Myth No. 1: Medicare covers most everything. Not even close. Medicare doesn’t cover hearing aids, dental care, vision care, or long-term care. It also won’t provide coverage for health care required while you are traveling outside of the U.S.  You will need to purchase additional private insurance for these categories. Some of these are offered as “Medicare Advantage” plans.

Myth No. 2:  Medicare is free. Nothing is free. Everyone will pay a premium for Medicare Part B (doctors visits and outpatient services).  For 2011, that premium is $115.40 each month.  High earners (170k plus for a married couple) will pay even more.  High earners will also pay a premium surcharge for Medicare Part D (prescription drug coverage.)

While Medicare Part A (hospital care) is generally premium-free, there are deductibles for hospital stays, etc. In 2011, that deductible is $1132. Not chicken feed.

There is some good news: Under the new health-care law, Medicare users are entitled to annual wellness check-ups at no charge, including preventive screenings such as colonoscopies and mammograms.

Because of these costs, most Medicare beneficiaries purchase a supplemental insurance plan, known as “Medigap.”

Myth No. 3:  You can sign up for Medicare anytime after you reach age 65.

The decision about Medicare sign-up is usually a factor of whether you are still receiving health insurance through “active employment.”  If you are no longer receiving benefits from your employer (including Cobra or retiree health benefits), you need to sign up for Medicare immediately. If you do not , your Part B premium will be increased 10% for every 12 months you delay. There also may be a waiting period during which you will be uninsured.

If you are 65 or older, still working, and have insurance coverage from your employer, you may want to delay signing up for Medicare to avoid paying premiums for coverage you don’t need. If your employer has 20 or more workers, Medicare will usually be a “secondary payor.”  In that case, you can delay enrollment without incurring a Part B premium penalty.

Where it gets confusing is there is loss of coverage from a job loss, such as when an older spouse has been receiving primary coverage from a younger spouse. If that younger spouse loses his or her job, the older spouse needs to sign up for Medicare promptly to avoid a penalty. If the younger spouse goes on Cobra, that is not considered “active employment” for the older spouse.

There is a lot more for me to learn about Medicare. I expect that more changes will be coming in the next five years as well.

No related posts.

Retirement Health Care Cost Categories

So what health care expenses can we expect when we retire? Let’s first list them by category.

1. Medicare premiums. Yes, Medicare is a benefit provided to retirees at age 65 but it’s not free. There are Part A (hospital coverage) premiums (if you do not have enough work credits) and Part B (other medical expense) premiums for everyone. For 2009, the Part B premium is $96.40 per month, if your income is less than $85,000 per year.

2. Medicare supplement insurance. As with most health insurance policies, Medicare doesn’t cover everything. Traditional Medicare coverage is estimated to cover only 60% of the average retiree’s health care costs.  Some of the coverage gaps are significant and justify purchasing a “Medigap” (Medicare Supplement) insurance policy. This is the explanation from the official Medicare site.

A Medigap policy is health insurance sold by private insurance companies to fill the “gaps” in Original Medicare Plan coverage. Medigap policies help pay some of the health care costs that the Original Medicare Plan doesn’t cover. If you are in the Original Medicare Plan and have a Medigap policy, then Medicare and your Medigap policy will pay both their shares of covered health care costs.

Insurance companies can only sell you a “standardized” Medigap policy. These Medigap policies must all have specific benefits so you can compare them easily.

You may be able to choose up to 12 different standardized Medigap policies (Medigap Plans A through L). Medigap policies must follow Federal and State laws. These laws protect you. A Medigap policy must be clearly identified on the cover as “Medicare Supplement Insurance.” Each plan, A through L, has a different set of basic and extra benefits.

It’s important to compare Medigap policies because costs can vary. The benefits in any Medigap Plan A through L are the same for any insurance company. Each insurance company decides which Medigap policies it wants to sell.

Generally, when you buy a Medigap policy you must have Medicare Part A and Part B. You will have to pay the monthly Medicare Part B premium. In addition, you will have to pay a premium to the Medigap insurance company.

You and your spouse must each buy separate Medigap policies. Your Medigap policy won’t cover any health care costs for your spouse.

The cost of Medigap coverage can vary depending on what level coverage (A through L) you purchase. Yearly premiums range from a few hundred dollars to $5000 or more.

Some Medigap policies are “attained age” policies in which the premiums increase as you age. Others are “issue age” policies in which the premiums are not increased as you get older.

3. Medicare deductibles and co-pays. These are not insignificant. For 2009, these costs look like this:

For Part A: (inpatient hospital, skilled nursing facility, and home health care), Medicare pays all covered costs except the Medicare Part A deductible (2009 = $1,068) during the first 60 days and coinsurance amounts for hospital stays that last beyond 60 days and no more than 150 days. For each benefit period you will pay $1,068 for a hospital stay of 1-60 days, $267 per day for days 61-90 of a hospital stay, and $534 per day for days 91-150 of a hospital stay (Lifetime Reserve Days), and all costs for each day beyond 150 days.

For Skilled Nursing Facility Coinsurance: You pay 133.50 per day for days 21 through 100 each benefit period.

For Part B: (physician services, outpatient hospital services, certain home health services, and durable medical equipment): You pay $135.00 per year deductible and 20% of the Medicare-approved amount for services after you meet the $135.00 deductible.

4. Dental, vision, and hearing care. These categories are generally not even covered by Medicare and may be 100% out of your pocket.

Estimates of Lifetime Costs for Retirement Health Care

The Employee Benefit Research Institute in June 2009 projected that a male retiree will need $68,000-$173,000 in savings to have a 50% probability of being able to cover retirement health care premiums and out-of-pocket expenses. For women, the projected need is for $98,000-$242,000 in dedicated savings. For a 90% probability, those projections increase to $134,000-$378,000 for men and $164,000-$450,000 for women. That’s no chump change.

Fidelity has estimated retirement healthcare costs by category for the typical retiree. At age 65, these estimated costs are $6,631 annually or $551 per month. These costs do not include long term care.

For estimates of health care costs if you retire before age 65 (and therefore are not eligible for Medicare), Bankrate.com has an interesting summary of healthcare cost data and estimates for retirement.  This article projects that in 2018, a relatively healthy 65 year old couple will need to have saved $518,000 to cover healthcare expenses through retirement!

Final Thoughts on Healthcare Costs in Retirement

Although changes are in the works for healthcare in the U.S., it is unlikely that these “reforms” will lessen the cost burdens for retirees. Therefore, your retirement income planning needs to factor these costs in to the budget. Allocating a significant portion of your retirement nest egg to healthcare is a must.

Related posts:

1. Exploring Myths About Medicare

Medicare Eligibility

Before we can discuss eligibility for Medicare, we should first briefly look at the four different parts: A, B, C, and D.

Medicare Part A pays for in-patient care in a hospital (semi-private room) including nursing care, meals, and hospital medical services such as lab tests and drugs.  Part A also covers temporary care (up to 100 days) in a nursing home after at least a 3 day stay in a hospital for a related condition.

Everyone who has 40 work credits is automatically eligible for Medicare Part A immediately upon reaching age 65. To earn 40 work credits, you must work at least 10 years, earning up to 4 credits per year. In 2009, each work credit requires $1090 in income. There are no premiums for Medicare Part A although there is a deductible.

Even if you do not have enough work credits, you may still be eligible for Medicare Part A at age 65 but you may have to pay a premium.

Medicare Part B covers physician and other outpatient medical care. This is optional, meaning that you do not have to sign up for it. If you do sign up for Part B, you have to pay a monthly premium. Any U.S. citizen or legal resident who is 65 or older and who has continuously lived in the U.S. for at least 5 years is eligible.

Medicare Part C is for managed care type plans offered by private companies (Medicare Advantage) that cover everything that Parts A and B cover, and in some cases cover additional items that traditional Medicare plans do not cover, such as outpatient prescription drugs. Again, you are eligible for Part C if you are also eligible for Parts A and B.

Medicare Part D is for outpatient prescription drugs. Part D plans are also provided by private companies for a separate premium, or can be part of a Part C plan.  You are eligible at age 65.

When to Sign Up for Medicare

For Part A and B, if you are already receiving Social Security when you turn 65, you will be automatically enrolled in Medicare Part A and Part B and will be sent a Medicare card. You can cancel the Part B coverage if you don’t want it.

If you delay signing up for Social Security until after age 65, you will need to enroll in Medicare separately. For Part A, you can sign up any time. For Part B, the initial enrollment window lasts for 7 months, starting 3 months before you turn 65 and ending in the third month after the month in which you turn 65. If you don’t enroll in Medicare Part B during this initial enrollment period, you may have to pay a late penalty.

The late penalty is equal to 10% of your premium for every year that you were eligible for Part B but did not sign up. The big problem with the late enrollment penalty is that you continue to pay it for every year that you are enrolled in Part B. Ouch.

The late penalty exceptions apply if you are still working and have a group coverage from your employer that is primary. If  you are retired and have retiree health coverage, you should still consider signing up for Part B to avoid paying a penalty. There is no penalty if you enroll within 8 months after retirement or after your group coverage expires, whichever occurs first. This is called the special enrollment period.

If you miss the initial enrollment window or special enrollment period, you can sign up for Medicare Part B during January 1-March 31 of each succeeding year, with coverage then beginning on July 1. This is called the general enrollment period.

Keep an eye on changes made to Medicare eligibility and sign up rules. The government will probably make changes to cover expected funding shortfalls.

Related posts:

1. Exploring Myths About Medicare