R101 #10 - Health Insurance in Retirement
Health insurance in our country is a hot mess. If you think it gets any easier/better when you’re planning for retirement, you are going to be disappointed. It’s important to go into this understanding your options. You also need to be aware of the mistakes you can’t afford to make.
Before you turn 65
Let’s start with the period between when you retire and when you turn 65 and become eligible for Medicare coverage. If you’re not retiring prior to 65….scroll on by, and be happy you don’t have to worry about this problem. There are basically 4 options for health insurance that may be available to you prior to 65 .
Coverage under your spouse’s workplace coverage - this is by far the easiest. In fact, you may already be covered with this coverage as you transition to retirement because you were on it before. It’s also likely to be the least expensive. In fact, some spousal coverage options have a surcharge if you had access to another plan at your employer. Now that you don’t have an employer, you may be able to get the surcharge waived! You may also be able to have dental and vision coverage easily and inexpensively. Use these prices as a comparison for your other options. One caveat - if your spouse is older, and they become eligible for Medicare at 65, you need to figure out what you’ll do then.
Employer provided retiree health insurance - some employers provide this benefit to their retired employees. It's becoming less common, but it may still exist for you. Check with your HR organization to see what is provided and what the eligibility criteria are. You wouldn’t want to retire 1 month before being eligible if you can wait! A few caveats here - you need to actually understand what the offering is. It could be that it’s just like when you were working (not likely), it could be a discount on the insurance you had while working but you pay more now and the employer covers a smaller portion (more likely), it could be some sort of health care reimbursement account so you can pay for your own insurance, or something else entirely. Details matter here.
Coverage through COBRA - you may be eligible for COBRA after your employment ends. You’ll be able to stay enrolled in the coverage you had prior to leaving, but you’ll pay the full cost of the employer and employee portions, plus potentially an administrative fee. Can it be expensive to get coverage this way? Yep. It’s best used when there is a short gap between retirement and age 65, you don’t want to deal with switching plans twice in a short timeframe, and you may be in a time of year where your deductibles have already been met.
ACA or Private Market coverage - It’s great now that there are additional options through federal and state exchanges - so much easier to get coverage without being rejected for pre-existing conditions. Is it “affordable”? It may be, especially if your income drops significantly when you retire and you are eligible for tax subsidies. We’ll talk more about that later. If you don’t get subsidies, you may be shocked at how expensive this type of coverage is. Regardless, it’s better than nothing - although each year you’re going to have to see what plans and companies are available, prices will go up, and you’ll still need to look for Dental and Vision insurance if you want that coverage as well.
I’m not going to cover healthsharing ministries. It’s not insurance.
Understanding Medicare
Congrats! You’re 65 or almost there. Now you get to navigate Medicare. I’m going to try and keep this simple, but remember it’s not. You might want to get extra help here as most financial advisors don’t know much about medicare. There are some good places to get info for free - namely from Medicare itself and also local senior centers. There can also be good health insurance agents that will assist with the decision and help you get signed up with the right coverage, but make sure you understand how they are compensated.
Medicare Part A - this is called hospital insurance, and it’s through the federal government. There’s no premium to be paid for this part unless you don’t have enough “credits” like for Social Security. If you aren’t eligible, it is possible to pay for it, though. It covers inpatient care at hospitals and skilled nursing facilities, as well as some other types of care, with a bunch of caveats and different definitions of what kinds of care is covered or isn’t. There are also deductibles and copays, and caps on coverage. You are going to need to do more research on this to understand the particulars. What I want you to understand here is that care is NOT FREE, UNLIMITED, and Part A does NOT cover traditional LONG-TERM CARE. We’ll talk more about long-term care later.
Medicare Part B - this is coverage through the federal government for more of what we traditionally think of health insurance covering items like doctor’s visits, preventive care, vaccines, and other medically necessary services. The premiums to be paid each year are tied to a definition of income from the year two years prior to coverage (we’ll talk more about this later in the tax post - this is IRMAA). There are deductibles and coinsurance, and NO out-of-pocket maximum. It does NOT include DENTAL, VISION, HEARING AIDS, or PRESCRIPTION DRUGS (or LONG-TERM CARE either, for that matter).
Medicare Advantage Plans (Part C) - This is where it gets complicated. Part C refers to health insurance plans provided by private insurers rather than the federal government. They are still regulated by Medicare, however, and generally include anything provided by Parts A and B. Their premiums can be similar to Plan B or slightly higher, and can require deductibles, coinsurance, and copayments. But these plans can also include extra services like dental, vision, hearing, nutrition and fitness, and most also include prescription drug coverage. They include an out-of-pocket maximum. Sounds great, right? I feel like I see commercials for these plans all the time. The downside is that these plans may have doctor network limitations, require referrals, and some benefits may not be as great as they sound.
Ok, so here’s where we are at. There is “Original Medicare” i.e. Parts A and B. There is “Medicare Advantage” i.e. Part C. To really go into one v. the other, you are going to need to figure out your preferences and what matters most to you (network/location, premium costs, extras, out of pocket max, etc) - this is where it can help to sit down and talk with an expert. Unfortunately, it’s not comparing apples to apples. More like apples to oranges. Do you want/need fiber or Vitamin C?
Let’s move on.
Medicare Part D - Prescription Drug Coverage - these plans are also provided by private insurers for those on Original Medicare and Medicare Advantage plans without drug coverage. The premiums and coverage vary by insurer. (and base premiums are also adjusted up via IRMAA if you had higher income in the year two years prior). There are formularies, deductibles (for most), copays, and coinsurance and may vary based on which drugs you need.
Medicare Supplement (Medigap) Plans - for those with Parts A & B, there are obviously gaps in coverage. Supplement plans are offered by private insurers to fill the gaps. They are also regulated by Medicare by the types of coverage they can provide. To complicate things even more, the supplement plans are designated by letters for each type of plan. Premiums vary by company and coverage plan.
Does anyone want to poke themselves in the eye with a stick yet? Why does this have to be so complicated? If you thought employer coverage was complicated, welcome to Medicare! Medicare does provide a hotline open 24 hrs a day - 1-800-633-4227 and a website that provides lots of good resources as I mentioned - www.medicare.gov.
Why does this all matter?
Let’s go back to what we’re hoping to accomplish here. You need to have health insurance coverage throughout life, and you need to figure out how you’re going to pay for it. There are several phases of life you need to cover - pre-retirement, at retirement, at age 65, and ongoing as your needs change.
At a minimum, you will need to:
figure out how much the different options cost up front for premiums
decide whether you have doctors you must go to, or you’re willing to stick to a certain network and get referrals
estimate what kind of care you might need to see how that compares to deductibles, copays, and coinsurance
look at drug coverage options based on the specific health concerns you have and price those out
decide if you need dental, vision, hearing or other coverage
evaluate each year whether you want to switch plans based on any changes to your situation
balance your risk tolerance for unexpected expenses with other criteria
Then make sure you are keeping in mind:
Medicare is only for individuals, not spouses or dependents
Medicare enrollment may not be automatic for you
Medicare becomes the primary payer for most who are privately insured after age 65
If you don’t enroll when you’re supposed to, you may face penalties
You may have to wait to enroll if you don’t enroll when you’re supposed to
The lowest premiums don’t always mean the lowest out of pocket costs
Don’t think you can set-it and forget-it
MEDICARE DOES NOT COVER LONG-TERM CARE
If it feels like this is a sh*tshow, it is. You’re going to have to make figuring out health insurance a part-time job if it isn’t already. I talk about trying to budget for healthcare as if it’s something easy to do. It’s darn near impossible. The system doesn’t make it any easier. Your best option is to be as healthy as possible so you can minimize the impact of these decisions on your life and finances.
Wondering why that final bullet above is in ALL CAPS? We’ll talk about long-term care next.
