With healthcare costs skyrocketing, retirees need to consider how their finances will be affected. In fact, medical care is one of the single biggest costs during retirement. We believe the following ideas may provide clarity on this complicated topic.
Time and inflation, plus the effects of aging, make healthcare a growing part of every American’s budget in the later years. Medical inflation, in particular, is a key factor: Through April 2014 alone, Consumer Price Index medical costs rose 2.4 percent, versus 0.3 percent for all other CPI categories.
According to federal figures1, 70 percent of Americans also need some form of long-term care during their lifetimes.
And while costs vary nationwide, an assisted living facility can cost up to $72,000 annually2—a cost Medicare does not cover.
Retirement before age 65: In the past, employers provided post-retirement health benefits for early retirees beginning at age 55. Rising healthcare costs have discouraged that practice. Yet early retirees need not look for health insurance in the open market, due to new options created by the Affordable Care Act (ACA). One of ACA’s most important provisions for early retirees is its state health insurance exchanges. You can no longer be declined coverage for age or a pre-existing condition. And these exchanges offer at least two health-insurance carriers and varying levels of coverage for purchase.
Age 65: Medicare at a glance: Beginning at age 65, Medicare is the foundation of your healthcare coverage, but it shouldn’t be your only coverage. Medicare does protect against many healthcare issues but has relatively high deductibles, cost-sharing requirements and gaps. A brief overview:
- Part A, which covers inpatient hospital stays and hospice care, is free to individuals and their spouses who have paid into Medicare for 10 years. Benefits are subject to a $1,216 deductible per benefit period and coinsurance.
- Part B pays for physician visits, outpatient services and preventative services added by the ACA plus home-health visits. Premiums vary from $104 to $335 per month.
- Part C refers to the Medicare Advantage program through which individuals may enroll in private HMOs, PPOs and fee-for-service plans and receive all Medicare Parts A and B benefits. It is also possible to include a Part D plan for an additional fee.
- Part D is a voluntary subsidized drug benefit offered through private insurers approved by Medicare. Part D is offered on a sliding scale depending upon income.
Medigap supplements Medicare A and B and is sold by private insurance companies. It helps pay some of the healthcare costs that Parts A and B don’t cover, such as copayments, coinsurance and deductibles. Some Medigap policies also offer coverage for services that original Medicare doesn’t cover, such as medical care during travel outside of the United States.
Paying for long-term care: As noted, most Americans will eventually need longterm care, for an injury, chronic illness or disability. A long-term care policy, or life insurance policy with a long-term care rider pays a daily benefit for eligible services provided at home, at an adult daycare center or an assisted living facility or nursing home. Details of coverage vary widely, but the younger you are when you buy the policy, the lower the premiums will be. Whatever your decision on medical coverage, careful financial planning can help you preserve assets and cope with these challenges.
1Source: U.S. Department of Labor, Bureau of Statistics, Consumer Price Index as of April 2014.
2Genworth 2013 Cost of Care survey.
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This article has been written and provided by UBS Financial Services Inc. for use by its Financial Advisors. Jesse Rodriquez is a Financial Advisor with UBS Financial Services Inc. at 888 San Clemente Drive, Newport Beach, CA, 92660. UBS Financial Services Inc. Financial Advisor engaged Worth to feature this article. The strategies and/or investments referenced may not be suitable for all investors. UBS Financial Services Inc., its affiliates and its employees are not in the business of providing tax or legal advice. Clients should seek advice based on their particular circumstances from an independent tax advisor.
This article was originally published in the February/March 2016 issue of Worth.
