Funding Health Care Costs After Age 65

With the rising cost of health care, many companies are now eliminating health care coverage for retirees over the age of 65. This leaves these retirees exposed to health care costs not covered by Medicare. These costs are referred to as Medicare gaps or “Medigaps.”

The significant gaps in Medicare coverage include (for 2010):

• deductibles for Part A ($1,100 per benefit period for inpatient hospital care for the first 60 days) and Part B ($155 a year);
• costs of extended hospitalization under Part A ($275 per day for 61st through 90th day, $550 per day for the 91st through 150th day, full cost after the 150th day);
• coinsurance (20%) on doctors’ services and outpatient care under Part B after $155 deductible is satisfied;
• costs in excess of Medicare-approved charges - Medicare will pay only so much for specific medical services; if the retiree’s doctor charges more than the Medicare limit, the retiree may have to pay the difference;
• most self-administered prescription drugs; and
• cost for the first 20 days in a skilled nursing facility are covered in full and days 21-100 are covered after paying a $137.50/day deductible. Coverage terminates after day 100.

These costs can be significant. For example, an elderly individual with multiple chronic conditions (e.g., congestive heart failure and Parkinson’s disease) can easily spend thousands of dollars per year on prescription medicines alone. These same individuals may be in and out of the hospital several times each year. If each visit represents a new benefit period, a new deductible is required for each. Deductibles and co-payments on Part B doctor visits can also quickly add up. Even more damaging, a serious illness or accident could put the individual in the hospital for a period in excess of covered days, requiring 100% payment of stratospheric hospital costs.

No sound retirement plan can ignore these potential costs.

Retirees facing this challenge now need to think about strategies for funding these excess health care costs after age 65. Strategies for filling gaps between actual health care costs and Medicare coverage include:

• the purchase of so-called Medigap insurance from private vendors;
• using Medicare Part C;
• if possible, maintain coverage through an employer-provided health insurance plan; and
• for low-income seniors, qualifying for state assistance in paying some or all Medicare costs (Medicaid).

Medigap insurance is designed to supplement Medicare’s benefits by filling in some of what Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The cost of Medigap policies varies widely from plan to plan. Care must be taken in choosing the appropriate plan for a retiree’s individual situation.

To discuss the impact of health care costs on your retirement income plan and the optimal solution for your personal situation, contact a Mainstay Capital Management  Retirement  Planning  Specialist toll-free  at  1-866-444-6246.