Did you know Medicare doesn’t cover long-term care?
The common belief that Medicare will cover the vast majority of healthcare expenses in retirement is simply not the case. A recent study by the Employee Benefits Research Institute (EBRI) estimates that the average “healthy” 65-year-old couple that retired in 2012 would need around $283,000 to have a 90% chance of covering medical expenses throughout retirement, with a risk of that amount being much higher. These costs include copays and premiums for Medicare Part B and Part D, Medigap and retiree health insurance, and other services not covered by Medicare such as dental care, vision care and hearing aids. And this does not take into account possible nursing home costs.
According to the EBRI report, Medicare currently covers roughly 62 percent of an individual’s medical expenses. To make matters worse, EBRI says the percentage covered by Medicare could decrease in the future. With retirees’ share of health care costs rising, it’s more important than ever to plan for these expenses in retirement.
Unfortunately, medical expenses for older adults are often unpredictable, and it can be difficult to arrive at an exact number. Such an amount is dependent upon two relatively unknowable variables: your future health and the future of health care coverage, by Medicare or another means.
According to a 2011 guide to health care and retirement costs from Merrill Lynch (and based on historical insurance data and actuarial predictions), the average annual out-of-pocket health care cost in 2011 for a 65-year-old in poor health and on Medicare was $4,760. For a healthy 65-year-old on Medicare, the average cost was $4,450. By age 75, the 2011 data shows a marked increase to $5,635 for someone in poor health and $5,220 for someone in excellent health. These numbers are averages for people on Medicare. A senior with a chronic or long-term illness could pay a lot more out of pocket.
Historically, medical costs have outpaced inflation. According to a November 2013 report, “Trends in Health Care and the Role of The Affordable Care Act,” released by the White House, the average annual increase in health costs was 4.5 percent from 1965 to 2010.
Some basics about Medicare:
- Medicare is only available at age 65 (or younger for persons on Social Security Disability).
- Seniors can currently choose whether to be covered by Original Medicare, which is broken into two primary parts (often called Part A and Part B), or a Medicare Advantage Plan. Advantage plans, which are provided by private health insurance companies, are often called Part C and can be more expensive and more comprehensive.
- Individuals who elect Original Medicare can buy a supplemental insurance policy, called Medigap, to fill in some of the coverage gaps in Parts A and B. Medigap no longer covers prescription drug gaps.
- To cover prescription drug gaps, Medicare users can pay for Part D, which is the Medicare Prescription Drug Plan.
- Medicare does not cover all prescription drugs and medical services and procedures.
- Medicare does not cover long-term care in nursing homes or at home. (This type care is covered by Medicaid and long-term care insurance.)
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