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Medicare, Retirement and Health Care Costs

One of the biggest concerns people have as they get older is being able to afford health care costs in retirement. But any concerns about Medicare, and what role health care costs will play in planning for retirement can be successfully addressed.

Let’s look at some pitfalls to avoid, and the best ways to mitigate retirement concerns.

Medicare Pitfalls – and How to Avoid Them

Medicare is, of course, the U.S. healthcare plan for those 65 and up. While the program covers most major health care costs, selecting the right plan can be a bit confusing.

Sign Up at the Right Time

The first and arguably the most important pitfall to avoid is not signing up for coverage at the right time. Your enrollment time period begins three months before you turn 65 and continues for three months after that time.

There are four different elements to any Medicare plan: Parts A, B, C, and D. It’s important to make sure that you have the amount of coverage you need for all your expenses, and note that if your income is beneath a certain benchmark, you might qualify for a savings program.

If you’re already receiving social security, you will be enrolled automatically into the Medicare program, with premium costs deducted monthly from your benefits. But just relying on this to happen automatically does not necessarily mean you will end up with the right plan for you.

And if you wait to enroll in social security until you’re past age 65, you’ll still have to enroll in Medicare Parts A and – or – B on your own, within three months before or three months after you turn 65.

Medicare Part A

Even if you already have health insurance through an employer, you should sign up for Medicare Part A during this six month window. Why? Because Medicare Part A is free if you’ve been paying Medicare taxes through your work; if it is not free, you can still choose to delay making that limited premium payment. And if you don’t sign up, penalties will accrue.

Medicare Part B

You must also sign up for Part B during the initial enrollment time period. This portion of Medicare does require a premium payment, but how much that will be depends on income. The only exception to enrolling in Part B is if you already have health insurance from your or a spouse’s employer.

Part B coverage provides for the health care costs of visits to doctors and outpatient care for medical procedures. This is the part of Medicare that will be automatically deducted from your monthly social security if you’ve applied for it. The standard payment amount in 2021 is $148.50.

Remember – If You Don’t Enroll in Part A and Part B, Penalties are Incurred

If you do not sign up during the initial enrollment time period, penalties are assessed. And, you may have a gap in your coverage as well.

The bottom line is that you would pay a lifetime higher premium cost for plan B, as well as a monthly penalty for Part A for twice the number of years you delayed in signing up for Medicare.

Remember, you are not covered because your spouse has Medicare. It is an individual sign-up plan.

The other point to remember is Part A and B only pays 80% of the covered medical costs. The remaining 20% is paid for via Additional Medicare Coverage

Additional Medicare Coverage

One of the additional coverages you need to consider is Medicare Part C, which covers the 20% of hospitals and doctors that Parts A and B do not cover. There are two different routes you can take for Medicare Part C. You can enroll in the Medicare Advantage Plan, or you can enroll in a Medigap Plan.

The Medicare Advantage has a low monthly premium but carries co-pays and deductibles. A Medigap plan has a higher monthly premium but no co-pays and a small annual deductible. The nuances of a Medigap plan are based on the state you live in.  Which plan is best for you will depend on how much you will be accessing the hospital and doctor services. If you believe you will remain healthy in your retirement years, the Advantage plan will be your best solution. On the other hand, if you believe you will be visiting the doctors and hospitals more often in retirement, the Medigap plan may be your best bet. You or your insurance agent can research which Part C plan can work best for you.

The other additional coverage to consider is Medicare Part D, which offers the minimum standard of prescription drug coverage. You’ll want to find – or your insurance provider can help you find – the plan that covers the medications that you most usually take, as plans do vary as to the types covered.

Worried about Affordable Premiums?

You may be eligible for one of four Medicare Savings programs if you need help in affording premiums. There are also state and local programs that can help you if you qualify financially.

Planning for Retirement

When planning for retirement, taking future medical costs into consideration is one of the largest retirement concerns most people have. While Medicare will cover many health care costs, it may not cover all your needs.

And the cost of Medicare itself may be higher than your current plan, if you are currently getting assistance through a state or federal subsidized marketplace or through your employer. Of course, if your income is low enough, as noted above, you may qualify for programs that help with out-of-pocket costs under Medicare.

Among retirement concerns, medical expenses rank high, due to the additional annual costs of long-term care, and medical coverage. So, it’s vital to consider all your possible medical costs into planning for retirement.

Your age and health both affect how much retirement income you should budget for your health care costs. A healthy lifestyle may limit medical expenses while also increasing the number of years you need to allow for medical care costs.

Beyond Medicare, you also need to budget for additional health care costs including annual deductibles, premium costs, and prescription drug coverage, all of which will vary depending upon your income. Remember, a Medicare Advantage Plan, which will cost out of pocket, may or may not offer all the enhanced coverage that you need.

While some Medicare Advantage options include dental, hearing, and vision plans, others do not, and may not cover all of the expenses related to these plans. You may also need to include the cost of coverage for dental expenses or a separate dental insurance plan in your retirement planning, for example.

The Best Ways to Handle Medical Cost Retirement Concerns

One way to handle concerns is through a Health Savings Account or HSA, which offers a solid way to save money as well as many tax advantages. With deductible contributions, growth that’s tax-deferred, and withdrawals that are tax free for medical expenses that are qualified, an HSA is a great way to save for health care costs in retirement.

Already in your 50s? You can still take advantage of these plans using a system of catch-up contributions and contributions from employers. You can make up to a $1,000 per year catch- up contribution at age 55 or older, plus the regular $3,600 per individual contribution limit already allowed annually. But, once enrolled in Medicare, you can’t contribute to an HSA any longer.

Another option to pay for health care costs is the purchase of long-term care insurance or a life insurance policy that allows you to add a long-term care rider for coverage. Both can be a part of your retirement planning.

Remember, the earlier you buy your life insurance or long-term care policy, the lower you’ll find your premiums to be.

So, consult your financial advisor about the best retirement planning for you. Overall, you can alleviate many retirement concerns when you create a good strategy for medical care during retirement.

And, through smart planning for medical costs, you’ll be able to keep more of your assets available for other needs and enjoyment during retirement.

Written by Matthew Delaney


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