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Retirement Health Care Costs

One expense that’s almost sure to increase in retirement is health care and medical, and this expense will continue to increase throughout your retirement years. Money Magazine estimates that the average couple will annually spend the following on health care:

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During retirement when this expense is higher, you could lose many mitigating benefits that you may have had while working.  These include employer group insurance plans that offer medical, dental and eye care coverage at subsidized rates.  In addition you will lose any health care spending accounts that you had and start paying for health care insurance with after-tax (rather than pre-tax) dollars.

Medicare Health Insurance

The good news is that Medicare, a plan managed by the Federal government, kicks in on the first of the month that you turn 65.  Medicare includes basic hospital (Part A) and medical (Part B) insurance.  Part A covers inpatient care in hospitals, including critical access hospitals and inpatient rehabilitation facilities.  It also helps cover skilled nursing facility, hospice and home health care if you meet certain conditions.  Part B helps cover medically-necessary services like doctors’ services to help maintain health and to keep certain illnesses from getting worse.

If you're already getting Social Security checks, enrollment into the program should be automatic. You'll get your Medicare card three months before your 65th birthday.  If you're not getting Social Security payments already, you have to enroll in Medicare.  The Social Security Administration (SSA) handles the enrollment process for Medicare.  Call SSA at (800) 772-1213, visit the web site (www.ssa.gov), or apply at your local Social Security office.  Apply three months before your 65th birthday.  That way, you can be sure that your benefits will start on time.

Medicare Part A

Most people don’t pay a Part A premium because they paid Medicare taxes while working.  If you buy Part A, you'll pay $437.00 per month in 2019.  If you paid Medicare taxes for less than 30 quarters, the standard Part A premium is $437.00 per month.  If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $240.00 per month.

You can get premium-free Part A at 65 if:

  • You already get retirement benefits from Social Security or the Railroad Retirement Board.
  • You're eligible to get Social Security or Railroad benefits but haven't filed for them yet.
  • You or your spouse had Medicare-covered government employment.

Medicare Part B

Although Part B is optional, you should sign up for it when you first become eligible because there is a late-enrollment penalty if you wait – i.e., the cost for Part B may go up 10% for each full 12-month period that you delay.

The amount paid for Part B (Medical insurance) coverage is based on your modified adjusted gross income (MAGI) from your income tax return.  Note that the Social Security Administration uses tax returns from two years ago to determine your MAGI and correspondingly your Part B premium (e.g., the 2019 premium is based on your 2017 MAGI).  As the name implies MAGI includes Adjusted Gross Income (line 37 of IRS Form 1040) plus any tax exempt interest income (line 8b of Form 1040).  Note that your Adjusted Gross Income (and MAGI) may include one-time only income such as capital gains, the sale of property, withdrawals from an IRA, or conversion from a traditional IRA to a Roth IRA.

The monthly premium paid for Medicare Part B insurance for 2019 is as follows:

If Your Yearly Income (in 2017*) was:

You Pay (In 2019)

File Individual Tax Return

File Joint Tax Return

File Married & Separate Tax Return

$85,000 or less

$170,000 or less

$85,000 or less

$135.50

$85,001 - $107,000

$170,001 - $214,000

N/A

$189.60

$107,001 - $133,500

$214,001 - $267,000

N/A

$270.90

$133,501 - $160,000

$267,001 - $320,000

N/A

$352.20

$160,001 - $499,999

$320,001 - $749,999

$85,001 - $414,999

$433.40

$500,000 & above

$750,000 & above

$415,000 & above

$460.50

*Note that the Social Security Administration uses income from two years ago to determine your premium.

Medicare Part C

Alternative insurance can be purchased from private insurance companies approved by Medicare.  These are called Medicare Advantage Plans (Part C) and include HMOs and PPOs that follow Medicare rules and receive monthly payments from Medicare for your insurance.  Advantage Plans must provide at least all Part A and Part B benefits that the original Medicare Plan provides.  Each Medicare Advantage Plan can charge different out-of-pocket costs and have different rules for how you get services (like whether you need a referral to see a specialist or if you have to go to only doctors, facilities, or suppliers that belong to the plan for non‑emergency or non-urgent care).  These rules can change each year.

Medicare Part D

Medicare offers prescription drug coverage (Part D) to everyone with Medicare.  Part D plans are purchased from an insurance company or other private company approved by Medicare.  Each plan can vary in cost and drugs covered.  Note that some Medicate Advantage Plans include Part D coverage.

If your income is above a certain limit, you'll pay an income-related monthly adjustment amount in addition to your plan premium.  If you decide not to join a Medicare drug plan when you first become eligible you may pay a late enrollment penalty if you join later.

The monthly premium paid for Medicare Part D insurance for 2019 is as follows:

If Your Yearly Income (in 2017*) was:

You Pay (In 2019)

File Individual Tax Return

File Joint Tax Return

File Married & Separate Tax Return

$85,000 or less

$170,000 or less

$85,000 or less

Your Plan Premium

$85,001 - $107,000

$170,001 - $214,000

N/A

$12.40 + Your Plan Premium

$107,001 - $133,500

$214,001 - $267,000

N/A

$31.90 + Your Plan Premium

$133,501 - $160,000

$267,001 - $320,000

N/A

$51.40 + Your Plan Premium

$160,001 - $499,999

$320,001 - $749,999

$85,001 - $414,999

$70.90 + Your Plan Premium

$500,000 & above

$750,000 & above

$415,000 & above

$77.40 + Your Plan Premium

*Note that the Social Security Administration uses income from two years ago to determine your premium.

Medicare & Obamacare

Medicare isn't part of The Affordable Health Care Act's (Obamacare's) Health Insurance Marketplace, and it doesn't affect your Medicare choices or benefits.  This is true whether you're enrolled in the Original Medicare (Parts A & B) or in a Medicare Advantage (Part C) health care insurance program. The Marketplace does not offer Medicare supplement (Metagap) insurance or Part D drug plans.  With Obamacare's implementation you still have the same benefits that you have now and don't have to make any changes.

Medicare Decision Tree

To simplify the Medicare decision-making process, the 2015 "Medicare & You" Benefits Booklet provides the following chart:

MedicareDecisionTree.jpg

Simplified Decision Process

To simply your decision-making process, I suggest that these are really only two options for retiree hospital, medical and drug coverage (note that option #2 has two additional choices):

  1. If your prior employer allows continuation of your health insurance benefits (hospital, medical and prescription drugs) when you retire and you are happy with the plan, then it is usually in your best interest to continue with your employer’s group plan.  For retirees this could be a Medicare Supplement Insurance (Medigap) or Medicare Advantage plan.  For both plans you will probably still be required to enroll in Medicare Parts A & B and possibly Part D.  If your employer provides prescription drug coverage, it must be “creditable” or you will have to pay a penalty if you later choose to switch to Medicare Part D coverage. (Your employer can tell you whether its plan is “creditable”).

  2. If you were unemployed prior to retirement and didn’t have coverage under your spouse’s employer, then you need to do one of the following:

    • Enroll in a Medicare Advantage Plan (Medicare Part C) that includes Medicare Parts A, B & usually Part D, or

    • Enroll in Medicare Parts A and B, and then purchase prescription drug (Part D) coverage from a private supplier.  Optionally, you may want to purchase a Medigap policy for supplemental hospital and medical coverage.

Medicare Supplement Insurance (Medigap) or secondary insurance coverage picks up where Medicare leaves off, providing additional hospital, medical, and sometimes prescription drug coverage.  Note that Medigap policies that are currently being sold (i.e., after January 1, 2006) can’t include prescription drug coverage.  You will need to purchase this separately.

One factor to remember is that if you and your spouse are different ages and one qualifies for Medicare and the other doesn’t, you will have different primary insurance coverage and consequently different rules (co-payments, coinsurance and deductibles) for each person.

Please click on the following link to obtain a copy of the Annual Medicare Booklet:

Medicare & You