Welcome, readers, to the first installment of TFS’s Concern To Confidence retirement planning series.
Over the next several months, we’ll tackle some of the most pressing issues that retirees face today, including the solvency of Social Security, building an income plan that doesn’t involve living paycheck to paycheck, prepping for long-term care, the role inflation plays in investing, and so much more.
We’re thrilled to take you on a journey that elucidates the ins and outs of retirement planning to bring confidence, excitement, and security to your retirement plan.
Today, we’ll explore a topic that eats up a lot of your time (and money) in your golden years: healthcare planning.
- What should new and seasoned retirees understand about healthcare?
- Are there protections in place to keep bills affordable?
- How can you ensure you have the right type of care throughout retirement?
Let’s dive in!
First, The Finances
While you may think that most of your retirement expenses will go toward bucket-list, note-worthy items and experiences, you’ll likely spend more consistently on your health.
Healthcare costs absorb a significant portion of your spending in retirement, especially as you age. Fidelity estimates that a healthy, 65-year-old couple will spend about $300,000 on medical costs alone throughout retirement, equating to roughly 15% of your total budget.
If that statistic didn’t make you squirm, this one just might.
Fidelity’s calculation doesn’t include long-term care costs, and the median cost is $9,000 a month ($108,000 a year) for a private room in a nursing home, according to Genworth, meaning your actual cost of care could be much higher. So, even using ballpark figures, you’re staring down a potential $400,000 or more of only healthcare costs—not so golden.
And the price tags aren’t getting smaller.
While healthcare costs plateaued throughout 2020, they’ve consistently bounced back to higher levels in 2021 and now, in 2022. Where healthcare costs jumped between 6.6% and 7.7% in 2021, experts predict expenses for all types of health plans to skyrocket between 7% and 7.8% this year.
Do those numbers look familiar?
They should because they are in line with current inflation levels. Inflation is the primary culprit for these rising costs, though the healthcare industry is known for its consistent mammoth rates.
Tips To Keep Your Medical Savings Healthy
So, how can you financially prepare for healthcare costs in retirement?
- Estimate potential costs before you retire.
- What’s your family health history? Do you have a pre-existing condition that may lead to more doctors or specialist visits? Are you living an active, healthy lifestyle? Do you travel often and require care in multiple states/countries? Your answers to these questions and more may give you a better sense of how much of your nest egg will go toward medical bills. Knowing what your costs may be in the future provides a solid indication for budgeting and planning for those costs today.
- Know your healthcare options
- If you retire at 65, your primary option is Medicare. Keep yourself abreast of the out-of-pocket costs associated with each Medicare Part (Original, Supplemental Plans, Prescription Plans, etc.).
- If you retire before 65, create an affordable healthcare plan. We’ll discuss more of your options below.
- Save specifically for your health.
- Are you enrolled in a high-deductible health plan? If so, you’re eligible for one of the most lucrative savings vehicles available, a health savings account (HSA). An HSA enables pre-tax contributions, tax-free growth, and tax-free withdrawals on qualified medical expenses, like insurance premiums, costly procedures, prescription medication, long-term care, medical equipment, and more. In addition to the triple tax benefit, your contributions rollover in full every year, and you can invest your contributions, allowing them to enjoy tax-free growth. Like many retirement savings vehicles, it’s wise to invest in your HSA long before you’ll need it. That way, you can reap the full rewards of long-term tax-free growth. You can save $3,650 for a self-coverage plan or $7,300 for a family coverage plan in 2022.
- Don’t forget about long-term care.
- Long-term care is costly and can derail your, your spouse’s, and your family’s finances if not careful. There are several ways to prepare for these costs: obtain long-term care insurance, enroll in the WA Cares program (on pause for now), purchase a long-term care rider on your life insurance policy, and more.
Now that you have a better idea of what healthcare could cost you and how to prepare for those expenses, it’s time to take a closer look at the different healthcare options available for retirees.
4 Healthcare Opportunities If You Retire Before 65
If you’re ready to call it quits on your job before 65, there are a few critical factors to consider. In addition to supplementing your income throughout this “bridge period” of your life, you’ll also have to procure quality healthcare.
How can you get the right coverage for yourself before you’re eligible for Medicare?
If you retire early but want to retain your current healthcare coverage, COBRA can be an excellent option. Most companies with over 20 full-time employees are required to offer this opportunity.
The Consolidated Omnibus Budget Reconciliation Act permits eligible employees and their dependents (spouse, children, etc.) to keep their healthcare coverage for a set period after they leave their jobs—retired, dipped below the “required” work hours, job loss, etc.
COBRA usually lasts around 18 to 36 months, depending on your situation. While you can retain your health insurance (in-network doctors, specialists, etc.), COBRA can be quite costly. When you had your full-time appointment, your company picked up a decent amount of the tab (usually 70-90%), and you covered the rest. But after you leave, you’re on the hook for the entire premium.
Depending on how comprehensive your coverage and available subsidies, COBRA still could be a more cost-effective option than if you went searching for a comparable plan on the marketplace.
Health Insurance Marketplace
Think about the marketplace as a “hub” of medical insurance options. At Healthcare.gov, you can search for the type of care and coverage you need. With so many options and choices, it can be challenging to know which plan is best for you. Here are some questions to ask yourself that may help bring clarity.
- Do you only need routine, preventative care?
- Do you have a pre-existing condition that you currently seek treatment for?
- Do you see a particular specialist?
- Is your medicine covered on the specific plan you’re looking at?
- Is the plan an HMO (stricter network and provider rules) or PPO (broader choices but often more expensive)? Keep in mind that with an HMO, you generally need a referral when you see a specialist, adding a lot of time and administrative work to the process.
- What are your true out-of-pocket costs, including premiums, deductibles, co-pays, co-insurance, and more?
If you want to continue seeing certain providers or specialists, check if those people are considered “in-network” with any plan you’re considering. If they aren’t, you can eliminate the plan and move on.
Employer Retiree Insurance
Some employers offer retired employees and spouses retiree health coverage, which can help cover expenses and services that Medicare doesn’t. It’s usually structured like group health insurance and comes with its own premiums and other costs.
If you have access to retiree health coverage, you may be able to use it as a stop-gap between when you retire and Medicare eligibility.
Though, as soon as you’re able, you should enroll in Medicare to retain benefits because your plan may elect not to cover certain costs during periods where you could have enrolled in Medicare but didn’t. Plus, enrolling in Original Medicare outside of the initial enrollment period could lead to costly fees.
Retiree insurance plans can be complex; let’s look at it together to see if it makes sense for your situation.
Become A Dependent on Spouse’s Insurance
You and your spouse may not retire at the same time. If that happens, you could add yourself as a dependent on their insurance plan. Keep in mind that doing so may change the type of coverage you have. If your spouse’s plan wasn’t as comprehensive as yours, you might need to make adjustments to where you seek treatment and care.
Retirees and Medicare
The year you turn 65 is a significant one—it’s the year you can enroll in Medicare.
Medicare costs can be substantial for many retirees, and since we’re passionate about giving you access to quality, valuable information, we wrote an entire series dedicated to Medicare planning. Check out the pieces we did in collaboration with Medicare specialist Kelly Allen so you can dive even further into the world of Medicare coverage.
Today, we’ll break down the many “parts” of Medicare and how each could impact you.
Original Medicare—Parts A and B
Original Medicare comprises two components:
- Part A, hospital insurance.
- This piece covers in-patient hospital stays, care in skilled nursing facilities, hospice, and some home health care. Most beneficiaries don’t have to pay a Part A premium, though there are deducible thresholds to consider.
- Part B, medical insurance.
- This piece covers doctors’ visits, outpatient care, medical supplies, and preventative care. Part B comes with a standard monthly premium of $170.10. But if your modified adjusted gross income exceeds certain levels, you could pay more via an income-related monthly adjustment amount (IRMAA).
Unless you have qualifying coverage, you’ll enroll in Original Medicare during the open enrollment period—a 7-month window beginning three months before you turn 65 and three months after.
You can enroll in Original Medicare separately or via a Medicare Advantage Plan (Part C)
Medicare Advantage Plan—Part C
A Medicare Advantage Plan is a coverage option offered by a private insurance company that contracts with Medicare. These plans provide Original Medicare and give participants access to other services Medicare doesn’t cover, like dental, hearing, or optical insurance. There can be additional health benefits such as wellness stipends, gym memberships, and more. Most advantage plans also have Part D, prescription drug coverage.
Enrolling in an advantage plan can be a great way to bundle services but keep in mind that many have a limited network, and most care is zip code specific, so if you live in Washington but receive routine (not emergency) care in Arizona, your insurance likely won’t pay for it.
Prescription Drug Coverage—Part D
Medicare Part D covers prescription drug costs for patients. If you aren’t enrolled in an Advantage plan, you’ll have to sign up for this coverage separately.
It’s often wise to sign up for these plans during the open enrollment period because if you don’t and need to sign up later, you could face a significant (and permanent) penalty on your premiums.
Medigap or Supplemental Insurance Plans
These plans come in Parts A-N and are supplemental insurance to cover costs that Original Medicare doesn’t.
Sounds a lot like an Advantage plan, doesn’t it?
While there are many similarities, supplement plans tend to have more variety, meaning you can select the plan that best suits your health needs and budget. Plus, supplement plans allow you to receive care in any facility that accepts Medicare, so they aren’t quite as restrictive.
Stop Overpaying For Care With The “No Surprise Act”
The government passed a new federal law which took effect January 1, 2022 that everyone should know about—The No Surprise Act.
The No Surprise Act eliminates common “surprise” bills people encounter in hospitals. Let’s look at a common scenario.
You go to an in-network hospital to receive care. While you’re there, you encounter many types of providers: a doctor, surgeon, specialist, etc. You get the care you need, rest up, and come home.
A few weeks later, a massive bill comes in the mail (or via an online platform). If you’re shocked by the price, here’s the kicker: if one or more of the specific providers you saw don’t take your insurance, you could incur a separate bill from that doctor, in addition to your hospital bill.
So, while the hospital takes your insurance, the doctor seeing you might not. And people have been on the hook for these costs even if there aren’t options for providers and/or it’s a provider they never see.
Now, if you receive one of these bills, you can file a claim with your insurance company and not have to pay it. With this act, patients are protected against out-of-network bills in an in-network facility.
Keep in mind that the act only applies to hospitals, so you’re out of luck if this happens at your primary care doctor’s office, an urgent care clinic, etc.
To help protect yourself from these surprise bills in retirement, try asking a particular question before you see any provider:
Are you in my insurance plan’s network?
Be prepared with your insurance card so you can evaluate coverage before receiving treatment. Passing the No Surprise Act is an important milestone in the healthcare industry, and knowing what it is and how it works can help you from overpaying on your medical bills.
Let’s Make Your Retirement Exceptional
Are you feeling more confident in your options for healthcare in retirement?
Planning for your health long-term is a critical component of your retirement plan, and we’d love the opportunity to help you build a plan that aligns with your goals and values.
Set up a time to meet with our team today!
We look forward to alleviating more of your retirement planning concerns next month! Stay tuned.