Healthcare Costs: The New Obstacle to Retirement

Sep 5, 2007 - Planning how to cover your healthcare expenses after you’ve retired may become just as important as how you are going to finance your retirement in general.  It is estimated that throughout the course of a 20 year retirement period a couple could be required to cover an estimated $200,000 in healthcare related costs on their own and this estimate does not include the cost of any long-term care.  Ever escalating healthcare costs could conceivably alter the age at which you are able to retire as well as your overall retirement picture.  This will especially be the case for those wanting to retire before the age of 65, prior to their Medicare benefits kicking in, as these new retirees might not be able to obtain health insurance coverage on their own or pay for medical related services not already covered by insurance.  And for those Americans who are counting (or banking) on Medicare benefits when they turn 65, their out-of-pocket expenses such as medi-gap insurance premiums, co-payments and deductibles will still add up, taking there toll on their fixed income.   

Some employers in the U.S. do offer healthcare benefits to their retirees along with their active employees, but those fortunate enough to have these benefits available to them, can count on having to pay a progressively larger share of their medical costs as time goes by.  Special enrollment rules apply for those who are still on the job and are also eligible for Medicare.  If you do have healthcare coverage provided by your previous employer, you will want to exercise caution before signing onto Medicare’s prescription drug plan (Part D) as you will need to do a cost-benefit analysis to determine which plan is most advantageous to you.  Many employer sponsored plans have provisions to cut back some or all of the benefits to former employees who sign up for Medicare’s prescription drug program.  Your former employer’s benefits administrator is responsible for advising you as to how their coverage works with Medicare and should send you information illustrating the differences as to how your current coverage compares with that of Medicare’s standard drug coverage.

To ensure that your Medicare coverage begins seamlessly, you want to start the transition process a minimum of 3 months before your 65th birthday if you are not already receiving social security at that time.  However if you are receiving social security benefits then you are automatically enrolled in Medicare and are not normally required to do anything.  The 3 month period prior to your 65th birthday signals the beginning of Medicare’s 7 month “Initial Enrollment Period”. You also need to be aware that there is a 10% penalty for every year you wait beyond that of your initial enrollment period.  Medicare’s “general enrollment period” runs from January 1st to March 31st each year for benefits commencing on July 1st of the same year.  If you miss the enrollment period then you’ll have to wait until the next period comes around again.  This could be a costly mistake if you are not paying attention and do not start the process in time as your coverage will be delayed and you could face the penalty.  If you are already eligible for Medicare you want to carefully assess your plans for filling in the gaps in your healthcare coverage.  As for medi-gap policies there are generally 12 standardized versions to select from if you opt for traditional Medicare.  It is likely to your advantage to select the lowest cost issue-age or community-rated policy as opposed to focusing on the price increase with an attained-age policy.

The key to meeting this new challenge in retirement, as always, is planning.  You must utilize all the resources at your disposal when making these important healthcare related decisions and you need to take the time to compare and analyze all of your options.  Starting the process early will help so that you’re be able to make an unhurried, well informed decision about this most crucial component to both your financial and physical well being in retirement. 

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