How Will You Pay for Health Care During Retirement?

For a majority of Americans, there are primarily two ways to fund health care costs in retirement.

1. Use Medicare
2. Stay on your employer's medical plan

1. Using Medicare

Many people believe that you can use Medicare anytime in retirement, it is free, and it covers everything. However, that’s not true.

• There are enrollment dates. Certain rules and penalties apply to Medicare enrollment, and enrollment is not automatic. You have a seven-month enrollment period when you’re first eligible (age 65). If you don’t sign up during that period, there is a late enrollment penalty. An open enrollment period each year lets you change your health care plan enrollment choices. Apply for Medicare:
  
  • Online at Social Security Medicare Benefits
  • In person at a local Social Security office
  • Call the Social Security Administration (1-800-772-1213)
• Medicare is not free. Just like any insurance, you pay premiums, deductibles, coinsurance and copayments for standard medical services. Medicare has four parts, each offering different coverages.
  
  • Part A covers hospitalization, skilled nursing facility and nursing home care, hospice and home health services. Typically there are no monthly premiums if you paid Medicare taxes while working. The deductible in 2017 is $1,316 for each benefit period and there is no co-insurance for Days 1-60. You become increasingly responsible for costs starting on Day 61 of each benefit period.
  • Part B covers lab tests, surgeries and doctor visits (preventive care included) as well as supplies necessary to treat a disease or condition. Some prescriptions are covered too. Monthly premiums you pay vary based on income and start at $134. For 2017, the annual deductible is $183, and you typically have a 20 percent copay.
  • Part C is the Medicare Advantage Plan offered by private companies. They charge additional premiums, and copays will vary by the plan provider you choose. Typically these plans cover everything that Part A and Part B cover, and they may offer additional services like dental or vision care benefits. Medigap coverage cannot be used in conjunction with Part C plans.
  • Part D is known as the Medicare Prescription Drug Coverage plan. Operated by private companies, these plans charge premiums based on your income and choice of plan. No matter which provider you choose, your deductible in 2017 cannot exceed $400.
• Medicare will not cover all medical costs. Importantly, Medicare does not cover long-term care, routine dental care, dentures, cosmetic surgery, acupuncture, hearing aids or exams to fit hearing aids.

Special Topic: Medicaid

Medicaid is not the same as Medicare. Medicaid is a joint federal/state program that provides health services to eligible individuals or families with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, such as nursing home care and personal care services. Each state has its own eligibility rules, so check with your state if you think you may be eligible.

What Will You Pay for Medicare?

If you plan to use Medicare to pay for your health care, you need to know what it will cost you.

Check out what you will pay (premiums The amount you pay for your health insurance every month. and deductibles)The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. for Medicare plans at Medicare.gov. Then make a choice of the plan(s) you think would best suit your needs.

Fill in this statement: For my medical needs, I will choose Medicare (plan name).

If I retire today, my monthly premiums will be $

and my annual deductible will be $ .

Figure your yearly premium cost and add it to your annual deductible. Type in your annual cost for the premiums and deductibles alone: $ .

2. Using an Employer's Plan

If you have medical coverage through an employer, you will still want to explore Medicare to avoid costly enrollment penalties and to better understand how your coverage works with Medicare.

Some important items to note:

• Do you plan to work past 65? If so, you can delay enrolling in Medicare (penalty free) using a Special Enrollment Period after you retire. You will need to contact Medicare on your own when you turn 65.
• How does your employer coverage work with Medicare? Your employer’s coverage may require that you sign up for Medicare Part A. Coordinating benefits with an employer’s coverage can help avoid having to buy Medicare Parts B, C and/or D for as long as you remain on the employer’s insurance plan.
• What price are you paying for your employer’s or retiree coverage? Would it make better sense just to use Medicare (if given that option) and, perhaps, a less expensive supplemental (Medigap) policy?

Considering Long-term Care

Medicare covers care for long-term hospital stays (if you are expected to improve and return home), skilled nursing care, some home health services (physical therapy, speech services, etc.) and hospice.

However, Medicare does not pay for services related to daily living (commonly called custodial care). Long-term care provides assistance with basic personal tasks of everyday life, sometimes called activities of daily living (ADLs). These include eating, bathing, dressing, toileting, mobility and grooming. Your ability to perform ADLs is important for determining what type of long-term care is provided (e.g., nursing home care or home care). You should note, these services can get expensive.

Although many people will use free help from family or friends for these services, others will need to investigate options for paying for long-term care such as:

• Long-term care insurance
• Social Security and/or defined benefit payments
• Personal savings
• Life insurance
• Annuities
• Reverse mortgage
• Trusts

Consult with a qualified financial planner to see which option(s) are best suited for your needs and your income.

Focus on Long-term Care Insurance

A long-term care insurance policy is designed to reimburse you for expenses (up to a daily amount) for help with activities of daily living (ADLs). These policies are sold through insurance companies, and you must meet minimum qualification standards. If you are already receiving long-term care services or have a severe pre-existing condition, you may not qualify. Also, your care is not guaranteed for life but, rather, for the maximum period stated in the policy (e.g., three or five years). Before you sign up for a policy, check for the duration of care it will provide and whether the insurance carrier can raise your premiums.