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Healthcare costs in retirement – what are they really?

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With Covid-19 changing the landscape of the world more and more attention is being drawn to overall health, fitness and even the costs of healthcare, especially for seniors.

According to recent reports one of the largest concerns aging Americans have is the rising healthcare costs in retirement, but how much can they really be?

Thankfully, within the United States there is Medicare and with an understanding of it, projections of healthcare costs in retirement can not only be made, but they can made fairly accurately.

There first needs to be that understanding of Medicare.

Again, thankfully there is Medicare which, for those who are “fully insured” and who use the program prudently, Original Medicare, all costs can be covered as well as determined.

Within the Medicare program if a person is admitted as an in-patient for a medically necessary need into a Medicare recognized facility all costs, except for the Part B Deductible ($203.00 in 2021), are covered.

That is right, all costs are covered, but what are the costs of the coverage within Original Medicare?

For full coverage one must enroll into:
  • Part A –covers all costs for a hospital stay.  There are no premiums, but there are co-pays and deductibles which can be covered by a Supplemental Plan.
  • Part B – covers the costs of physicians. In 2021 the premium is $148.50 a month. There are co-pays and other charges which also can be covered by a Supplemental Plan.
  • Part D – covers prescription medications. On a national average the premium is $70.16 a month including the deductible. There may be co-pays which are determined by the types of medications one is taking.
  • Supplemental Plan or Medigap Plan (Plan G) – covers the gaps within Original Medicare (Part A and Part B). On a national average the premium is $175.42 a month
  • Total annual cost per person – $4,728.96 / Total annual cost per couple – $9,457.92.

So, the first part of the projection we now know, which is what the costs are ($9,457.92). The second part is what are these costs going to inflate at, which we also know.

The Medicare Board of Trustees is projecting that Medicare will inflate by over 6.00% for the next 7 years (pre-Covid).

Since we now know the costs and the inflation rate of those costs a projection of what healthcare costs in retirement can be made.

For a couple who is age 65 today, plans to live until 87 for the female and 85 for the male and are of average health or better, their projected healthcare costs in retirement are: $409,630.00 on a national average (IRMAA is not being factored).

Please note: costs, specifically Part D and Supplemental Plans, are based on residency, age, tobacco use and gender. Depending on where one lives the costs may be significantly cheaper or more expensive.

There is an alternative to Original Medicare.

Within the Medicare program there is an alternative for health coverage which is a Medicare Advantage Plan (MA Plans).

These types of plans must offer the same coverage as Medicare Part A and Part B. They may also offer even more coverage than what exists with Original Medicare too.

The other great aspect of these plans is the affordability. MA Plans, depending on the plan, may have $0.00 premiums and even deductibles. Some go as far as reimbursing the Part B premium too!

The drawback to many of these plans is that they have networks. Meaning that an enrollee must see specific healthcare providers who have contracts with that MA Plan.

With care within the network often there are little to no expenses, but some do have a maximum out-of-pocket cost (MOOP) for in-network care. MOOP amounts can range from $0.00 to $7,550.00 for the year.

The other issue with these plans, especially is that some may not provide coverage if care is provided out-of-network.

Both types of coverage for seniors are fantastic, but is does comes down to what is the best coverage for each person.

Some considerations on which route is best for you. Please seek advice from a retirement professional before making any decision:

Those who are relatively healthy and plan to be that way throughout retirement may want to seek advice on Medicare Advantage Plans as costs can be lower.

For those who travel out-of-state, who do not want to work within a network or would like to have all costs covered for any medical need Original Medicare with a Supplemental/Medigap Plan G may be better choice.

Please note, the one curveball to healthcare costs in retirement is prescription drugs.

The Medicare system is a tier structure for prescription drugs with the Tiers ranging from 1 to 6. Tier 1 is  the cheapest as it provides coverage for generic medications. Tier 4 or Tier 5 are the most expensive. They provide coverage for medications where you may be responsible for 25% to 50% of the cost.

Depending on your medications these costs could range from a couple of dollars to tens of thousands a month. Understanding your medications is extremely important when planning for healthcare in retirement.

Again, for an average to very health couple their healthcare costs, if they opt for Original Medicare and utilize the program prudently, will be just the premiums for coverage.

Those premiums based on information provided by the federal government and private health insurers will total just under $409,630.00 on a national average.

Your health is your greatest asset, the time to plan for it is today.

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