Sep 28

Planning for Medicare

by Dick Schlote

Why would an investment advisor’s website contain a blog about Medicare?

The cost of health care is an increasingly important piece of retirement planning, and it is a shock to many who have been covered under an employer plan that is often subsidized by the employer, sometimes at 100%.  Most employers either reduce the subsidy or discontinue health coverage completely for retirees because it is too costly to continue.  This trend is sure to continue.  Costs are a combination of premiums, co-pays, and deductibles.

Those age 65 and over who are eligible for Medicare are beginning to receive mailings about Medicare Supplemental Plans and Medicare Advantage Plans because the enrollment period begins October 15 and extends to December 7 for 2012.  As usual, these mailings tend to create more confusion than clarity with their various plan costs and coverages.

There are three basic parts to Medicare:  Part A (Hospital Insurance), Part B (Medical Insurance), and Part D (Prescription Drug Coverage).

Most pay no premium for Part A Medicare (Hospital Insurance) because they paid Medicare taxes while working so, essentially, one could have some coverage and pay no premium.  This is called ”self insuring,” assuming that any health care expenses not covered under Part A would be paid from personal funds.  I don’t recommend this approach because the cost of care from a serious illness could be astronomical and devastating.

The monthly Part B premium can be anywhere from $95 to about $460 depending on income.  Lower income retirees generally pay $95 or $115.  At income levels of $85,000 ($170,000 for joint tax filers) the premium increases accordingly.  The monthly cost for a couple reaching age 65 today would be at least $230 for Parts A & B.  This would be basic coverage with co-pays, deductibles and no drug plan.

From this point it really depends on how much additional coverage is desired and the expectation of individual health care needs, i.e., how many doctor visits, how many and what kind of drugs, and overall health status.  Doctor and specialist visits can cost $100 or more.  Drugs are very expensive – mine, for example, would cost over $300 per month without drug insurance coverage.

For planning purposes, a person on Medicare can expect monthly costs (premiums, co-pays, and deductibles) of from $0 (unlikely) to over $1,000.  Without Medicare, one person could spend over $1,500 per month just on basic premiums and coverages.

My next post will discuss the Medicare Supplement and Medicare Advantage options.

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