At our recent Wine & Finance event in the New York office, we explored “Healthcare Options in Retirement” with Audrey Schwartz. It was a wonderful evening, with many clients and friends attending. Thanks for coming!
At any age, health care is a priority. But when you retire, it’s time to focus more on healthcare than ever before. That’s why it’s particularly important for women to factor in the cost of healthcare as part of their retirement plan.
How much you’ll spend on healthcare during retirement depends on a number of variables including when you retire, how long you live, your relative health, and the cost of medical care. Another important factor to consider is Medicare. Generally, you’ll be eligible for Medicare when you reach age 65. Be careful: you must sign enroll in the three months before you turn 65 or three months after, or else you will pay penalties for the rest of your life.
But what if you retire at a younger age? You’ll need some way to pay for your health care until Medicare kicks in. Your employer may offer health insurance coverage to retiring employees, but this is now the exception rather than the rule. If your employer doesn’t extend health benefits, you may need to buy a private health insurance policy or extend your employer-sponsored coverage through COBRA.
Most are automatically entitled to Medicare when they turn 65. If you’re already receiving Social Security benefits when you’re 65, you don’t even have to apply–you’ll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage. Medicare coverage involves a confusing alphabet soup: Part A, B, C, D and more.
Part A, commonly known as the hospital insurance portion of Medicare, can help pay for inpatient hospital care, plus home health care and hospice care. Part B helps cover other medical care such as physician services, laboratory tests, and physical therapy. You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs.
And if you don’t already have prescription drug coverage, you may want to consider a Medicare Advantage Plan or a prescription drug plan offered by a private insurer that has been approved by Medicare.
Unfortunately, Medicare won’t cover all of your health-related expenses. For some types of care, you’ll have to satisfy a deductible and make co-payments. That’s why many retirees purchase a Medigap policy.
Medigap policies help pay for out-of-pocket costs that Medicare doesn’t cover, including annual co-payments and deductibles. In most states, there are 10 standard Medigap policies available. Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. More alphabet soup!
When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy a Medigap policy from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.
Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. Long-term care can be expensive. An important part of planning is deciding how to pay for these services.
While premiums may be costly, having LTC insurance may allow you to choose where you receive your care, the type of care you receive, and who provides care to you. Many LTC insurance policies pay for the cost of care provided in a nursing home, assisted-living facility, or at home, but the cost of coverage generally depends on your age and the policy benefits and options you purchase. And premiums can increase if the insurer raises its overall rates. Even with LTC insurance, you still may have some expenses not covered by LTC insurance. For example:
- Not all policies provide coverage for care in your home. While the cost of in-home care may be less than the cost of care provided in a nursing home, it can still be quite expensive.
- Most policies allow for the selection of an elimination period of between 10 days and 1 year, during which time you are responsible for payment of care.
- The LTC insurance benefit is often paid based on a daily or monthly maximum amount, which may not be enough to cover all of the costs of care.
- While lifetime coverage may be selected, it can increase the premium cost significantly, and some policies may not offer that option. Another option that can be valuable, but also increase the premium expense considerably, is cost-of-living or inflation protection, which annually increases the daily insurance benefit based on a certain percentage.
- Most common LTC insurance benefit periods last from 1 year to 5 years, after which time the insurance coverage generally ends regardless of whether care is still being provided. To encourage more individuals to buy long-term care insurance, many states have enacted Partnership programs that authorize private insurers to sell state-approved long-term care Partnership policies. Partnership policy owners, who expend policy benefits on long-term care services, will qualify for Medicaid without having to first spend all or most of their remaining assets (assuming they meet income and other eligibility requirements).
Medicaid – Not Medicare
To qualify for Medicaid to pay for long-term care, your assets and income must fall below certain very low limits, which vary by state. Often this requires spending down most of your assets first, which may mean using all savings to pay for healthcare before you can qualify for Medicaid. Also, if you own a home, Medicaid may place a lien on it to recoup what it paid for your care.
Other Factors to Consider
It’s clear that healthcare is an important factor in retirement planning. Here are some other things to think about:
- Evaluate your health and project your future medical needs. It may help to consider your family’s health history to determine the type of care you might need.
- Don’t presume Medicare and Medigap insurance will cover all your expenses. For example, Medicare (Parts A and B) does not cover the cost of routine eye exams, most eyeglasses or contact lenses, or hearing exams or aids.
- Even if you have Medicare and Medigap insurance, there are premiums, deductibles, and co-payments to consider. You will need to include the cost of healthcare as a projected retirement expense to avoid surprises.