Health care may be the most significant expense retirees incur. Several common misconceptions exist about Medicare, a federal health insurance program for people 65 and over or with certain disabilities. One is that Medicare is free. Another is it covers all healthcare expenses. Medicare is not free and does not cover all medical costs. However, it is the backbone of most retiree’s health care. Understanding Medicare’s limitations and planning for the inevitable out-of-pocket expenses as part of your retirement plan will help you avoid unpleasant, costly surprises.
Understanding Medicare: The Basics
Medicare is less expensive than traditional healthcare coverage, but in 2024, the range for an individual is still between $174.70 and $594 per month, depending on the need for supplemental Medicare plans.[1] There are four parts of Medicare, each offering different services.
- Medicare Part A (Hospital Insurance): Part A is premium-free for those who have worked and paid into Social Security and Medicare for at least ten years. Those who have not met the 10-year threshold must cover a monthly premium. It covers in-patient hospital stays, hospice care, limited home health, and skilled nursing institutional care. It also includes hospital admission (minus copays and deductibles) and skilled nursing home care for 100 days maximum
after a qualifying hospital stay.
- Medicare Part B (Medical Insurance): Part B includes “medically necessary” care that does not require hospitalization, including outpatient and preventative care, checkups, X-rays, medical supplies, and laboratory and ambulance services. It requires an income-adjusted monthly premium, deductibles, and coinsurance. A 10% premium increase applies to those eligible who do not enroll within 12 months. A late enrollment penalty may also apply, so enroll within the first seven months of eligibility.[2]
- Medicare Part C (Medicare Advantage Plans): This alternative insurance plan allows Medicare-approved private health insurance companies to cover individuals enrolled in Medicare Parts A and B. It includes the same services as Medicare Parts A and B (except hospice), often with additional coverage for prescription drugs, vision, dental, and more. This plan has a premium in addition to the Medicare Part B.
- Medicare Part D (Prescription Drug Plans): A voluntary prescription drug plan for anyone enrolled in Medicare Parts A and B. It covers medications that Parts A and B do not, including most prescription drugs and vaccines, but there are still gaps. Like Part B, there is a penalty for late enrollment.
What Medicare Does Not Cover
Medicare provides a suitable care base, but with time, aging individuals have an increased need for complete health care. Without coverage for the areas where Medicare is lacking, retirees can feel a significant impact on their retirement savings. Here are some major blind spots retirees should know about.
- Long-term care: The United States Department of Health and Human Services reports that 7 out of 10 Americans will need long-term care in their lifetime.[3] Long-term care costs are staggering, with the annual national median price of a private room in a nursing home at $116,800 and $75,500 for a home health aide.[4] Medicare covers home healthcare, rehab facility, or nursing home expenses for 100 days after a qualifying hospital release. This does not include custodial care in an assisted living facility or nursing home for dressing, bathing, eating, or other daily activities.
- Dental, vision, and hearing: Medicare does not pay for routine dental care, eye exams for glasses or contacts, and hearing aids, which are common necessities for retirees. Certain Medicare Advantage programs provide coverage depending on the plan.
- Cosmetic surgery: Elective cosmetic surgeries are not part of Medicare coverage, so those wanting to look younger in retirement must do it on their dime. It is always important to confirm coverage, however, because some conditions are covered if they serve a medical purpose, such as breast reconstruction after a mastectomy.
- Overseas health care: Retirees traveling abroad should understand that Medicare will not cover care beyond America. Travelers should obtain travel health insurance while venturing outside the U.S.
- Alternative therapies: Medicare does not cover acupuncture, naturopathy, and holistic treatments, but it does cover limited chiropractic care.
Planning for Gaps in Medicare Coverage
A financial advisor can help individuals find strategies for funding their out-of-pocket medical costs. Here are a few options to explore.
- Medigap (Supplemental Insurance): Designed to cover certain areas Medicare doesn’t, Medigap policies help with co-payments, coinsurance, and deductibles. They do not, however, cover long-term care, dental, vision, or hearing.
- Health Savings Accounts (HSA): Working individuals who qualify for an HSA can make pre-tax contributions, and withdrawals are tax-free for qualified medical expenses. These accounts can help cover out-of-pocket expenses in retirement.
- Long-term Care Insurance (LTC insurance): LTC insurance can help pay for long-term care. A couple of options exist, one with a death benefit for beneficiaries and one without. These policies are expensive. Many have health-based underwriting processes to establish premiums. Individuals who purchase about ten years before retirement while in good health have a better chance of securing affordable premiums.
While Medicare is an important resource for retirees, they cannot solely rely on it. Individuals nearing retirement should understand their options and take supplemental measures in their retirement planning to cover their out-of-pocket healthcare costs. If you want to avoid unexpected healthcare costs and feel more secure in your financial future, contact us at SHP Financial today. We’ll give you a complimentary review of your finances and provide customized advice.
Sources
[1] https://www.medicare.gov/basics/costs/medicare-costs
[2] https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties
[3] https://www.aarp.org/caregiving/financial-legal/info-2022/planning-for-long-term-care.html
[4]https://investor.genworth.com/news-events/press-releases/detail/972/genworth-releases-cost-of-care-survey-results-for2023#:~:text=The%20national%20annual%20median%20cost,home%20increased%204.9%25%20to%20%24116%2C800.
