Understanding Healthcare Costs in Retirement and How to Manage Them

If you haven’t consulted with a financial advisor about healthcare costs in retirement, you may benefit from a discussion with the team at Fullerton Financial Planning.

Medicare and Medigap Coverage Options

Every worker who has paid Medicare taxes for at least 10 years (40 quarters), as well as their spouse, are entitled to Medicare Part A once they turn 65. People under 65 with a qualifying disability may also qualify for premium-free Medicare Part A.

Enrollment in Medicare Part B, which has a monthly premium, is voluntary. All U.S. citizens and legal residents who are over 65 can enroll in it. Medicare Part D, prescription drug coverage, is available to anyone enrolled in either Part A or Part B.

Late enrollment penalties can be incurred with both Medicare Part B and Part D if you fail to enroll when you first become eligible, although some exceptions do apply.

Medicare Part C, or Medicare Advantage plans, are offered by private insurance companies as an alternative to Medicare Parts A and B. They typically offer extra coverage not included in Parts A and B, like vision, dental, hearing and health and wellness programs. Medicare Part D is usually rolled into Medicare Advantage plans.

Why Might Medicare Advantage Be the Ideal Option?

There are several reasons why it may be in the best interest of people who turn 65 to enroll in a Medicare Advantage plan as soon as possible. Medicare Advantage plans establish a cap on out-of-pocket expenses, making it far more straightforward to calculate your healthcare cost ceiling. Knowing the maximum you’ll be required to pay each year, regardless of what the future holds, can greatly simplify budgeting for healthcare costs in retirement.

Enrolling in a Medicare Advantage plan when you first become eligible will allow you to avoid the late enrollment penalties associated with Parts B and D.

Medicare Part C Benefits Extend Beyond Budgeting

Medicare Part C enrollees enjoy many perks that are not available to retirees who only enroll in Medicare Parts A, B and D. These benefits include:

• Integrated coverage that’s included in one plan, simplifying management of health insurance

• Benefits that make it easier to stay healthy and active in retirement, like telehealth, wellness services and fitness memberships, potentially leading to lower healthcare costs through healthier living

• Medicare Advantage plans offer broader networks or different network management strategies that can simplify the process of getting appointments with doctors near you or make it easier to see specialists without a referral

• Some Medicare Advantage plans place a concerted emphasis on coordinated care, with enhanced cooperation between specialists leading to better management of chronic conditions

• Optional Medicare Advantage Special Needs Plans (SNPs) are designed for people with specific diseases, health risks or financial needs, such as beneficiaries with chronic conditions and nursing home residents 

What Is Medigap and How Can it Help Retirees Manage Healthcare Costs

Like Medicare Advantage plans, Medigap is offered by private insurance companies to cover some healthcare costs that aren’t covered by Medicare Parts A and B. This can include copayments, coinsurance and deductibles. Medigap policies are standardized across providers nationwide and are typically labelled with letters denoting the level of coverage offered.

In a scenario where a Medicare Parts A and B beneficiary requires an approved outpatient treatment, the 20 percent out-of-pocket cost not covered by Medicare may be covered by Medigap. Limitations vary by plan.

Because there are many options, it’s important that retirees do their research and find coverage that best meets their financial and healthcare needs.

Planning for and Managing Long-Term Care Costs

Several factors make long-term care planning complicated, including the different types of care available, the cost of long-term care in the geographic area, the projected duration of care and the quality of the facility or provider. The cost of in-home care, a nursing home, assisted living care and memory care can vary dramatically.

It may be in your best interest to consult with a financial advisor who can help you understand some of the variables that may influence your long-term care costs in retirement.

Setting aside investment funds or savings specifically for long-term care may help, as well as hybrid life insurance policies or annuities that include long-term care riders. Long-term care insurance, separate from Medicare and regular health insurance, may also be available to you, which can cover in-home, nursing and assisted living care.

Learn More About Healthcare Budgeting Options for Your Retirement in Phoenix

The financial advisors and retirement planners at Fullerton Financial Planning are always available to educate retirement savers and retirees about their health insurance coverage options, as well as life insurance, annuities and other products that may help them better budget for medical costs in retirement. Speak with a financial advisor today by calling (623) 974-0300.