What People Forget About Medicare, According To Financial Planner


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  • If you’re 10 years away from retirement, it’s important to start thinking about how you’ll cover your healthcare costs.
  • My clients often mistakenly believe that Medicare will cover most, if not all, of their expenses. But Medicare is actually a bit like Swiss cheese: full of holes.
  • If you’re nearing retirement, you’ll want to plan for coverage for your eyes, ears, and teeth, as well as long-term care. You can also expect to pay copayments and coinsurance.
  • Use Bloom to analyze your 401 (k) today and see how you can grow your retirement savings »

You work your entire life, pay 1.45% of all your income to Medicare, and you retire thinking all health care costs are free once you turn 65. Unfortunately, this is not the case, and ignoring these costs could have a negative financial impact on your retirement.

To understand how significant the potential impact can be, let’s take a look at what Medicare covers and does not cover, and what the real cost is when a person retires.

What Medicare actually covers

Medicare was once described to me as a piece of Swiss cheese: there are a lot of holes everywhere. This is a very apt description. Medicare has different parts that cover different care, including parts A, B, C and D. There are also some things that are not covered for which you may need to purchase additional insurance; more on that later.

What Medicare Part A covers

Part A is the “free” part of Medicare, and it is only really free if you have contributed to the system in your lifetime. This is the program that our Medicare Tax of 1.45% funds. If for some reason you never contributed to the system, or if you are not eligible for some other reason, your Part A premiums would be $ 252 or $ 458 per month ($ 259 or $ 471 in 2021).

So what do we get for this 1.45% tax or the monthly premium we pay? Hospital, hospice, home care, skilled nursing facility and nursing home care. However, and this is an important question, skilled care and nursing home care is not a cover for babysitting-type care, that is, the care that most people need for their own. long-term care.

Coverage provided by Medicare for on-call care, when you cannot perform at least two activities of daily living, such as bathing and using the toilet, is extremely limited. The first 20 days are fully covered, followed by a coinsurance period where the costs are shared, then a period where 100% of the expenses are borne by the patient. The average cost of a nursing home in the United States for a semi-private room is $ 7,513 per month, so you can imagine how quickly the costs add up if you need care for two to three years. .

What Medicare Part B covers

Part B covers medical care, in particular medically necessary and preventive services, and these are not free. Your monthly premiums will range from around $ 140 to almost $ 500, depending on your income, and they increase each year to account for inflation in medical expenses.

Most people covered by Parts A and B will feel like they are fully covered for all of their medical needs, but they are not. Part B only covers 80% of these costs. This lets people pay 20% coinsurance with no limit, which means that if you have $ 1,000,000 in Part B fees, you will personally be obligated to pay $ 200,000.

Fortunately, we can fill this hole in Swiss cheese with a Medigap policy. These policies are sold by private insurance companies and their premiums and deductibles vary widely, as does what they cover, but all cover most, if not all, of Part B coinsurance.

What Medicare Part D covers

The next step in our spending spree on retirement health care is our monthly Part D bonuses, which, like Part B bonuses, increase with your income. They range from around $ 30 per month to $ 110 per month, and the total cost, including deductibles and co-payments, will depend on the medications you’re taking. Medicare offers a great tool when purchasing these plans, which can be viewed here.

Parts A, B, and D are sometimes referred to as Original Medicare, and most people choose to insure using these different parts. However, there is an alternative, called Part C, or Medicare Advantage.

What is Medicare Part C, or Medicare Advantage?

Medicare Part C plans are sold by private insurance companies and provide all of the coverages offered by A / B / D, and sometimes at a lower cost. The only potential problem some might find with the Advantage plan is that it is very network specific. So if you love your local doctor and hospital and aren’t looking for a specialist in another state, this plan may be for you. Keep in mind, however, while it may be cheaper than Original Medicare, it’s actually not free.

What about long term care coverage?

So most of the holes in our Swiss cheese have been plugged, but we still have one gaping hole and a few smaller ones. The gaping hole is the lack of long-term care coverage, which we have seen is expensive. According to the National Council for Care Planning, the average stay in a retirement home is 835 days. If someone needs long-term care and it hasn’t been accounted for and planned for, it will likely wipe out whatever retirement assets they’ve managed to save.

We recommend that clients speak with their spouse and family and discuss who might look after them if the need arises. If no one is available to provide care, there are a few options to consider, including purchasing long-term care insurance, saving extra money to self-insure (pay out-of-pocket for costs), or plan to spend all retirement savings and allow Medicaid to cover all future costs. These are all viable strategies and some make more sense to some than to others. But above all, none are free.

Remember to cover the eyes, ears and teeth

Finally, there are only a few small holes left, and our retirement medical insurance plan is almost complete. The last things we need to consider are the health services we are likely to need as we get older, but which are not covered: dental care, eye exams, dentures and hearing aids. These will all have to be paid for out of pocket and most can be expensive. Hearing aids can cost $ 5,000, and we all know how quickly dental costs can increase when a random toothache leads to root canal treatment.

Each individual has a different situation and their retirement health costs will be specific to them, but I can say with confidence that it will not be free.

Charles Weeks is the founding partner of Barrister, a registered investment advisor.


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