The Complete Guide To Retirement Planning For 50-Somethings: Medical Expenses
America's Health Insurance Plans' (AHIP) recently issued a report titled: Individual Health Insurance 2009: A Comprehensive Survey of Premiums, Availability and Benefits. According to that report, the annual premium for single healthcare policiesaveraged$5,755 for persons aged 60-64 and $9,952 for families headed by persons aged 60-64. Another report by the Employee Benefits Research Institute (EBRI) (their May 2008 Brief 317) states that "a male age 65 in 2008 and retiring at age 65 will need anywhere from $79,000 to $159,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50% chance of having enough money and $156,000 to $331,000 if they prefer a 90% chance," and "women age 65 retiring in 2008 will need anywhere from $108,000 to $184,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50% chance of having enough money, and $217,000 to $390,000 if they prefer a 90% chance." This report is a few years old, but the data is still relevant, and raises the serious question of how you would pay for health insurance.
Before you reach age 65 (there is no age requirement if you have end-Stage Renal Disease (ESRD) permanent kidney failure requiring dialysis or a kidney transplant), you are on your own with paying for medical insurance coverage. As such, unless you receive health insurance coverage as part of an employee benefits program, you would be responsible for paying the cost of health insurance coverage or paying for your healthcare out of pocket. As noted above, healthcare costs can be extremely high and, as such, can take a big bite out of your retirement savings.
Once you are age 65 and older (any age if you have ESRD permanent kidney failure requiring dialysis or a kidney transplant), you are eligible for Medicare coverage. The areas in which coverage is provided depend on the part of Medicare that you purchase. The following highlights what is covered under each part of Medicare.
Medicare Part A (Hospital Insurance) helps to cover:
- Inpatient care in hospitals
- Inpatient care in a skilled nursing facility (not custodial or longterm care)
- Hospice care services
- Home healthcare services
- Inpatient care in a Religious Nonmedical Healthcare Institution
Medicare Part B (Medical Insurance) helps to cover:
- Doctors' and other healthcare providers' services, outpatient care, durable medical equipment and home healthcare
- Some preventive services to help maintain your health and to keep certain illnesses from getting worse
According to the publication, Medicare doesn't cover everything. If you need certain services that Medicare doesn't cover, you will have to pay for them yourself unless one of the following applies to you:
- You have other insurance (including Medicaid) to cover the costs.
- You're in a Medicare health plan that covers these services.
- Even if Medicare covers a service or item, you generally have to pay deductibles, coinsurance, and copayments.
- Long-term care (also called custodial care)
- Routine dental care
- Cosmetic surgery
- Hearing aids
- Exams for fitting hearing aids
Medicare Part C (also known as Medicare Advantage) offers health plan options run by Medicare-approved private insurance companies. Medicare Advantage Plans are a way to get the benefits and services covered under Part A and Part B. Most Medicare Advantage Plans cover Medicare prescription drug coverage (Part D). Some Medicare Advantage Plans may include extra benefits for an extra cost.
Medicare Part D (Medicare Prescription Drug Coverage) helps to cover the cost of prescription drugs and may help lower your prescription drug costs and help protect against higher costs. Medicare Part D is run by Medicare-approved private insurance companies.
How Other Insurance Works with Medicare
The publication provides an explanation of how Medicare works when you have other insurance (like employer group health coverage), and explains that there are rules that decide whether Medicare or your other insurance pays first. The insurance that pays first is called the "primary payer." The one that pays second is called the "secondary payer." The following chart shows which provider pays first:
If you have retiree insurance (insurance from former employment)
Medicare pays first.
If you\'re 65 or older, have group health plan coverage based on your or your spouse\'s current employment, and the employer has 20 or more employees
Your group health plan pays first.
If you\'re 65 or older, have group health plan coverage based on your or your spouse\'s current employment, and the employer has less than 20 employees
Medicare pays first.
If you\'re under 65 and disabled, have group health plan coverage based on your or a family member\'s current employment, and the employer has 100 or more employees
Your group health plan pays first.
If you\'re under 65 and disabled, have group health plan coverage based on your or a family member\'s current employment, and the employer has less than 100 employees
Medicare pays first.
If you have Medicare because of endstage Renal Disease (ESRD)
Your group health plan will pay first for the first 30 months after you become eligible to enroll in Medicare. Medicare will pay first after this 30month period.
Consider these provisions when signing up for your Medicare benefits. If you are considering getting Medicare, you may use the following as a guide, which shows the primary ways to get coverage. For more information about Medicare, including how to sign up and contact information, visit http://www.medicare.gov.
According to the U.S. Administration on Aging (AOA), at least 70% of people over age 65 will require some long-term care services at some point in their lives. Since long-term care is not covered by Medicare or private health insurance, you will be required to pay for any long-term care services that you need out of your savings, unless you have long-term care insurance to cover any long-term care expenses or you are eligible for Medicaid. Medicaid, which is a Federal Government and state-run program that pays for health and nursing home care for individuals with low income and limited assets, determines coverage on a state by state basis. For information about Medicaid, visit www.medicaid.gov.
According to the National Clearing House for Long-Term Care Information, "Long-term care is a range of services and supports you may need to meet your health or personal needs over a long period of time." They go on to explain that most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called "Activities of Daily Living," such as:
- Using the toilet
- Transferring (to or from bed or chair)
- Caring for incontinence
- Preparing and cleaning up after meals
- Taking medication
- Shopping for groceries or clothes
- Using the telephone or other communication devices
- Managing money
- Caring of pets
- Responding to emergency alerts such as fire alarms
Longterm Care Cost
According to the National Clearing House for Long-Term Care Information, the average costs for long-term care in the United States (in 2010) are as follows:
- $205 per day or $6,235 per month for a semi-private room in a nursing home
- $229 per day or $6,965 per month for a private room in a nursing home
- $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
- $21 per hour for a home health aide
- $19 per hour for homemaker services
- $67 per day for services in an adult day healthcare center
The Complete Guide To Retirement Planning For 50-Somethings: Social Security