the traditional government-run Medicare program, but they also leverage private companies’ network of agents who are available to provide one-on-one consultations with eligible retirees.

Thomas does not need to decide right now whether to go with Original Medicare or an Advantage plan because he is still covered by his employer’s plan.

Part D: Prescription Drugs

Medicare drug plans charge a monthly premium that varies by location and the extent of the coverage in the plan. The average 2013 Part D monthly premiums range from $15 to $165, with most costing $30 to $40.

In addition to standard premium costs, prescription drug plans may also require copayments, coinsurances, and deductibles that vary between plans. For example, certain diabetes drugs could cost beneficiaries between $35 and $136 for a 30-day supply depending on the plan.

Thomas and Martha both take several prescription medications, and so they are likely going to choose one of the more expensive but more comprehensive drug plans. Plan costs and coverage both change annually, so comparing prescription drug plans every year is the best way to save money.

Seeking Assistance

This is only a brief overview of all the choices that retirees must consider before applying for Medicare. Make sure you’ve reviewed your options with an experienced and independent advisor before making decisions.

Listening only to advice from your neighbor or brother-in-law is sure to omit critical information. If you are unsure where to turn for advice, start by using the online cost estimater offered at www.Medicare.gov. This personalized tool allows users to enter all of their current drugs and expected health care needs and receive an expected annual cost estimate from all available plans.

You can also contact your State Health Insurance Assistance Program (SHIP). SHIP can direct you to nationally certified counselors who can help you in this decision-making process. In Virginia, our SHIP is the Virginia Division for the Aging (VDA), which works with 25 local Area Agencies on Aging (AAAs) as well as various other public and private organizations to help older Virginians and their families and loved ones find the service and information they need about Medicare.