Key Takeaways
- Understanding what Medicare covers and what it doesn’t is essential to avoid unexpected healthcare expenses in retirement.
- Planning ahead by budgeting for out-of-pocket costs will help you manage your healthcare expenses more effectively during retirement.
Medicare Coverage: What Is Included?
Medicare is a key resource for healthcare during retirement, but it’s important to know exactly what it covers. As a federal health insurance program for those aged 65 and older, and for some younger individuals with specific disabilities, Medicare is divided into different parts, each providing different types of coverage.
Medicare Part A – Hospital Insurance
Medicare Part A is often referred to as “hospital insurance” because it covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care services. For most people, Part A doesn’t have a premium, as long as they’ve paid Medicare taxes while working. In 2024, if you don’t qualify for premium-free Part A, you will pay up to $505 per month. Additionally, the inpatient hospital deductible for 2024 is $1,632 per benefit period. If you’re hospitalized beyond 60 days, you’ll need to pay $408 per day for days 61-90, and $816 per day for lifetime reserve days. For skilled nursing facilities, you’ll pay $204 per day for extended care between days 21-100.
Medicare Part B – Medical Insurance
Medicare Part B covers outpatient care, doctor visits, preventive services, and durable medical equipment like walkers and wheelchairs. In 2024, most Medicare beneficiaries will pay a monthly premium of $174.70, up from $164.90 in 2023. Additionally, the Part B deductible has risen to $240 per year. After you meet this deductible, Medicare pays 80% of approved costs, while you’re responsible for 20% coinsurance for outpatient services and durable medical equipment.
Medicare Part D – Prescription Drug Coverage
Medicare Part D helps cover the cost of prescription drugs. In 2024, the average monthly premium is expected to be $55.50, with an annual deductible capped at $545. Once you enter the catastrophic coverage phase for high-cost medications, the 5% coinsurance requirement will be eliminated, reducing out-of-pocket costs for many beneficiaries.
What Medicare Does Not Cover
Medicare offers substantial coverage, but it doesn’t pay for everything. Many retirees are surprised by the gaps in coverage, which can lead to significant out-of-pocket costs. Let’s take a look at the services Medicare typically doesn’t cover.
Long-Term Care
Medicare does not cover long-term care, such as nursing homes or assisted living facilities, unless it’s under specific short-term conditions. This is a significant gap in coverage because long-term care can be one of the most expensive healthcare needs in retirement. If you require long-term care, you may need to look into other options such as long-term care insurance or Medicaid, which covers long-term care for those with low income.
Routine Dental, Vision, and Hearing Care
Many retirees are caught off guard when they learn that Medicare doesn’t cover routine dental, vision, or hearing services. This means no coverage for routine eye exams, glasses, hearing aids, or regular dental check-ups and treatments like fillings or dentures. Given how important these services are as you age, it’s essential to budget for these costs, or consider purchasing separate insurance plans that cover dental, vision, and hearing needs.
Alternative Therapies and Overseas Healthcare
Another gap in Medicare coverage is alternative therapies like acupuncture, massage therapy, or chiropractic care. Unless specifically prescribed by a doctor and deemed medically necessary, these treatments are not typically covered. Additionally, Medicare generally does not cover healthcare services received outside the U.S., so if you’re a retiree who enjoys traveling internationally, you’ll need to explore alternative insurance options for coverage abroad.
How to Budget for Healthcare in Retirement
Planning for healthcare costs in retirement involves more than just understanding what Medicare covers. Out-of-pocket costs can add up quickly, so budgeting for these expenses is crucial to maintaining your financial health throughout your retirement.
Estimate Your Annual Healthcare Costs
The first step to budgeting is estimating your annual healthcare expenses. This includes Medicare premiums for Part B and Part D, as well as any supplemental insurance you may have, such as Medigap policies. Also consider out-of-pocket costs such as deductibles, copays, and coinsurance, particularly if you anticipate needing regular doctor visits or prescription drugs. Additionally, don’t forget to factor in the cost of services that Medicare doesn’t cover, such as dental, vision, and hearing care.
While exact figures depend on your health and the region you live in, research shows that a retired couple might need several hundred thousand dollars to cover healthcare expenses throughout their retirement. While this might sound intimidating, knowing the potential costs ahead of time can help you prepare better.
Consider Supplemental Insurance
To fill the gaps in Medicare coverage, many retirees purchase supplemental insurance, often referred to as Medigap. These policies can help pay for costs like copayments, coinsurance, and deductibles. There are different Medigap policies available, so it’s essential to review what each plan covers and decide which one aligns with your needs and budget.
Additionally, you may want to explore Medicare Advantage plans, which are offered by private insurers as an alternative to Original Medicare. These plans often bundle coverage for Parts A, B, and D, and some offer additional benefits like dental, vision, and hearing. However, it’s important to compare these plans carefully as they may have different costs and restrictions.
Plan for Long-Term Care Expenses
Since Medicare doesn’t cover long-term care, it’s essential to plan for these costs separately. Options for covering long-term care include purchasing long-term care insurance, setting aside savings, or qualifying for Medicaid. Long-term care insurance can be expensive, and the earlier you purchase it, the more affordable it typically is. Start by evaluating your family’s health history and considering how much assistance you may need as you age. This will give you a better idea of whether long-term care insurance is a good investment for you.
Create a Savings Plan
Once you’ve estimated your healthcare costs, the next step is to create a savings plan. If you’re still working, consider contributing to a Health Savings Account (HSA) if you have a high-deductible health plan. The money you contribute to an HSA is tax-free, and you can withdraw it tax-free for qualifying medical expenses. Even if you aren’t eligible for an HSA, you can still set aside savings specifically for healthcare costs in retirement.
Be sure to revisit your budget regularly and adjust it as your healthcare needs change. The key is to stay proactive and make healthcare a priority in your financial planning.
Staying Prepared for Retirement Healthcare Costs
Medicare is a valuable tool in covering many healthcare expenses during retirement, but it has its limits. Being aware of what’s covered and what’s not, and understanding how to budget for these costs, will help you manage your healthcare expenses more effectively. You can protect yourself financially by planning ahead, exploring supplemental insurance options, and creating a solid budget that includes potential out-of-pocket costs.
