As you begin to understand the expense of healthcare in retirement it is important to understand your retirement insurance options. One or more of these options may appeal to your anticipated health needs and budget. Talking with a professional offers insight and helps identify the solution which best fits you. We discuss the larger picture in our Your Health Care in Retirement post, here we will break down some options.
Social Security Benefits
Rumors of Social Security instability leave baby boomers wondering if it will support them as they retire. Legislation plays an important role. Some changes to the system have already been seen in recent years, so it’s very important to pay attention to the changes over time.
While future payouts seem likely, the amount may be considerably less. Based on the uncertainty, laying out a financial plan that does not include Social Security can pad your finances or may allow you to retire early. Consulting a professional also helps you know how early or late to claim Social Security for the maximum benefit.
You might be tempted to believe all will be okay, after all, Medicare kicks in after 65. Make no mistake, Medicare fails to offer a sure bet safety net. Medicare could kick in as early as 62 but there are many healthcare cost which isn’t covered under all plans:
- Dental services
- hearing aids
- prescription glasses
Are just a few of the items that are not always covered.
While you may or may not need hearing aids, dental and sight issues become common as you age. Chronic conditions (all too familiar to seniors) and disabilities also fall outside of Medicare coverage.
There are four parts to Medicare you’ll need to consider:
- Medicare Part A: No monthly premium but a high deductible covers hospitals and home rehab
- Medicare Part B: Monthly premium and once yearly deductible takes care of doctors services
- Medicare Part C or Medicare Advantage: Lower monthly premiums get Part A and B coverage plus prescription, dental and vision coverage
- Medicare Part D: Monthly premium gives you prescription drug coverage
So, while Medicare does support some of your healthcare needs into retirement, gaps in coverage leave significant expenses as your responsibility. Medigap offers seniors supplemental coverage. By 2020, these plans will cover 100 percent of out-of-pocket costs for premium payers. To get a plan with greater coverage, you pay a higher premium.
Health Insurance Options
The only commonality to insurance plans is their significant differences. Don’t allow the confusion to stop you from exploring options, you have plenty. Employer-based or private plans offer supplemental coverage to Medicare. Gap vs. full coverage plans have lists of pros and cons. Let’s take a look at some choices:
Short-Term, Gap or Temporary Insurance
This insurance fills in when long-term coverage is not available. If you are between jobs, recently lost your job, missed the open enrollment deadline or are in a waiting period for another health plan.
The Pros: Short-term policies:
- Get you covered quickly
- Allow you to pay for the protection you want
- Accept applications year-round
- Offer lower premiums than long-term options
- Cover basic medical needs and emergencies
The Cons: Short-term policies:
- Cap coverage at 12 months
- Do not cover pre-existing conditions, prescriptions or preventative care
- Are not renewable
- May reject you due to lifestyle or current health
- Fail to meet ACA requirements (leaving you open to tax penalties)
Major Medical or Long-Term Insurance
While long-term insurance policies carry heftier premiums than their short-term counterparts, the coverage is more comprehensive. These policies are less flexible as to policy maximums and deductibles. However, their coverage lasts the length of your retirement years.
The Pros: Long-term policies:
- Have no limited coverage period
- May cover pre-existing conditions
- Cannot reject you according to ACA requirements
- Renew annually
- Meet ACA requirements
The Cons: Long-term policies:
- Charge higher premiums
- Take longer to apply and get approved
- Require underwriting
- Enforce open enrollment periods
- Usually, require a waiting period
Long-Term Care Insurance
Long-term care insurance is coverage that provides nursing-home care, home health care, personal or adult day care for individuals above the age of 65 or with a chronic or disabling condition who needs constant supervision. Generally, an LTC policy can offer more flexibility and options than many public assistance programs.You can find these policies as individual plans, employer plans, organization coverage, joint policies and state partnership programs.
The Pros: Long-term care policies:
- Act as a supplement to Medicare and long-term policies
- Offer tax advantages
- Protect against inflation
- Cannot be terminated
The Cons: Long-term care policies:
- Cost you even if you never need this type of care
- Reject pre-existing conditions or enact a waiting period
- Increase their premiums when income tends to decrease
Health Savings Accounts
Growing in popularity, health savings accounts (HSA) allow you to deposit, invest and withdraw funds all tax-free. The account can be used to pay or reimburse you for qualified medical expenses. After retirement age, the money may be used similarly to a 401(k) plan. Typically, these accounts work in conjunction with high deductible health insurance plans.
However, there are a few consideration to take into account:
- If you have Medicare, an HSA is not an option.
- Unlike Flex Spending Accounts, unused money rolls over into the next year.
- Fees, initial costs, and limits apply.
Make sure you have a clear understanding of what you agree to when signing up for an HSA, before your stuck with a major misunderstanding or a plan that does you no good.
As with all insurance options, it is important to consult an insurance professional- in conjunction with your financial advisor a qualified insurance agent will help you create the best healthcare plan for your entire retirement.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Long-Term Care policies have exclusions and/or limitations. The cost and availability of LTC insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of LTC insurance. Guarantees are based on the claims-paying ability of the insurance company. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.