Retirement readiness is more than just the size of your retirement account. Did you know that the most recent Fidelity retirement study stated that couples can expect to shoulder health expenses that are estimated to be about $245,000 over their lifetimes? So, understanding how your health insurance supports you during retirement is critical to your overall well-being, financially and health-wise.
For many, Medicare is the path for health insurance after age 65. For those who have had group insurance under their employers, this is often a milestone date that may come with some level of anxiety and consternation. And then, for some people, because they have had coverage under individual or small group employers where they are contributing to or paying the monthly premium, they are breathing a huge sigh of relief given the ongoing annual increases in both the cost of health insurance and the actual bills for health services rendered. And for those who are lucky to have pensions with medical/health benefits attached, please do make sure to understand what your responsibilities regarding your plan and enrollment in Medicare as well.
Let’s have a chat about when to enroll in Medicare. If you are still working and have group employer coverage, please do make sure that you enroll in at least Part A (hospital coverage) Medicare at age 65. Contact both Medicare/Social Security and talk with your Human Resources department or CFO to understand if you need to enroll or not in both Parts A and B. There are small group employers, where it may be mandatory to enroll in both Parts A and Part B (Hospital and Basic office visits, respectively). It is always best to do your homework at least 6 months in advance so you understand your options. Should you miss the enrollment date there are penalties for late enrollments for Part B, that are 10% of your premiums every year. If you are three years late, the penalty is 30%! Part A, hospital coverage is the “free” part of Medicare, paid for by the years of your contributions to the fund.
Please do enroll online, three months before your 65 birthday, if possible and you have three months after your birthday to let Medicare know that you have “arrived”. (www.ssa.gov) Medicare Part A is “free”; Part B has a monthly fee, whose basic fee, is about $110 per month, for those whose income is less than $170,000. Parts B and D fees, increase with adjusted gross incomes exceeding this current base level.
You also have a decision to make regarding purchasing supplemental coverage for both Parts B and D, which cover physician’s office visits/services and prescription drugs, respectively. And please do make this decision within six months of your 65 birthday as the supplemental policies are provided with “guaranteed issue” coverage. Should you miss that window, you can still purchase a Part B supplement, but it will not be “guaranteed issue” and you will need to undergo underwriting, much like a life insurance policy, to get coverage. And for some enrollees, their health conditions may not be covered. (see more information at www.ssa.gov)
Costs for Health Care in Retirement
Medicare coverage can be wonderful depending how you structure your supplemental insurance coverages. Original Medicare does not cover, dental, vision, nor long term care. You can opt for Medicare coverage from a local provider that has plans called Medicare Part C (Medicare Advantage), which may encompass Parts A, B and/or D. Please call your financial/health advisor for more details and look at www.ssa.gov for more details.
These supplemental plans initially can range in cost from $100 and up to $250 per month depending on state jurisdiction, as each insurer files with each state for its plans. In addition, the rates are age based, so as we “mature” these rates do increase, along with the annual increases, that seem to come each year.
This is a long way to saying that planning for retirement readiness, must include separate line items for health care insurance costs, as well as the services and prescriptions that you may have prior to retirement. In our financial planning, we take extra care to understand not only our clients’ wealth but their health as well, as it has impact on their retirement readiness.
There is some good news for those who has HSA ( Health Savings Accounts) prior to Medicare enrollment. The funds in these account can be used to pay Medicare supplement plan premiums, copays, deductibles, coinsurance amounts, as well as other allowed health care services costs. Please note that you cannot continue to contribute to your HSA once your Medicare coverage begins.
Long Term Care
As we have said, Medicare does not cover Long Term Care expenses. There may be times that you will have a stay approved for skilled nursing for continued recovery from a health event, however, that is not considered a traditional Long Term Care event, and again, please read your Medicare supplemental plan carefully. As many of you have heard, the cost for a private room in a long term care facility can cost as much as $10,000 per month or more. For others who may need 24/7 care, the costs are well above this level. For many families, it may be wise to consider wealth protection using some type of Long Term Care insurance to mitigate some of the potential costs, even while at home. And for some families, the decision to self-insure may be the correct one. There are other options which include Medicaid, and that has its own regime and rules prior to being approved for this benefit.
Health care decisions pre and post retirement do require planning and discussion within your family and with a qualified financial/health advisor. These are important decisions that should be considered as you take your journey to Retirement Readiness.