Many Americans believe that once they retire or turn 65, they no longer need private healthcare insurance because
Medicare kicks in. When retiring, most group health benefits terminate or are only able to be renewed for an exorbitant amount of money. However, Medicare doesn't cover all medical costs and, in some cases, doesn't provide any coverage at all for certain expenses. As the population, on average, lives longer and longer, the number of post-retirement years that require healthcare coverage increase, making it more important than ever to ensure you have the right healthcare coverage. (For more, check out
What Does Medicare Cover?)
TUTORIAL: Intro to Insurance
Here's a rundown on what you need to consider when transitioning into retirement.
What Medicare Doesn't Cover
Medicare coverage is not meant to cover all healthcare expenses for everyone. It has limitations on specific coverages and there are expenses that are not covered at all, such as custodial care, dental and vision care, routing immunizations and experimental procedures. To receive some coverage, such as prescription drugs, seniors must enroll in separate Medicare coverage and pay a monthly
premium.
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Long-Term Care CoverageWhile Medicare does cover some costs of medically-necessary home healthcare in certain circumstances, it by-and-large denies coverage of the cost of assistance with day-to-day activities. So, for example, if you require help with meals, personal hygiene or other daily tasks, only a private
long-term care policy will cover that. As with most other types of insurance, the policy must be in place prior to the disability occurring. The younger you are when you take out the policy, the less expensive the premiums will be. Some group long-term care policies offered by employers can be rolled over into individual plans on retirement, and these are often less expensive than starting afresh. (To learn more, see
Considerations For Long-Term Care Coverage.)
Catastrophic Coverage
Even with Medicare, it's possible to be buried in medical bills if you have a serious illness or accident. Medicare limits coverage for many procedures and hospital stays, so having additional private coverage makes sense in most cases. Catastrophic healthcare coverage provides payouts when you hit a minimum out-of-pocket amount annually. These plans do not cover routine medical expenses, such as doctor's visits or prescriptions, but they are there to protect you in a major medical event. Premiums for these plans are lower than traditional private healthcare, as they cover fewer events. A secondary benefit is that, with a catastrophic plan, you can sign up for a
Health Savings Account, which allows you to fund the plan with a maximum amount ($3,100 in 2012; $4,100 for those 55 and older). The amount funded is
tax-deductible and the account can be used to pay for most medical expenses. The account balance can be withdrawn for non-medical purposes at age 65 without penalty, which allows the plan to operate similarly to a
traditional IRA.
Private Medigap InsuranceMedigap, also called
Medicare Supplement Insurance, is a plan offered by private insurers but federally regulated to fill in where Medicare does not provide coverage. Medigap plans can cover co-payments, deductibles and other non-covered healthcare costs. Each state has different requirements for the plans that are offered, but all insurers who sell medigap coverage must provide standard levels of benefits. In general, medigap insurance does not cover long-term care, private nursing care, or dental, vision and aural services.
The Bottom Line
As our population ages and healthcare costs increase, making sure that there are no gaping holes in medical care coverage is critical to protecting your retirement assets. Medicare does not cover all healthcare needs and private policies can be instrumental in shoring it up. (For more related reading, check out
What's The Difference Between Medicare And Medicaid?)
by
Angie Mohr is a Chartered Accountant and Certified Management Accountant who has worked with thousands of business and personal finance clients from home-based entrepreneurs to rock bands to celebrity chefs. She is also the author of the Numbers 101 for Small Business series of books which have been translated into several languages and are sold worldwide. Her new book: Money$marts: Teaching Your Kids the Value of a Buck will be released in the fall of 2011.
Angie also freelances for several newspapers and magazines, both in print and online. She is passionate about gardening, cooking and bringing more local foods into our diet. She is Canadian through and through but lives by the ocean in Savannah, Georgia with her husband, two children, six cats and innumerable chickens.
