As retirement approaches, how you cover your healthcare needs will change. Medicare will likely play a central role in that plan, but there will be decisions to make to ensure you’re appropriately covered. It’s important to be informed when it comes to decisions that impact both your financial security and your health; we’re here to help share the facts.
Understanding Medicare Basics
Medicare — it’s how retirees receive healthcare coverage. There are different components to Medicare, each covering a different set of services:
- Part A (Hospital Insurance): Covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
- Part B (Medical Insurance): Covers certain doctors’ services, outpatient care, medical supplies, and preventive services.
- Part C (Medicare Advantage): An alternative to Original Medicare (Parts A and B), offered by private companies approved by Medicare. These plans often include Part D and may provide additional benefits.
- Part D (Prescription Drug Coverage): Helps cover the cost of prescription drugs.
Making Medicare & Retirement Healthcare Decisions
1. When to Enrolling in Medicare
When to Enroll: You can sign up for Medicare three months before you turn 65, the month you turn 65, and three months after. Signing up early is a great way to alleviate gaps in coverage, but remember, coverage begins the month you turn 65 (not earlier).
To avoid unnecessary costs, it’s important to enroll within the timeframe noted above. Enrolling late can mean penalty fees, which are avoidable.
2. Choosing Between Original Medicare and Medicare Advantage
Original Medicare: Original Medicare is accepted nationwide and offers great flexibility. The downside is that it does not cover dental, vision, or hearing care, and there’s no out-of-pocket maximum. This means you’re at risk of covering these additional needs out of your savings, and we all know healthcare bills can accumulate quickly.
Medicare Advantage (Part C): Those interested in extra coverage may opt for a Medicare Advantage plan which can include dental, vision, and hearing care. These plans also have a max out-of-pocket, which can provide added peace of mind. However, some may find that Medicare Advantage plans’ in network providers don’t meet their needs or that their preferred doctor is not in their network. Another concern for retirees is the need for pre-authorization to see specialists. Medicare Advantage plans vary in terms of coverage and cost — you’ve likely had to compare insurance plans at other times in your life, so you know the drill, weighing the pros and cons of each plan will be necessary to avoid surprises when a medical need arises.
3. Prescription Drug Coverage
Enrolling in Medicare Part D, Drug Coverage, is a way to significantly save on prescription drug costs. You can choose to enroll in Part D from day one or add on the benefit during the annual open enrollment period.
When reviewing prescription drug coverage options, it’s important to understand that most provide coverage in tiers. The tiers range from covered drugs, low co-pay, and high co-pay. This means, not all drugs are treated the same. While none of us know what the future holds, you can compare plans for any prescription drugs you’re currently prescribed to understand the level of coverage and out-of-pocket costs you may incur.
4. Medigap (Medicare Supplement Insurance)
We highly recommend that retirees on Medicare obtain a Medigap policy. If you have a Medicare Advantage plan these policies are not available. These policies provide added coverage to help with out of pocket expenses not covered by Medicare. These plans are offered by private companies and their primary benefit is added financial protection.
As we’ve outlined the various decisions that come with utilizing Medicare, you can see how out-of-pocket expenses are a real risk for many seniors. Unfortunately, the cost of Medigap plans can be prohibitive — weighing the added coverage and peace of mind against the plan cost is a personal decision.
How Medicare Fits into Your Retirement Plan
Financial Considerations
Budgeting for Healthcare Costs: There’s no doubt Medicare significantly reduces healthcare expenses, but we want retirees to know it is not free. You will need to budget for premiums, deductibles, copayments, and services not covered by Medicare. Having this knowledge will help you avoid surprises and allow you to create a realistic budget.
Coordination with Other Insurance
If you have other health insurance, such as from an employer or union, take the time to understand how it coincides with Medicare. Coordinating benefits can be complex, consider taking advantage of resources that provide personalized feedback regarding your unique circumstances to avoid loss of coverage or penalties.
Reviewing and Adjusting Your Plan
Your health needs and financial situation will likely change over time. Thankfully you can make changes during the annual open enrollment if you see where a change is needed to make your coverage more comprehensive or cost-effective.
While the process of enrolling in Medicare Part A & B is simple, ensuring you’re properly covered from a healthcare perspective in retirement is often a complex process. Start compiling your questions and schedule a time to review how healthcare fits into your retirement plan with us today.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization, that provides financial planning services and tax planning support; services and outcomes vary based on each client’s circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As Fee-Only planners, we are compensated directly by clients rather than through commissions from brokerage or insurance products, which we believe helps align our services with client goals.
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This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
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