Ask a group of seniors what their top financial concern in retirement is, and chances are they'll answer "healthcare." With healthcare costs skyrocketing and limited coverage by programs such as Medicare, many retirees face stiff monthly health insurance premiums, or worse yet, no coverage at all.
Healthcare for seniors can be a labyrinth of programs, eligibility restrictions, coverage limitations, and overlaps, with terms varying widely from program to program and plan to plan. In addition to federal programs such as Medicare and Medicaid, some agencies such as the Veteran's Administration offer benefits for specific constituents and many states have different programs of their own with varied eligibility requirements. Additionally, unions and trade organizations may also offer retirement healthcare benefits. Which of these you may qualify for will depend on your individual circumstances. In general, however, most retirees have two main healthcare options: Medicare and managed care.
Medicare is the nation's largest health insurance program, covering 40 million Americans. As long as you've contributed enough to the program (through FICA taxes), you'll be eligible for Medicare when you turn 65, regardless of whether you're retired or not. The best time to apply for Medicare is at the first opportunity to do so: the seven-month period that starts three months before your 65th birthday. The program is divided into four components: Parts A, B, C, and D.
Part A is called hospital insurance and covers most of the costs of a stay in the hospital, as well as some follow-up costs after time in the hospital. Part A pays some other outpatient medical services, including medically necessary equipment and supplies, home healthcare, and physical therapy. Under most circumstances, you do not have to pay a premium for Part A.
Part B is medical insurance. This optional coverage is intended to help pay doctor's bills for treatment in or out of the hospital. It also covers many other medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests. If you elect Part B, the monthly premium is automatically deducted from your Social Security check. Keep in mind that Part B is still not a 100% insurance coverage plan, and covers only medically necessary services.
Part C is the combination of Part A and Part B. But Part C is provided through private insurance companies that are approved by Medicare, allowing you to potentially lower costs and receive extra benefits.
Part D is stand-alone prescription drug coverage insurance. Most people must pay a premium for this coverage. Plans vary and cover different drugs, but all medically necessary drugs are covered.
If you opt for the Original Medicare Plan, you might also be interested in securing Medicare Supplement Insurance, or "Medigap" insurance. The term Medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Medigap doesn't fill in all the gaps -- but it helps. Before you buy a Medigap insurance policy, consider not only the services covered but also the amount of benefits and the monthly cost of the policy. Also pay attention to how much premiums may rise in years to come. You might also want to compare Medigap with the Medicare Managed Care and private fee-for-service programs, if they are offered in your area.
"Managed care" refers to the large variety of healthcare plans offered through employers, unions, insurance companies, state governments, and private institutions. Managed care plans generally fall into two main varieties: health maintenance organizations (HMOs) and preferred provider organizations (PPOs). HMOs are generally less expensive than PPOs, but usually more restrictive in their services and choice of doctors.
For retirees, the decision of which managed care plan to choose often boils down to two factors: local availability and cost. Depending on where you live, your choices may be limited to a handful of organizations or plans. Both HMOs and PPOs have restrictions as to coverage and doctor participation, so it pays to find out what's available in your area. Plan costs also vary widely. Generally speaking, annual costs for Medicare enrollees may vary from under $100 per month to over $500 per month for an individual, depending upon coverage, utilization, and location.
Some companies and unions will provide health insurance as a retirement benefit to their employees and members, or will offer the option of extending their healthcare coverage to retired employees at group rates. But this benefit is offered by fewer and fewer companies.
However you plan to provide for your healthcare in retirement, here are some points you'll want to consider:
|Medicaid is a program that pays for medical assistance for those with low incomes or disabilities. Eligibility criteria vary from state to state, but in general, you must have a very low income and few financial resources to qualify.|
Choosing Your Annual Withdrawal Rate - Calculator
Investment Volatility and Your Retirement Income Potential - Interactive Chart