by Sean Sparkman
Many of us think of retirement as the season of life when financial pressure eases and we can
enjoy the fruits of our hard work and planning.
Unfortunately, all it takes is one serious health event to rob you of that peace and disrupt your
plans. Years ago, making it to Medicare age meant that you no longer had to stress about medical bills. Many retirees still assume Medicare will cover nearly all of their major medical costs.
The reality, however, is much more complicated. Medicare does offer essential coverage, but has
significant gaps that can result in out-of-pocket expenses. Six figure medical events may sound rare. But something as relatively straightforward and
common as heart bypass surgery can cost well over $100,000. Costs for medical care continue to climb with no end in sight.
While I do not hold myself out as a Medicare export, I am a holistic planner who understands how critical it is for my clients to include unanticipated health care expenses in their retirement
plans. Before we talk about how to fund a six-figure medical event, it’s important to understand where those risks actually come from. Even with Medicare, out-of-pocket expenses and costs for post-operative care add up quickly and negatively impact the quality of your retirement.
Medicare Gaps Could Cost You
Coverage Gaps and Cost Sharing
Even if you have Original Medicare (Parts A and B), you will share in the cost of care.
• Part B generally covers 80% of approved doctor and outpatient services — leaving you
responsible for the remaining 20%, with no cap.
• Part A covers hospital stays, but only after you pay a deductible for each benefit period.
Extended stays can trigger additional daily costs. Analyses from the Kaiser Family Foundation indicate that retirees with basic Parts A and
B spent thousands annually out of pocket beyond premiums, and healthcare inflation.
That burden only compounds over a 20- or 30-year retirement. Some ways to potentially solve or mitigate this situation include:
• Purchasing a “Medigap” (Medicare Supplement) policy: These are private plans that
help cover the 20% coinsurance and other gaps.
• Medicare Advantage plans: These bundle Parts A and B (often Part D), sometimes with
lower premiums. You’ll want to partner with a competent Medicare planner who can
explain how these plans work. Medicare Advantage plans may involve networks,
referrals, and higher cost-sharing depending on usage.
Takeaway: It pays to have some form of supplemental coverage because even “minor”
events can create meaningful financial strain.
You must anticipate prescription drug costs.
Many people don’t understand that Original Medicare does not automatically include
robust outpatient prescription coverage. Retirees must enroll in what are called Part D
drug plans, and even then:
• You’ll have deductibles on most prescriptions.
• Co-pays can be significant
• More expensive medications may still require meaningful coinsurance
Chronic conditions requiring medication can cost you thousands every year. To solve this, find a Medicare specialist who can show you how to compare Part D plans
and review your plans annually. You might also ask your physician to consider prescribing generics. Other cost-saving measures could be switching to mail-order, or
starting a separate fund for prescription costs. If you’re eligible for a Health Savings Account, those can be an excellent source of back-up funding for a health crisis.
Long-term care expenses are an unpleasant surprise for retirees. It’s estimated that over 70% of all Americans will require at least some long-term care
during their retirement years. A pernicious and potentially damaging belief among retirees is that Medicare will cover those costs.
However, while Medicare covers short-term skilled care following hospitalization, it provides no coverage for long-term custodial care. Long term custodial care includes
assistance with daily activities like bathing, dressing, or eating.One of the largest providers of long term care insurance, Genworth Financial, reports that
nursing home costs can easily exceed six figures annually. And, according to experts in the long term care industry, those numbers will rise dramatically over the next 15–20
years.
Potential solutions to consider:
If you need nursing home care, work with your retirement advisor to find the most beneficial path. Your advisor will show you how you might strategically use some of
your assets to offset your LTC bills. You could also consider purchasing long-term care insurance (traditional or hybrid), especially if you are younger. These policies are not
cheap by any means, but they can pay off if long term or memory care is needed. Long term care can easily run more than $10,000 per month in some states. Some retirees
could also qualify for Medicaid, which can pay for nursing homes.
Original Medicare doesn’t cover routine dental and vision.
Most of the time, basic dental and vision services are not covered under Original
Medicare. You will usually pay out of pocket for:
• Cleanings and fillings
• Root canals or implants
• Routine eye exams
• Glasses and contact lenses
Many retirees skip preventive care to save money. But this can backfire if untreated
conditions get worse.
One solution:
You could purchase a standalone dental or vision policy. You might also choose an Advantage plan that includes coverage, or set up an HSA or FSA account, if you qualify.
Whatever you decide, it’s always a great idea to include preventative care in your retirement budget.
Will you need hearing aids?
Even though hearing loss increases significantly with age, Medicare does not usually
cover hearing aids. These devices that often cost thousands of dollars and may need
replacement and maintenance every few years.
Potential solutions: If you currently have a hearing aid, plan ahead for replacements.
You could also explore over-the-counter options, or find a supplemental plan that gives
you coverage.
If you travel…
Many people are surprised to learn that Original Medicare rarely covers care outside the United States. If you are a retiree who likes to travel internationally, you should
understand that an emergency abroad can quickly turn into a financial crisis.
Potential solutions: Certain Medigap plans do offer foreign medical coverage. You could also purchase a good travel insurance plan that offers a refund if you have to cancel
a trip or come home early. There are also some policies that give you emergency evacuation coverage if you need to be flown home.
