Surviving Retirement’s High Health Care Costs

Surviving Retirement’s High Health Care Costs

A couple who retired in 2013 is expected to need $220,000 to cover their health care cost in retirement. By some estimates health care will cost you more than food when you retire. For example, in the United States the average cost of a hospital stay increased 90 percent from 2000 to 2010, climbing from $17,390 to $33,079 according to the Health Industry Distributors Association. The better you plan for these high health care costs now, the more comfortable and secure your retirement will be. So how do you plan?

Step one is no surprise: educate yourself. Learn about your options for health expense coverage. What will you need? Where can you get it? What will it cost? Talk to a trusted financial advisor. Go online and search for “retirement health care costs.” Ask friends and retirees what they’ve done. To get started, you may want to visit the websites of associations and government agencies you trust. I can’t recommend any sites but I know some people who use these sites: AARP Retirement Planning, New Retirement,, and Employee Benefit Research Institute. Then study up on Medicare.


Most People Qualify For Medicare

While some people have access to employer‐provided retiree health care coverage, the federal government’s Medicare health insurance program is the primary source of health coverage for American retirees. If you’re like most people you’ll automatically qualify for basic Medicare hospital insurance (known as Part A) as soon as you reach age 65. Part A covers inpatient hospital care, skilled nursing facilities, home health care visits, and hospice care. This coverage costs nothing if you or your spouse paid Medicare taxes during your working years, but according to the American Association of Retired People (AARP), there is an annual deductible of about $1,180 for inpatient hospital stays.


Medicare’s Part B Isn’t Free

Medicare medical insurance (known as Part B), which covers doctors’ services, outpatient hospital care, and some other medical services (like physical and occupational therapy and some home health care) is not free. You pay a monthly premium for Part B, and there’s no annual limit on your out‐of‐pocket expenses as there is with many private insurance policies. In 2013 the standard monthly premium was $104.90 — or $1,258.80 for the year with a deductible of $147. You should also look into Medicare Part C (Medicare Advantage) and Part D (the drug plan), also.  And remember that Medicare doesn’t pay for routine dental care, routine eye care, and hearing aids.


Consider Long-Term Care Insurance

Medicare won’t pay for long-term care if you ever need it. Long-term care includes things like care you receive in a nursing home or rehabilitation center. The American Health Care Association estimates that 40 percent of Americans will need nursing home care at some point in their lives. Long-term care insurance is designed to prevent a medical disaster from becoming a financial disaster. If you think you might need it, you may want to explore the insurance options. But explore this option while you’re relatively young and healthy. You can’t get long-term care insurance unless you’re in good health. And the cost is based on the age at which you take out the insurance.


Employer Insurance and Coverage for Veterans

Do you have health insurance through your employer? In 1988, 66 percent of retirees from large firms (which are the most likely to provide coverage) had employer-provided health insurance. But only 25 percent of such firms now offer retiree health benefits. If you think you may have health benefits through work be sure to learn what your coverage will be in retirement. Talk to a human resource representative months before your retirement.

Veterans who qualify for health benefits can get health care and prescription drugs through the Department of Veterans Affairs.


Consider a Health Savings Account

If you are in an IRS-defined high-deductible health plan, you might consider a health savings account (HSA). HSAs can be funded while you’re an active employee and you can use the funds later in life. This is different from a flexible spending account (FSA), where you deposit pretax dollars (up to $2,500) but lose any money that isn’t spent in a given year. With an HSA you don’t lose any money you deposit. If you don’t use the funds in your HSA during one year those funds remain in your account for your future use.

You control your HSA, even if you leave your job. The money goes in pretax and earns interest free of tax. You can take out funds and used them for qualifying medical care without paying taxes. HSAs are only available to taxpayers who are enrolled in a high deductible health plan. There are other restrictions, too. The Internal Revenue Service controls the rules and regulations on HSAs. For more information, see IRS Publication 969.


HSAs Still Available Under the Affordable Care Act

If you’re wondering if the Affordable Care Act (Obamacare) might impact health savings accounts, don’t worry. After the Affordable Care Act is fully in place high-deductible health plan options and HSAs will still be available but there will be some new limits and restrictions.


Stay Healthy

This is obvious but it’s so important that I’m going to say it. The best way to save on retirement medical costs is to not need medical help. Treat yourself well. Develop and maintain good health habits. Healthy habits, including proper nutrition and exercise—started early and continued throughout your life—are a good way to help take care of yourself and help assure a more comfortable and less costly retirement.


Check Out Your Professional and Alumni Association

Being a member of some groups could qualify you for less expensive group health insurance coverage during your retirement. If you start a part-time business (even a one-person operation) after you retire, your local chamber of commerce may be able to help.


Be Assertive and Informed

Besides proactively fostering your health, the most important factor in keeping medical costs down in retirement is often being an assertive and informed consumer of medical services. Ask questions. Get second opinions. Do some research about treatment options and review your bills carefully—take charge of your situation to make sure you get the most out of your health care dollars.


Retirement is so often a great reward after working a long career. Being prepared for funding your retirement, including your medical expenses, is a factor in a longer, more enjoyable retirement.


Was this helpful? Can I help you think through any other issues about your retirement? Please feel free to call me, Gene Offredi, CFP, RFC at 203.453.1017 or visit our website at Summit Investor Coach, LLC.