7 Ways to Reduce Healthcare Costs in Retirement

November 8, 2016 — 3:33 PM EST

Healthcare costs are going to take a large chunk out of your retirement dollars, so any way you can to reduce the burden is going to matter – and matter a lot. Consider this: According to HealthView Services, a company that provides healthcare cost projection software, the average cost of healthcare for a couple in retirement hovers around $266,500, and that doesn’t take into account any unexpected illnesses or injuries. Because of that, finding ways to reduce those costs should be priority number one.

While some of the healthcare expenses are out of the control of retirees, there are many things retirees can do to lower the overall burden. From living a healthier life style to becoming a smarter healthcare shopper, here’s a look at seven ways to cut the cost one of the biggest expenses you’ll face in retirement.

1. Stay Healthy to Save

When it comes to healthcare costs in retirement one of the easiest ways to reduce the expense is to improve your overall health. If you eat healthfully, exercise, get plenty of sleep and stay away from bad habits like smoking or excess drinking, you will see the money spent on doctors, medicine and medical tests go down – in some cases dramatically. Having poor habits when it comes to diet and exercise can make you more susceptible to chronic illnesses, which, in turn, will have a major impact on the amount you spend on healthcare whether in visits to the doctor, medication or medical tests.

2. Become a Smarter Healthcare Shopper

For people in retirement, a large portion of their healthcare dollars is going to go to out-of-pocket expenses, whether it is prescription drugs, co-payments or co-insurance. As a result, retirees have to become smarter shoppers when it comes to regular treatments and services. That means understanding how much doctor’s visits and procedures cost, and shopping around when possible. For example, getting an MRI at a radiology center will cost a lot less than having the MRI done at a hospital.

Thanks to the Affordable Care Act, insurers have to cover some preventive care screening for a low cost if not free – even with Medicare. Seniors have access to screenings for illness, including certain types of cancer and high cholesterol. Seniors may also be able to get low-cost or free flu shots, mammograms and certain prostate screenings for males. Catching a disease early or before it starts to manifest will save you a lot more money than if it gets to a later stage before you get treatment.

3. Don’t Pay Full Price for Prescription Drugs

People with chronic diseases know all too well how much of a burden prescription drugs can be on their bank account. Skipping the prescription drug altogether is not an option, but there are ways to reduce the expenses associated with prescription medicine. Sure, Medicare Part D prescription-drug plans (the additional coverage retirees have to take out) will lower the cost of medicine but you will still have a coverage gap.

An easy way to slash some of the expense is to ask your doctor for a generic version of whatever brand name drug he or she is prescribing. What’s more, your Medicare Part D plan may offer discounts if you use a specific pharmacy. You can also save by signing up for mail-order drug services to get your medication or by buying larger quantities up front. If your doctor can double up your normal prescriptions, you can split the pills and thus save money by getting double the supply for the price. Check with your doctor or pharmacists before employing this strategy, because many medications can’t be split safely.

4. Take Out a Medicare Supplemental Plan

Because out-of-pocket costs are going to be a big expense in retirement, people can take out a Medicare supplemental plan to help pay for co-payments, co-insurance and any deductibles Medicare won’t pick up. Known as a Medigap plan, it can save retirees money, but in order to get this type of coverage, you have to already have a Medicare Part A and Part B. While there is a monthly payment with this type of insurance, it can be a lot lower than covering out-pocket expenses on your own if you visit the doctor often.

“Medicare only covers 80% of your allowable expenses, so if you needed a hip replacement and the total Medicare-approved cost for surgery, doctors, rehab, etc. was $20,000, then Medicare A and B would only cover $16,000. You’d be on the hook for the difference, unless you had a Medicare supplemental plan,” says Dave Anthony, CFP®, president and portfolio managerc Anthony Capital, LLC, in Broomfield, Colo.

In addition, “finding good dental insurance is something to look into as you enter retirement. Medicare Parts A and B don't cover it, and one unfortunate circumstance can cost a lot of money in that area,” says Brian Kuhn, CFP®, manager of PSG Clarity in Fulton, Md.

5. Prepare for Long-Term Health Expenses

Nothing is guaranteed in life, and even if you start your retirement healthy, that doesn’t mean you won’t get hit with an unexpected illness or injury. If you aren’t prepared for the expense of long-term care it can easily bankrupt you. According to the annual “Cost of Care” report from Genworth Financial, which surveys long-term care insurance providers, in 2016 the national median cost for a home health aide is $46,332 a year, while an assisted living facility costs $43,539 a year and a nursing home with a private room is $92,378 annually. Preparing for the potential cost by taking out long-term care insurance or by putting aside money to cover any unexpected medical costs can go a long way in giving you peace of mind and ensuring you have enough if something were to happen.

6. Stay Social to Save Money

You may not realize it but your health is directly impacted by your relationships. Having a core group of friends and family with whom you stay in touch on a regular basis can actually improve your health over the long run. While face-to-face interactions are ideal, many seniors can stay social using the Internet to engage with friends and peers.

7. Save for Healthcare While You Are Still Working

Since healthcare costs can be large in retirement, any money you can put away beforehand can help reduce the future potential burden. A great tax-advantaged way to do that while you are working is save it in a Health Savings Account or HSA. HSAs, which require that you have a high-deductible health insurance plan, let you save tax-free and withdraw money for healthcare costs tax-free. It is a good idea to contribute the maximum each year so you can build up a healthcare-costs nest egg. How High-Deductible Health Plans Work will give you the details.

The Bottom Line

Paying healthcare costs is a necessary evil, but savvy seniors can reduce the burden. From being a smart healthcare shopper to having supplemental insurance to cover out-of-pocket expenses, there are a host of ways you can reduce the amount you spend on healthcare in retirement.