Retirement Realities: Health Coverage with Medicare
You may assume Medicare will cover all your medical costs after retirement. However, Medicare only covers specific services and doesn’t include dental, vision, and many other specialized medical services. It’s important you consider all your post-retirement health expenses when planning your retirement savings goals, otherwise, you may be in for a surprise.
Medicare Eligibility Age vs. Social Security Retirement Age
You may assume that because your state’s retirement system or social security allows for early retirement, Medicare will automatically do so also. This is not true. Medicare eligibility begins at age 65, unless there is a disability or specific covered disease involved. Those who may be eligible to retire early (say, at 55) will be responsible to pay the full price of their medical coverage and costs until they reach Medicare eligibility age.
Medicare Isn’t Completely Free
Although Medicare is there to assist, it is not completely free. Retirees will still be responsible for a portion of their medical expenses. There are costs associated with Medicare such as deductibles and co-pays for almost everything. Medicare Part A is free for eligible citizens, but this only covers specific hospital services such as hospital stays, skilled nursing facilities, some home health visits and hospice care (other coverages and limitations may apply). Also, if you did not pay enough quarters of Medicare taxes, you must pay a monthly premium for Medicare Part A. Both Medicare Part B (the doctor and preventive coverage) and Medicare Part D (the prescription drug coverage) are not completely free and costs include premiums, deductibles, and coinsurance.
Medicare also doesn’t provide financial assistance for every medical expense. Medicare Parts A, B & D do not include coverage for long-term care, most dental care, hearing tests, vision care or cosmetic care. All of these will be considered out-of-pocket expenses or will require additional personal insurance coverage to fill in the gaps. There are solutions to help retirees deal financially with these coverage gaps, but most retirees are not aware of their optional coverage needs.
Supplementing Gaps in Medicare
Because of benefit gaps and cost-sharing requirements, many Medicare participants have some form of supplemental coverage to help. Medigap, Medicare Advantage, and individual insurance plans are common forms of supplemental financial protection that many retirees may take advantage of. The state in which you reside determines which insurance carriers can offer these plans, plan eligibility, and what plans are available. Some states even give discounts for these plans.
Medigap can be combined with Medicare to help offset gaps in coverage for Parts A and B. Medicare Advantage is a Medicare alternative plan that covers all the services of original Medicare Parts A and B, and may also include prescription coverage (Part D), dental, hearing or vision coverage. One difference between Medigap and Medicare Advantage is the way retirees pay for the plans. Medigap charges one set premium price a month, whereas Medicare Advantage sometimes charges a premium, but many plans include only deductibles and copayments or coinsurance. There are many pros and cons to each plan, so ultimately retirees should evaluate their personal health and financial needs before choosing a plan.
Individual insurance plans can also provide financial assistance during retirement. Supplemental benefits such as accident Insurance, cancer insurance, and critical illness insurance can assist with out-of-pocket expenses. Be sure that you verify your benefits are eligible to use when covered by Medicare.
Help Your Employees Prepare
Understanding how health insurance works after retirement is vital in setting savings goals. Here are the next steps to take:
- No matter your age, start researching Medicare coverages, Medigap, Medicare Advantage and individual insurance– preparing early is beneficial.
- Research your state-specific pensions and benefits as well as Social Security benefits.
Once you understand your benefits, adjust your savings goals to fit your financial needs so you can aim to achieve the lifestyle you are hoping for in retirement.
This blog is up to date as of January 2021 and has not been updated for changes in the law, administration or current events.