Managing Healthcare In Retirement

02 October 2018

A couple at a senior center smile and chat

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:

Medicare Part B Medical Insurance

The Social Security Administration typically deducts premiums from Social Security payments. Part B covers the following:

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:

Exclusions can become very expensive and lead to high out-of-pocket costs.

Getting Care

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.