One of the largest expenses you must plan for in retirement is the cost of health care. Today a retired couple will spend an average of $280,000 in out-of-pocket medical costs in retirement. The estimate by Fidelity includes premiums, co-pays, deductibles, and uncovered medical needs. Even with exercise and a healthy lifestyle, the effects of aging will impact your overall health and the cost of care.
Unfortunately, health care expenses tend to rise at triple the rate of inflation, making it more difficult to pay for these costs on a fixed income. The other challenge is underestimating long-term costs of care. For example, a recent Forbes study found that 30% of those surveyed believed that home health care expenses would only cost $417 monthly. In reality, in-home health care will cost an average of $45,000 a year or $4,000 per month.
When it comes to managing health care in retirement, consider the following:
Health Insurance Through Medicare
At the age of 65, most seniors enroll in Medicare or a Medicare Advantage plan, which will cover the majority of health care needs in retirement. There are different plans available with different costs and coverage limits. You can change your plan every year between October 15th and December 7th. Changes take effect January 1st the following year.
Medicare Part A Hospital Insurance
Covers major medical services deemed medically necessary. Medicare insurance deducted from Payroll typically cover these costs. Services include:
- Hospital inpatient care (80%)
- Skilled nursing care in a facility (No more than 100 days)
- Hospice care
- Limited home health care
Medicare Part B Medical Insurance
The Social Security Administration typically deducts premiums from Social Security payments. Part B covers the following:
- Doctor visits minus a co-pay
- Wellness exams and flu shots along with preventive services
- Laboratory tests
- Temporary and limited home health care
- Medical equipment deemed necessary
- Radiology including CT scans, MRIs, and X-rays
- Outpatient services at the hospital and clinic
- Ambulance transportation
Medicare Part C or Medicare Advantage
Medicare Part C typically covers the services listed in Part A and B, replacing government coverage with a private insurance company contracted with Medicare. Most plans also include a prescription drug benefit, but exclude hospice care. The plan may also pay for routine vision, hearing, and dental services, not covered under traditional Medicare. Most plans limit plan doctors and hospitals to a specific region. The company will receive premiums deducted from your Social Security payment. The Social Security deduction may not cover the full premium amount, depending on the plan you choose.
Medicare Part D
Private insurance companies cover prescription drugs under Part D. Each plan associated with Part D has a list of covered prescription medications with varying costs. You pay a co-pay for most prescriptions.
Covering Out-of-Pocket Costs
Medicare and Medicare Advantage plans do not cover many of the costs associated with aging. You will have co-payments and deductibles, as well as uncovered items. Here are some common services not typically included in insurance plans:
- Vision exams related to glasses or contact lenses
- Hearing aids and exams to fit them
- Foot care
- Dental care
- Long-term care needs
Exclusions can become very expensive and lead to high out-of-pocket costs.
Each year before choosing a plan, consider both current and anticipated health care needs. Look for a plan that will lead to the lowest out-of-pocket costs. You can also add supplemental insurance such as long-term care or accident insurance to help with bills if health care needs increase.