- \ Gerard Gruber
- July 22, 2023
With the average out-of-pocket cost for health care nearing $300,000 in retirement, choosing the right health care coverage is critical to securing your financial future. Understanding your Medicare benefits – what they do and don’t cover – is essential to planning...
With the average out-of-pocket cost for health care nearing $300,000 in retirement, choosing the right health care coverage is critical to securing your financial future. Understanding your Medicare benefits – what they do and don’t cover – is essential to planning for health care in retirement. It’s not as easy as checking a few boxes when you turn 65. The planning needs to start well ahead of your eligibility.
What Healthcare Options are Available in Retirement?
While Medicare is available to anyone who has paid taxes into the program, retirees have other options depending on their needs and eligibility. Here are your choices for healthcare coverage when you retire:
- Sign up for Medicare at age 65
- Continue with your former employer’s health plan if available
- Add yourself to your spouse’s plan if available
- Shop the ACA marketplace for coverage
You need to be aware that if you delay enrollment in Medicare past your initial enrollment period (before you turn 65), you could pay a premium penalty of 10% for the number of years you were eligible but not enrolled.
However, if you qualify for a Medicare Special Enrollment Period, you can be covered under an employer or spouse’s plan and switch to Medicare coverage later without penalty. Be sure to check with your plan administrator on the time requirements for making the switch.
Medicare is Often Your Best Option
As federal programs go, Medicare does provide pretty good healthcare coverage for what you’ve paid into the system. According to the Urban Institute, a 65-year-old couple retiring in 2020 can expect to receive more than $400,000 in health care benefits after contributing just $111,000 in Medicare taxes. But it is a government program, meaning it’s big, cumbersome, and complex. So, while you should expect to get your fair share of benefits at the lowest possible cost, you’ll need the benefit of advanced planning, which should start within five years of your enrollment date.
Understanding the Pieces of the Medicare Puzzle
The Medicare offerings can be confusing, even conflicting, leading to choices that don’t necessarily match a person’s circumstances. The wrong choices can result in inadequate or more expensive coverage. Understanding the ABCs of Medicare and how they fit together is essential to create the right coverage package for you.
Briefly, Medicare offerings consist of four parts:
Part A covers hospital care, skilled nursing, hospice, and some home health care. The coverage is free if you or your spouse has at least ten years of Social Security work history.
Part B covers outpatient and preventative care as well as doctor services for an average monthly premium of $109 in 2017. However, the higher up the income ladder you are, the higher your premium, which can run as high as $428 a month in 2017.
Part C combines Parts A, B, and D into an alternative plan called Medicare Advantage (MAP). MAPs are offered competitively and can provide better coverage at less cost – between $0 and $100 a month.
Part D covers prescription drugs, charging an average premium of $34 per month.
(Source: Medicare.gov)
Putting the Pieces of the Puzzle Together
The most significant decision you must make with Medicare is choosing a plan. Do you choose the original Medicare plan, which consists of Part A and Part B, and then add Part D? Do you add a Medigap plan to cover excluded expenses and out-of-pocket costs not covered by Medicare? Or do you replace your original Medicare plan with a Medicare Advantage Plan (MAP), which includes Parts A, B, and D and some supplemental coverage?
There is no one-size-fits-all plan with Medicare plans, even for spouses, because they may have different needs. Your choice will come down to several factors, including your health, medical needs, lifestyle, and finances. Original Medicare is more expensive but usually provides more flexibility in choosing providers. MAPs are less expensive and include coverage not available in original Medicare, including vision, dental, and hearing, but they can be restrictive in terms of choosing a provider. Their coverage can also change frequently, while original Medicare coverage does not.
If you plan to travel a lot in retirement and have extensive medical needs, you will probably want to stay with original Medicare because of the wider availability of providers. If you have extensive prescription needs, you may want to use Part D for its broader prescription coverage. If you are extremely healthy, a MAP can save you money. If you can afford it, the original Medicare with a Medigap policy offers the greatest access to providers without prior approval from the insurer.
While your needs may change between now and the time you enroll in Medicare, now would be the time to begin researching your options based on your current circumstances and retirement plan.
This information is for general purposes and is not intended to provide specific investment advice or recommendations. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Individuals should always consult their own financial or tax advisor regarding their specific situation before acting on any information provided. Harbor West and Geneos Wealth Management, Inc. do not provide tax or legal advice.
Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC