More than one half of working Americans know little or nothing about Medicare costs. Not knowing can be expensive.
On average, people who haven’t yet retired estimate they’ll spend approximately $50,000 on health care after retirement, according to a 2014 survey. In reality, studies suggest it will cost almost five times that amount – even when retirees have Medicare coverage.
What you need to know about Medicare
For retirees, health insurance coverage under Medicare typically starts at age 65. When you become eligible, you have a seven-month window to sign up. The period begins three months before the month you reach age 65 and ends three months after the month you turn 65.
When you sign up, you have to make a decision about whether to enroll in Original Medicare or opt for a Medicare Advantage Plan. In general, Medicare offers these options:
Part A: Hospital insurance. Part A is a component of Original Medicare. It generally covers hospital care, skilled nursing facility care, hospice, and home health services. Most people don’t pay a premium for Part A because they paid Medicare taxes while working.
Part B: Medical insurance. Part B is also a component of Original Medicare. It pays for preventative and medically necessary services not covered by Part A. For example, Part B helps pay for the cost of doctor visits, outpatient care, lab tests, physical therapy, medical equipment, and some home health care services.
Part C: Medicare Advantage Plans. These plans are offered by private insurers that contract with Medicare to provide Part A and Part B benefits (and sometimes Part D benefits) to people with Medicare. Most plans require you to use plan doctors, hospitals, and other approved providers.
Part D: Prescription drug coverage. Part D provides Original Medicare participants with prescription drug coverage. The cost of premiums and the cost of drugs will vary by plan and income.
The role of supplemental insurance
Americans who enroll in Original Medicare (Parts A and B) may purchase supplemental insurance, known as a Medigap policy, to help cover costs not paid by Original Medicare, such as copayments, coinsurance, and deductibles. These policies may also cover health care costs when traveling outside the United States.
It’s important to plan ahead
Even with Medicare coverage, health care costs in retirement may be significant. “HealthView Services: 2016 Retirement Health Care Costs Data Report” leveraged data from 50 million health care cases and found:
“Total projected health care premiums (Parts B, D, and supplemental insurance) for a healthy 65-year-old couple retiring this year are expected to be $288,400 in today’s dollars…If out-of-pockets such as deductibles, copays, hearing, vision, and dental are included in the calculation, expenses in today’s dollars are expected to be $377,412…”
Medicare is an important benefit for retirees and it may not cover all health care costs in retirement. Talk with your financial professional about Medicare and the additional health care costs you may incur during retirement.
Securities offered through LPL, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Antoine Williams & Associates Financial Services are separate entities from LPL Financial. This material was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.