Cutting Healthcare Costs in Retirement

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Planning for retirement. There’s a lot of work that goes into it. You want to make sure you’ve saved enough, got things paid off if possible. You certainly want to know what your expenses will be so your retirement budget doesn’t blow up.

One of the line items with the biggest possibility of throwing your budget into turmoil, and one a lot of pre-retirees don’t plan for, is healthcare. There’s a misconception that Medicare covers all retirement medical expenses.

This year’s report from The Employee Benefit Research Institute found that a retired couple needs $325,000 in savings for retirement healthcare. The institute based that number assuming the couple is paying for Medicare Parts B and D, Medigap Plan G plus out-of-pocket spending for outpatient prescription drugs. But there are some things you can do to keep costs down.

Shop around

Medicare Advantage

Medicare has several options. Original Medicare is made up of Part A hospital insurance, which is generally free, and Part B medical insurance, which has a monthly premium that goes up every year. Medicare only pays for about two-thirds of healthcare services for recipients. If you want prescription drug coverage you have to buy Part D Medicare and there’s a cost for that. If you want dental, vision or hearing coverage you have to buy each of those independently as well.

An option that can lower your costs is a Medicare Advantage plan. MA plans come from Medicare-approved insurance companies and includes Medicare Parts A and B, prescription drug coverage, and almost always include dental, vision, and hearing coverage along with other benefits. Some plans charge higher monthly premiums than you pay for Part B.

But the cost isn’t the only thing to look at. When shopping for the various Medicare Advantage plans you want to look at:

  • Prescription costs and copays
  • Doctor visits
  • Specialist visits
  • Hospital stay copays
  • Diagnostic procedures, tests, and lab copays
  • Copays for physical therapy, skilled nursing facilities, home health care
  • What you have to pay for dental, vision, and hearing services above the cost covered by the MA plan.

And there are more costs to look at. That’s why shopping Medicare Advantage plans each year is important to make sure you’re receiving the best coverage and price for your situation.

Each year between October 15 and December 7 you can switch the coverage you have if you find something that better meets your needs. That’s why shopping is important.

Medigap Plans

Medigap is Medicare Supplement Insurance that helps fill “gaps” in Original Medicare and is sold by private companies. Original Medicare pays for much, but not all, of the cost for covered health care services and supplies. A Medicare Supplement Insurance (Medigap) policy can help pay some of the remaining health care costs, like:

  • Copayments
  • Coinsurance
  • Deductibles

Some Medigap policies also cover services that Original Medicare doesn’t cover, like medical care when you travel outside the U.S. If you have Original Medicare and you buy a Medigap policy, here’s what happens:

Medicare will pay its share of the Medicare-approved amount for covered health care costs.

Then, your Medigap policy pays its share. Here are Medigap specifics:

  • You must have Medicare Part A and Part B.
  • A Medigap policy only supplements your Original Medicare benefits.
  • You pay the private insurance company a monthly premium for your Medigap policy in addition to the monthly Part B premium that you pay Medicare.
  • A Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you’ll each have to buy separate policies.
  • You can buy a Medigap policy from any insurance company that’s licensed in your state to sell one.
  • Any standardized Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company can’t cancel your Medigap policy as long as you pay the premium.
  • Medigap policies sold after January 1, 2006, aren’t allowed to include prescription drug coverage.
  • It’s illegal for anyone to sell you a Medigap policy if you have a Medicare Advantage Plan unless you’re switching back to Original Medicare.
  • Medigap policies generally don’t cover long-term care, vision or dental care, hearing aids, eyeglasses, or private-duty nursing.

Long-Term Care Insurance

Remember that the $325,000 estimate by the Employee Benefit Research Institute didn’t include the cost of long-term care. If you need that, your finances can be devastated. 70% of seniors 65 and over will require custodial care during their lifetimes and Medicare provides no coverage for nursing home care or home health services. If you’re unlucky enough to require those services, where will the $50,000-$100,000 per year come from to pay for it?

Long-term care insurance is an option. Just like Medicare Advantage Plans and Medigap plans, you’ll want to shop around. Different companies offer different options and you want to find the plan that best meets your situation. You’ll want to ask:

  • If the plan has inflation protection to keep up with the increase in healthcare costs. A good inflation provision compounds benefits at 5 percent a year.
  • What’s the elimination period and how does it work
  • Is the policy guaranteed renewable
  • Can premiums go up and what are the circumstances
  • Is there waiver of premium so no further premiums are due once you begin receiving benefits.
  • Is there a third-party notification so a friend or relative will be notified if you forget to pay a premium.
  • Are there nonforfeiture benefits, which keep a lesser amount of insurance in force if you let the policy lapse.
  • Is there restoration of benefits, which ensures that maximum benefits are put back in place if you receive benefits for a time, then recover and go for a specified period without receiving benefits.

Short-Term Care Insurance

The older you are when you buy long-term care insurance the more expensive it becomes and sometimes the premiums are prohibitive. That’s why short-term care insurance is becoming more popular. Approximately 49% of people who need skilled care are in a facility 12 months or less.

The typical short-term care insurance policy provides coverage for 1 year or less. For many, this is an appropriate and affordable amount of coverage.

Most short-term care policies have a zero-elimination period and a full year of benefits, so the policy pays on the very first day you qualify for benefits. Most long-term care policies have a 90-day elimination period.

Most short-term care applications have 7-10 health questions. If you can answer “no” to all the questions you’re about 95% through the underwriting process. Some applications have only 2 “yes” or “no” questions and can be ideal for people with health problems.

No question, healthcare, whether during your working career or in retirement, takes a large portion of your budget. But in retirement, health costs can surprise you, overwhelm your budget, and steal the retirement lifestyle you thought you’d planned for. These ideas may be a way to help you avoid a disaster.

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