Planning for healthcare costs in retirement. One of the biggest misconceptions that people may have when it comes to healthcare costs in retirement is about Medicare, specifically with the notion that Medicare is free. Which unfortunately, is not true.

So what should you be aware of when it comes to planning for health care costs in retirement?

First, and most importantly, is that Medicare is not free. You probably have been hearing or seeing the open enrollment ads that say $0 or very low-cost for premiums. These are for private Medicare Advantage Plans, not Medicare Part B. There is a big difference between zero premium (the ads) and zero cost (what you will eventually end up paying).

The costs add up. A fully loaded Medicare Advantage Plan, one that includes a prescription drugs and other supplemental coverages is not uncommon for a retiree to be paying somewhere near $500 or more per month (all-in). Adding that up over the average life expectancy for a couple who's turning 65 years old, that comes out to roughly $387,000 over the course of their retirement.

$387,000!

Let’s break it down a little or at least clear up some of that Medicare confusion. Medicare Part A is free. It covers hospitalization, but with a deductible ($1,556 in 2022). The base cost for Medicare Part B in 2022 will be $172 per month (subject to earnings surcharges). Medicare Part D is for prescription drugs. If you choose an advantage plan (Medicare Part C) then it will include prescription drug coverag). If you choose a Medigap Policy (supplemental coverage) then you will need a Part D Plan.

Those plans that are clogging your mailbox, inbox, TV and radio are Advantage Plans (Medicare Part C) and operate more like your regular health insurance coverage; You will have co-pays, deductibles, and co-insurance costs, all of which add up over time (that’s how we get to the $500/month all-in number).

What can you do?

One of the most efficient strategies available today is the HSA (Health Savings Account). An HSA is not use-it-or-lose-it like a Flex Savings Account (FSA). The HSA allows you to contribute pre-tax, but you do not have to use it. The money grows in the account and if taken out for qualifying reasons then the money is tax-free. And if you can just hold-off tapping into the HSA Account until after you retire, then the qualifying reasons can be to pay for some of those “other” medical expenses in retirement: co-pays, deductibles, co-insurance, etc..And it is all paid out tax-free! So if your employer has an HSA Health Insurance Plan available, then it is definitely something that should be considered when trying to plan out how you are going to be paying for healthcare and assisted coverage in retirement. 

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