underestimated retirement risk: medical costs

Do Not Forget Healthcare Costs When Retirement Planning

How are you to account for health care costs while retirement planning? Oftentimes, these expenses are underestimated. Even though Medicare Part A is free and covers hospitalization, the remainder of Medicare comes with premiums and the rest of health care and drug costs are out-of-pocket even with supplemental insurance.

Why are health care costs underestimated?

CPAs transitioning into retirement often do not consider that what they were paying in premiums is not the full amount. Thinking they need the same “take-home pay” folks forget that their employer was paying a good chunk of the premium costs when budgeting and the rest was coming directly out of their paychecks. Now, facing retirement, CPAs are responsible for out-of-pocket costs and the full premium.

Familiarization with Health Care Premiums

Having Medicare Part A helps immensely when it comes to health care costs, especially since it is free. However, you will be responsible for other premiums to help cover medical expenses.

  1. Medicare Part B: In 2022, premiums increased to $170.10 monthly. Note in the future this will increase.
  2. Medicare Supplemental Insurance: For coverage not offered through Part A or Part B of Medicare, supplemental insurance is available. This will help with medical expenses, but does not cover dental, hearing, or vision.
  3. Medicare Part C: Known as Medicare Advantage, these policies vary in coverage and price, but offer options including Part A, Part B, hearing, dental, and even vision. Furthermore, Part D (prescription drug coverage) is also included.
  4. Medicare Part D: As coverage for self-administrated prescription drugs, Part D requires a co-pay per prescription. Unfortunately, some drugs are not covered.
  5. Long-term care insurance premiums: Medicare only covers so much of long-term care costs after a certain amount of time, and even then, it will add up quickly daily. To make sure you are covered, building a LTC policy to your wants and needs is best. This is an important factor to consider for retirement planning because 70% of retirees experience a long-term care event.

How much could coverage and any out-of-pocket costs be then?

Knowing Total Health Care Costs

Adjusted for inflation, in 2021 multiple studies found that retirees were spending about $6200 on premiums and approximately $6500 on out-of-pocket costs for health care. For 2022, the projected amount for out-of-pocket costs is $7000. And with rising health care costs and inflation, the average expenses are predicted to increase by a minimum of $3500 by 2030.

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There’s More to Medicare Than Meets the Eye

Medicare is federally funded health insurance for seniors over age 65. You may qualify for the program if you are younger with qualifying disabilities (some end-stage diseases may qualify you as well).

Administered by the Centers for Medicare and Medicaid, this program is like the Social Security entitlement program. If you are a U.S. citizen paying taxes for a set time, you are eligible.

The Four Parts:

Part A: provides hospital insurance

Part B: provides medical and preventative health care coverage

Together, Part A and Part B are known as Original Medicare.

Part C: Known as Medicare Advantage, this part provides the same benefits as Original Medicare, but is offered privately and can include hearing, eye, and dental coverage.

Part D: provide optional prescription coverage and is provided by private companies.

Both Part C and Part D are government regulated.

Enrollment

You will qualify for Medicare if you are 65 years or older. If you are younger with a qualifying disability or end-stage disease, you may also receive Medicare. Remember if you are first applying for enrollment, there is a specific 7-month window before you 65th birthday to sign up. Always make sure you are enrolled in Part A and Part B. If you qualify for Part B and do not enroll on time, you will be subject to penalties for as long as you are enrolled that will be additional to your regular monthly premiums.

Important Notes to Remember:

You cannot enroll in a Medicare Advantage plan or buy a Medigap supplement policy if you are not enrolled in both Part A and Part B.

It is best to begin looking into Medicare plans and coverage at age 64 so you know what is best for your needs and budget.

New to Medicare in 2022

Beginning in 2022, Part B premiums will increase $21.60 to $170.10. Factors to impact this rise are rising health care prices and related COVID-19 care and staff. In response to the pandemic in 2021, Congress lowered the Part B premiums as they were scheduled to increase drastically. So, to cut cost and help the public out, they kept the prices lower. This is the biggest factor as to why Part B premiums drastically increase in 2022.

Deductibles are also rising to $233 from $203. Even Part A deductibles are increasing by $72 to $1556. For Part D, the government capped the deductible at $480, but they may vary based on the drugs needed and copays.

In good news, enhanced Part D is being offered to help cover insulin costs. While this plan began in 2021, more are allowed to enroll in 2022 for this Part D benefit.

Continuing the good news, Medicare coverage is being extended in the telehealth dynamic by welcoming coverage for mental health services via telehealth.

For more information on Medicare, please visit www.medicare.gov and www.medicarecompareUSA.com. Want to hear more information instead? Go listen to our The Retirement Risk episode 4, “Understanding the Complexity of Medicare with Alex Sieler.”

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Medicare Mistakes That Could Uproot Your Retirement

Medicare is often the core health coverage for seniors during retirement. Knowing the ins and outs of the program is essential for your retirement finances. Following are some facts that may cause risks to arise in your retirement if not handled correctly.

Enrollment is not entirely free. Each part is broken down as follows:

Part A is typically free for seniors but has requirements for enrollment. This part is automatic and covers treatment in medical facilities.

 Part B costs and covers outpatient care and diagnostics. Much like Part A, Part B is automatic. Keeping premiums paid should be a priority in retirement.

Part C is Medicare Advantage, providing alternatives within the private sector. Plans vary based on state and individual needs.

Part D covers drugs prescriptions and has premiums.

However, with all health insurances, Medicare has deductibles, coinsurance, and copays that will impact your budget.

Be aware that price is not locked in the moment you begin Medicare coverage, Parts B & D will change yearly. This has the potential to affect your Social Security benefits. If you are signed up for monthly benefits, if Part B increases it will be deducted from your monthly check automatically. Now, you will not receive a lower monthly payment than you have if Part B increases—the cost adjustment is made with Social Security adjusts for cost-of-living.

Unfortunately, Medicare is only health care coverage—dental and eye are not included. Another common service/product not covered is hearing aids. If you would like that extra coverage, Part C, the private-sector market, is where you can group Part A, B & D together plus purchase plans with other coverage such as eye and dental. Otherwise, the services not covered are marked as out-of-pocket and may require you to use funds from an HSA or other retirement funds.

A huge factor with Medicare is enrollment timing. You have a seven-month span to enroll—three months before your 65th birthday to three months after that month. If you are unable to enroll during the original window, late penalties will be assessed to your Part B and Part D premiums indefinitely.

Having the information needed for success is important so you can make the right decisions for your retirement and health care needs. Medicare is a complicated government program that impacts your retirement head-on—sometimes even before you retire fully.

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