Health-care Costs: Your Retirement Portfolio’s Dark Horse
October 10, 2013
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Don L. Riley
Health-care costs have always been a concern for future and current retirees, but because of recent changes in the industry, it is now becoming an increasingly important aspect of retirement planning.
Longer life spans, market volatility, increasing medical costs, the elimination of corporate retiree health plans and the uncertainty in the future of Medicare and Medicaid are a few of the reasons that retirees are beginning to adjust their outlook on health-care spending.
Although health-care expenditures should be a primary concern to retirees, recent data tells a different story. A 2011 study by Sun Life Financial found that 92% of American workers either had no idea what their health-care costs would be in retirement or they vastly underestimated the costs. Fidelity estimates that a 65-year-old couple retiring in 2013 will need $220,000 to cover their medical expenses throughout retirement. The $220,000 estimate does not include expenses for supplemental insurance and other health-related items such as over-the-counter medicines, vision and dental expenses, or long-term health care.
What Are My Options? Medicare
Medicare was created by the government to provide health insurance for those aged 65 and older. Medicare was not designed to and will not cover all of your medical expenses. In fact, Medicare has large gaps in coverage and no out-of-pocket limitations. Medicare has four primary parts: Part A (hospital coverage), Part B (physician and medical service coverage), Part C (Medicare Advantage), and Part D (prescription drug coverage). Part A has no cost to individuals who qualify for Social Security. Medicare Part B has monthly insurance premiums that are dependent upon income and can range from $104.90 to $335.70 per month per person. Part B premiums are typically deducted from your Social Security benefit. These premiums, however, can be paid directly if you are still working or have deferred Social Security. Because of the gaps in coverage and the potential unlimited out-of-pocket expenses associated with Parts A and B, retirees often will need to find a source of supplemental insurance.
Unlimited out-of-pocket expenses can multiply quickly without a source of supplemental health insurance. For example, let’s examine the cost to an individual who spends 200 days in the hospital and is only covered by Medicare Parts A and B.