In the United States, the principal form of health insurance for retirees is Medicare.
But, Medicare alone might not satisfy all of your health insurance
retirement planning needs. What if you’re too young for Medicare when
you retire? What if you’re not eligible for Medicare for other reasons?
Medicare doesn’t pay for all of your health care; what if Medicare won’t
be enough coverage during retirement?
You need to plan now for health insurance during retirement.
The
days that an employer would provide health insurance as part of a
retirement benefits package are passing into history. With the exception
of the United States military, if your employer offers such a plan,
consider yourself lucky. However, luck can run out. If your employer
runs into financial trouble in the future, those health insurance
benefits could be scaled back or evaporate.
Health Insurance Options in Retirement
Medicare.
Medicare provides government-sponsored health insurance for the
majority of retirees in the United States. You’re eligible for Medicare
when you reach age 65 if you’re a citizen of the United States.
Non-citizens can be eligible when they reach age 65 if they’re
permanent, legal residents and have lived in the United States for five
or more years.
If you’re less than 65 years old, you may be eligible for Medicare, but only if you’re disabled, if you have end-stage renal disease, are on dialysis, have had a kidney transplant, or have amyotrophic lateral sclerosis.
Medicare hospital insurance, Medicare Part A,
is free for U.S. citizens as long as they or their spouse paid Medicare
payroll taxes for at least 10 years. Non-citizens and citizens who
haven’t paid 10 years of Medicare taxes may have to pay monthly premiums
for Medicare Part A.
Everyone who receives Medicare Part B, doctor and medical insurance, must pay a monthly premium for it.
However, some low-income people may get
financial aid. When you begin receiving Social Security checks, your
premiums can be deducted from your monthly Social Security checks.
Likewise, Medicare Part D,
prescription drug coverage, requires a monthly premium payment. There
is financial aid available for qualifying low-income folks needing help
paying their Part D premiums.
Although
Medicare is extremely helpful, it doesn’t pay 100 percent of your
medical expenses. If you’re willing to pay for it, you can buy a
Medicare supplement plan known as Medigap. Medigap insurance helps to pick up the tab for things like deductibles, coinsurance, copayments, and some of the things Medicare doesn’t cover.
If
you sign up late for Medicare Part B, Part D, or Medigap coverage, you
will be penalized by having to pay higher monthly premiums, so sign up
when you’re first eligible.
If you plan to retire early, before age 65, you won’t be able to get Medicare coverage until you turn 65.
Your health insurance retirement
planning needs to include alternate health insurance coverage between
the time you lose your job-based health insurance and the time you’re
covered by Medicare.
Obamacare. If you’re a U.S. citizen or legal resident, you can buy an Obamacare policy, private health insurance through your state’s Affordable Care Act health insurance exchange.
Your pre-existing medical conditions won’t cost you more or make you
ineligible. You’ll have to pay for this health insurance yourself, but
financial aid is available for those with modest incomes. You can find
out How To Get Help Paying for Health Insurance.
COBRA. COBRA continuation coverage allows you to continue you current group health insurance coverage for 18-36 months. If you’re eligible for COBRA, you’ll have to pay for it, and it can be expensive.
Spousal Insurance.
If your spouse is still working and has job-based health insurance, you
may be able to enroll in your spouse’s health plan. Your spouse’s
employer doesn’t have to offer coverage to employees’ families.
If it does, it can charge more for spousal and family coverage than it
does for the employee’s health insurance. This means your spouse’s
paycheck might be smaller when he or she adds you to his or her
job-based health insurance. Carefully weigh this cost against the cost
of buying an Obamacare health insurance plan on your state’s health
insurance exchange.
Short-Term Health Insurance. If you’re planning on retiring just a few months before you’re eligible for Medicare, short-term health insurance
can fill in the gap between the loss of your job-based health insurance
and the beginning of your Medicare coverage. Short-term health
insurance can be less expensive than full coverage through a health
insurance exchange or COBRA. However, it’s not without its drawbacks.
For example, you can still be refused short-term health insurance or be
charged higher premium rates if you have pre-existing medical conditions. Additionally, short-term health insurance doesn’t have to offer coverage for all of the essential health benefits that an Obamacare plan would.
Medicaid. You may be eligible for Medicaid
if your household income is very low after you retire. Medicaid
eligibility varies from state to state. If your state chose to expand
Medicaid coverage as described in the Affordable Care Act, you’ll be
eligible if your household income is lower than 138% of federal poverty level.
If your state didn’t expand Medicaid coverage, you’ll have to have a
low income, low financial assets like savings, and may also have to be a
member of a special population such as the disabled, blind, a caregiver
of a child under the age of 6, pregnant, or aged.
Rather than
counting on Medicaid coverage as part of your health insurance
retirement planning, you’ll be wiser to think of Medicaid as a safety
net, a health insurance of last resort, catching some of those who fall
through the cracks and providing coverage for many of the nation’s most
vulnerable citizens. Depending on your state, Medicaid may be there to
fall back on if your health insurance retirement plan falls apart.
However, it’s better to create a robust health insurance retirement plan
so you won’t have to use this government safety net.
Long-Range Health Insurance Retirement Planning
If you have a few years before you’re planning to retire and usually have low health care expenses, consider opening a Health Savings Account
combined with a High Deductible Health Plan. The HSA with an HDHP
combination is a powerful tool for health insurance retirement planning.
The more years you contribute, the more secure you’ll be.
The
money you save in an HSA accrues tax-deferred like the money you put
into a 401(k). If you withdraw HSA funds inappropriately, you’ll have to
pay taxes and penalties on the portion you withdrew. However, if you
withdraw it only for qualified medical expenses, you won’t pay penalties
and you won’t have to pay income taxes on withdrawals, either.
HSA funds can be used to pay COBRA premiums,
although you generally can’t use it to pay other types of health
insurance premiums. It can be used to pay for qualified medical expenses
when you’re uninsured. When you’re insured, it can be used to pay your
deductible, coinsurance, and copayments. It can also be used to pay
qualified medical expenses that aren’t covered by your health insurance.
After
you turn 65, you can use the money in your HSA for anything you’d like
without penalties; however, you’ll have to pay income taxes on the money
you take from your HSA for things that aren’t medical expenses. Many
people consider an HSA as an additional way to save for retirement.
Long-Term Care in Health Insurance Retirement Planning
Medicare and other health insurance won’t pay for long-term care.
If you need to live in an assisted living facility, retirement home, or
nursing home, you’ll have to pay for it yourself if you don’t have
long-term care insurance.
This care can be very expensive.
Depending on how long you need long-term care, these expenses have the
potential to wipe out your entire retirement nest egg. Your health
insurance retirement planning isn’t complete until you’ve made a plan
for how to pay for your long-term care needs.
