"A hospital bed is a parked taxi with the meter running." - Groucho Marx
It's not unanimous, but many of today's pre-retirees feel pretty confident about the next phase of their lives. However, there is one major concern - retirement health care expenses. In a 2021 survey, 32% of all workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement.1
Regardless of your confidence, however, being aware of potential healthcare costs during retirement will help you understand how much you should budget for healthcare in your retirement income planning.
The first step in being aware of potential healthcare costs is understanding the different types of expenses. In this blog post, I will explain the three main categories of healthcare costs in retirement.
The first cost in healthcare to consider is your Medicare Part B premium. According to Medicare.gov, your premium amount depends on your adjusted gross income (AGI) as reported on your IRS tax return.2 Most people pay the standard premium amount of $148.50/month, but the premium can go up to $504.90/month depending on your AGI. Remember, that is per person. So a married couple could pay up to $1,009.80/month.
In addition to your premium, you’ll also have to consider the Part B deductible which, in 2021, was $203. After you meet your deductible for the year, you will likely pay 20% of most doctor services, outpatient therapies, and some durable medical equipment (walkers, wheelchairs, canes, etc.).
The next healthcare cost in retirement that you should consider is any co-payments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (aka Medigap) or other health insurance.
These copays can relate to specialist visits, prescription costs, and other healthcare needs that aren’t completely paid for by your insurance. Drug costs can vary by pharmacy, supplier costs, whether there is a generic option, and other factors.
Speaking of prescription drug costs, once you and your plan spend a combined $4,130 (including the deductible) on drugs in 2021, you’ll pay no more than 25% of the cost for prescription drugs until your out-of-pocket spending is $6,550.3
Expenses Not Covered by Medicare
Lastly, there are healthcare expenses that may not be covered by Medicare. This is where your healthcare costs in retirement have the potential to skyrocket.
One example of a service that may not be covered under Medicare is long-term care. These costs include medical and non-medical care for people who are unable to care for themselves. Medicare and most health insurance plans don’t pay for long-term care. Many retirees are shocked to find this out.
In addition to long-term care, Medicare may not cover expenses related to4:
- Most dental care
- Eye exams related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
While Medicare is a great option for many retiree healthcare expenses, some people also choose to purchase Medicare Supplement Insurance to cover some of the above rather than paying out of pocket. This insurance is also known as a Medigap plan because it helps fill the gaps in Original Medicare. Medigap plans are sold by private companies that contract with Medicare to provide health benefits.5 The expenses covered depend on the type of Medigap plan that you purchase.
Another example of a Medicare health plan is known as a Medicare Advantage Plan. Medicare Advantage Plans are offered by Medicare-approved private companies and may offer a higher level of coverage depending on your needs.6 Sometimes, Medicare Advantage Plans are called Medicare Part C.
The costs associated with a Medicare Advantage Plan will vary depending on the health insurance company you purchase your policy from. You can also choose between a Health Maintenance Organization (HMO) plan and a Preferred Provider Organization (PPO) plan. You must have Medicare Part A and Part B coverage to apply for a Medicare Advantage Plan.
There are many healthcare costs in retirement, from routine checkups to unexpected medical expenses. Building the cost of medical insurance into your retirement plan is an integral part of the retirement income planning process.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.