If you can’t rely on employer-provided retiree benefits, how will you cover your healthcare costs? Here are some strategies:
- Wait until 65 to retire, if you are employed and your employer provides health benefits. At that age, most Americans will qualify for Medicare.
- Find a job with an employer that provides health benefits. Sometimes easier said than done!
- Check whether you qualify for dependent coverage under your spouse’s plan, if he/she is still working.
- Apply for COBRA continuation benefits, if you are currently working and have employer-provided coverage. Plan carefully, though—COBRA rights apply only to group health plans for employers with 20 or more employees in the previous calendar year and, in most cases, COBRA benefits expire after 18 months.
Budget for your retirement medical needs. These include premiums and out-of-pocket expenses.
Premiums: Whether you opt for the Original Medicare program or a Medicare Advantage program through a private insurer, you’ll need to pay premiums. Original Medicare has two parts: hospital insurance (Part A) and medical insurance (Part B). Most people do not pay a monthly Part A premium because they or a spouse had 40 or more quarters of Medicare-covered employment. However, if you have less than 39 calendar quarters of Medicare-covered employment, you will pay up to $407 per month in 2015.
For Medicare Part B, most people will pay $104.90 per month; however, your monthly premium will be higher if you file an individual tax return and your annual income is more than $85,000, or if you are married (file a joint tax return) and your annual income is more than $170,000.
Medicare Advantage plans include both Part A and B coverages; premiums are often comparable to Original Medicare. Some plans include prescription drug coverage as well. Plans available vary by geographic area.
Drug plans: Original Medicare does not include prescription drug coverage, so if you have Original Medicare, you’ll pay extra for prescription drug coverage. Even if you don’t use a lot of prescription drugs now, you should still consider joining when you are first eligible for Medicare; otherwise, you will pay a higher “penalty premium” if you join later, for as long as you have Medicare prescription drug coverage. In 2015, premiums for Part D coverage average $33.13 per month. Higher-income individuals will also pay an additional monthly fee, which increases with income.
Out-of-pocket costs: The Centers for Medicare and Medicaid estimate annual out-of-pocket costs for Original Medicare recipients in good health at $6,000 per year. This includes premiums, copayments, deductibles, coinsurance and costs not covered by Medicare. Remember—this does not include dental, vision or hearing care expenses. Original Medicare plans do not limit your out-of-pocket expenses, so most Medicare enrollees choose to buy a Medicare Supplement, or Medigap plan, to protect their finances.
Medicare Advantage plans have varying out-of-pocket maximums; check your plan’s summary of benefits for information.
Build savings to pay for retirement medical expenses with an HSA (Health Savings Account). By opening an HSA now, you can accumulate funds to pay for your medical expenses in retirement. You can contribute to an HSA if you have coverage under an HSA-qualified “high deductible health plan” (HDHP) and have no other first-dollar medical coverage (such as an employer group plan or individual medical plan). However, other types of insurance, such as accidental death and disability (AD&D), dental coverage and long-term care insurance are permitted. In 2014, you can contribute up to $3,350 if you have self-only coverage and $6,650 if you have family coverage. Individuals age 55 and older can make additional “catch-up” contributions of up to $1,000 annually.
An HSA provides triple tax savings: (1) you can take a tax deduction when you contribute to your account; (2) you can withdraw funds tax-free for use towards qualified medical expenses; and, (3) your investment grows tax-free. You can no longer make contributions after enrolling in Medicare; however, you can continue to use money in your account to pay for qualified medical expenses, including Medicare premiums.
- Plan for long-term care needs. Health insurance plans (including Medicare) do not cover long-term care expenses. If you require long-term care due to illness or incapacity, you will need to either “spend down” your family’s assets to qualify for Medicaid or pay out-of-pocket. Investing in a long-term care policy while you’re younger can really pay off, especially when you consider the median cost of a year in a semi-private room in a nursing home exceeded $77,000 in 2014. For cost information on other types of care, see Genworth Financial, Inc.’s annual survey. at www.genworth.com.