BY CARRIE SCHWAB-POMERANTZ
RELEASE: WEDNESDAY, JANUARY 5, 2011, AND THEREAFTER
Health Care in Retirement: What Will It Cost?
Dear Carrie: I'm planning to retire next year. Can you tell me what I'll need in the way of health insurance to supplement Medicare? About how much do I need to budget for the premiums as well as out-of-pocket expenses? --A Reader
Dear Reader: Health care costs are a huge issue, especially for anyone close to retirement. According to a recent poll by Harris Interactive, almost 50 percent of U.S. adults are "extremely" or "very" worried about how they'll pay for rising health care costs. And the closer they are to retirement, the greater their concern. That's justified considering some financial experts are predicting that, even with Medicare benefits, a 65-year-old couple today may need well over $250,000 just to cover out-of-pocket health costs for the rest of their lives. While it sounds like a whopping sum, when you consider that only represents an annual cost of $12,500 for 20 years, it's realistic, and may even be low.
Granted, there are many unknowns when it comes to predicting your own costs, such as how much health care you'll need and for how long. But it's pretty well accepted that health care inflation will be double or triple the projected Consumer Price Index, so costs are going to go up, even for a healthy person. The bottom line is that we all need to factor health care into our long-range retirement plans.
Make Sure You Sign up for Medicare
From your question, I'm assuming you're close to 65. If you're not already collecting Social Security, make sure you sign up for Medicare in the 7-month enrollment window that extends three months before and after the month you turn 65. Enroll in both Parts A and B and possibly Part D, which covers prescription drugs. Anyone already collecting Social Security is automatically enrolled in Parts A and B. Everyone else must sign up. There are penalties for late enrollment, plus you'd have to wait for the General Enrollment period (January 1-March 31) and your benefits will be postponed until July 1. If you decide to go back to work, you can suspend Part B if you don't need it.
Look into Both Medigap and Medicare Advantage
Medicare doesn't cover everything, so the next step is to find the right kind of supplemental insurance. There are two basic types to consider. You must be enrolled in Medicare Parts A and B to qualify for either.
--(SET ITAL) A Medigap policy (END ITAL)--This is sold by a private insurance company and pays for things that Medicare doesn't cover, such as co-payments and deductibles. Generally, Medicare pays first up to approved amounts for covered costs. Then your Medigap policy kicks in to pay its share. Some polices also offer added coverage for services not included in Medicare, such as coverage when you travel outside the U.S. These policies generally don't cover prescription drugs, dental or vision services. And while Medigap policies are standardized and regulated by federal and state laws in terms of types of plans and coverage, there's no standardization of cost.
--(SET ITAL) A Medicare Advantage Plan (END ITAL)--This is actually an alternative way to receive Medicare benefits, similar to an HMO. It's offered by private insurance companies and must include all services that Medicare covers. Many plans also cover prescription drugs, as well as extras, such as vision, hearing, dental care and health and wellness programs. Like Medigap policies, Medicare Advantage Plans vary in terms of cost, services, deductibles and co-payments, but may generally be a bit lower than Medigap policies.
Do Some Comparison Shopping
Premiums for Medigap policies depend on where you live and the type of policy you choose, but they can range from less than $50 to over $300 a month. Likewise, Medicare Advantage Plans range upward of $50 a month. So you need to do some research. A good resource is Medicare.gov, which has comprehensive brochures on basic Medicare and how it works with Medigap policies and Medicare Advantage Plans. You can also find valuable information on Medicare.com, which has more information, along with a comparison tool to help identify programs and policies in your area.
Factor in Premiums--Plus
When budgeting, remember that premiums for supplemental insurance are in addition to the monthly premiums for Medicare itself. While Part A is free for most people, current Part B premiums range from $99.90 to $319.70, depending on your income and tax filing status. If you're collecting Social Security, this premium is withheld from your monthly benefit.
Also, there's the cost of a Part D prescription drug policy. The base monthly premium for 2012 is about $31, according to the U.S. Department of Health and Human Services. But there's a gap in this coverage once your drug costs reach $2,930, commonly called "the donut hole," where you have to pay a higher percentage of prescription drug costs until you hit the yearly out-of-pocket limit of $4,700.
And don't forget to factor in costs for things like dentists, vision tests, eyeglasses, long-term care and a host of other services that likely won't be covered by either Medicare or your supplemental insurance.
With the ultimate fate of the Affordable Care Act and uncertain potential changes to Medicare, my advice to everyone is to make health care a significant line item in your retirement budget. Then hopefully you can relax and enjoy a long and healthy life.
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at firstname.lastname@example.org. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2012 CHARLES SCHWAB & CO., INC. MEMBER SIPC
DIST. BY CREATORS SYNDICATE, INC.