Throughout our working careers, many employers offer healthcare benefits. However, when you retire, you may become ineligible for employer coverage. Alternatively, this type of insurance can become extremely expensive.
If you are nearing retirement, or the person you care for is, you may be concerned about how to cover future health expenses without employer-backed health insurance. I’m here to explain the simplicity of healthcare coverage during retirement with Medicare.
Are you eligible for Medicare when you retire?
If you plan on retiring before age 65, you may not be eligible for Original Medicare coverage unless you meet specific criteria.
If you are 65 or older or receive Social Security Disability income for at least 24 months, you qualify for Original Medicare. Additionally, those under 65 with a diagnosis of amyotrophic lateral sclerosis or end-stage renal disease are automatically eligible for the federal healthcare program.
If you retire before age 65 and do not have a qualifying disability or diagnosis, you will not be eligible for Medicare. Thus, you'll need to find an alternative solution for your healthcare coverage until you turn 65.
Popular solutions for this gap in healthcare coverage include coverage or a Marketplace (Affordable Care Act/Obamacare) plan that utilizes a tax credit. Often, COBRA coverage will be the more expensive option in terms of monthly premiums.
However, COBRA may provide you with the most coverage. On the other hand, a Marketplace plan may have a low monthly premium but with higher out-of-pocket costs.
Depending on your situation, it is crucial to compare all your options before enrolling in coverage. This way, you will bridge the gap between retirement and Medicare eligibility.
What do I need to do to prepare for Medicare before retirement?
Preparing for healthcare costs through Medicare ahead of time is essential to a successful retirement. No one wants unexpected expenses thrown at them during their golden years. To ensure this doesn't happen to you, understanding how Medicare works is crucial. This includes knowing when you will become eligible for the healthcare program.
While you are still working, contributing to a Health Savings Account (HSA) can be a great way to help prepare yourself financially for the costs of healthcare in retirement. Although you cannot contribute to an HSA while you are eligible for Medicare, you can use the funds in the account from contributions made before Medicare eligibility. Thus, you can spend pre-tax dollars on your healthcare expenses during your retired years.
Another great way to save for healthcare costs during retirement is to contribute to a personal emergency fund. As you near retirement, it is often a good idea to begin planning for the unexpected. Building an emergency fund for potentially blindsiding costs is a great way to ensure that a single medical emergency doesn't derail your entire retirement plan.
Additionally, you can use an emergency fund to pay for expenses that Original Medicare may not cover. For more information on emergency funds, check out these guidelines on avoiding financial disasters as a caregiver.
What is the cost of Medicare?
Once eligible for Medicare, you're responsible for the program's out-of-pocket costs. Depending on the services you receive, you'll need to pay premiums, deductibles, copayments, and coinsurances.
For many, Medicare Part A has a $0 monthly premium. The number of years you work while paying Medicare taxes determines your Medicare Part A premium.
If you work less than ten years paying taxes in the U.S., you may be responsible for the partial or full Medicare Part A premium. These dollar amounts change annually.
Everyone who enrolls in Medicare Part B must pay the Part B premium unless they qualify for financial assistance through a Medicare Savings Plan or their state's Medicaid program. Most people eligible for Medicare Part B will pay the standard monthly premium set annually by the Centers for Medicare & Medicaid Services (CMS).
However, if your annual income is above a certain threshold, you may be required to pay a higher monthly premium. This premium increase is known as an Income-Related Monthly Adjustment Amount (IRMAA).
In addition to the monthly premiums, Medicare Part A and Part B also come with deductibles and copayments. You will need to be responsible for these out-of-pocket costs when you receive covered healthcare plan services.
Many Medicare enrollees sign up for a Medicare Supplement (Medigap) plan to avoid these high out-of-pocket costs. These policies cover most of the costs Original Medicare leaves behind. Medicare Supplement plans can help you save money and avoid unexpected expenses.
What you need to know about healthcare plans during retirement
If you plan on retiring soon, it is essential to understand your Medicare coverage options. The availability of many Medicare Supplement, Medicare Advantage, and Medicare Part D plans vary by zip code. So you'll want to ensure you choose the coverage option in your area with the best benefits and cost that fits your budget.
Healthcare in retirement shouldn't be daunting. If you are educated on your options and financially prepared, a fruitful future with Medicare is possible.