Retirement Expenses: Health Care Costs & Medicare
Most people plan for retirement housing and activities but don’t spend enough time thinking about healthcare expenses. Healthcare costs will represent a significant portion of the savings you will need for retirement.
Even for those who seem to have adequate retirement assets, health care expenses can be overwhelming. According to the 2009 Retirement Confidence Survey (www.ebri.com) only 25% of retirees say they are confident they have sufficient savings for medical expenses. This isn’t completely surprising, considering to Fidelity Investments estimates that a couple retiring at age 65 would need about $240,000 for health care expenses during retirement.
The most commonly used health insurance for retirees is Medicare. Medicare is a government health care plan that covers everyone over the age of 65 and anyone under 65 on disability or with end stage Renal Disease. It’s actually the largest health insurance service in the country, with approximately 40 million Americans participating.
Medicare is broken down into different parts:
Part A, or Hospital Insurance, is free for those who are 65 years old and who have paid Medicare taxes for at least 10 years. Part A covers inpatient services or medical care when you’re checked into a hospital up to 60 days. Skilled nursing facility care is covered for the first 20 days then 80% is covered for the next 80 days. Home health care is covered by Part A, but you will have to cover 20% of medical equipment costs.
Part B, or Medical Insurance, is bought for a premium of around $95 per month. Part B covers 80% (after you meet the $135 deductable) of most doctor’s visits. Also included are preventive tests and screenings, outpatient treatments and durable medical equipment, like oxygen or wheelchairs. All blood tests, X-rays, and laboratory work will be covered.
Part D is prescription drug coverage insurance that is provided by private companies. Last year, Part D premiums averaged about $25 per month. With Part D you will pay 25% the cost of your perscriptions after the deductible is met, the average deductable is $275.
However; Medicare, alone, does not cover everything. In order to be fully covered you will need to purchase additional insurance such as:
Medigap – a standardized policy sold by private insurance companies to cover “gaps” in coverage of Part A and Part B. Medigap plans help pay for some of your Medicare co-payments, co-insurance for hospital stays and other services.
Medicare Advantage Plan, sometimes referred to as Part C – This is Parts A, B and D bundled together and sold by private insurers, like Humana or United Health Care for example. These plans will be similar to a PPO or an HMO. Unlike Medicare where you can go to any doctor or provider that accepts Medicare (and most of them do) you may be limited to in-network providers. A significant bonus to purchasing this type of plan is that you will have the option to buy dental and vision coverage.
When it comes to Medigap and Medicare Advantage there are a variety of options. Cheaper plans have fewer benefits and higher out-of-pocket costs. More expensive plans include extra benefits, like coverage for routine checkups, some Medicare deductibles, at-home recovery and more. You have to decide what sort of plan makes the most sense for you.
To estimate your costs for medical expenses in retirement you can use the Fidelity estimate mentioned above or you can think about your personal future expenses based on family medical history. Your personal situation and family history may point you to a plan that has a high degree of coverage or one that has less coverage.
Overall adequate planning specifically for medical expense is very important. Medicare only takes you so far and after that medical expenses will continue to be your personal responsibility. The best place to start is understanding your options and planning your retirement budget.
Jessica Slaters, Investment Advisor
For further information on Medicare please visits www.medicare.gov.
