Retiree's Healthcare and Medicare Basics

Finding affordable medical insurance is a critical part of your retirement planning. Most retirees ultimately receive health insurance through Medicare. However, early retirees don't have access to Medicare until the age of 65. Thus, individuals retiring early must temporarily obtain coverage either via a continuation of their employer-provided coverage or through private insurance.

Continued Group Coverage
In today's corporate world, you are fortunate if you have continued employer coverage when retiring before the age of 65. However, if you don't, there are legal requirements that prevent employers from completely eliminating health coverage for a period of time after an employee retires. Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), employers with twenty or more employees are required to provide access to continued health insurance coverage to former workers for up to 18 months.

Remember that COBRA only requires the employer to provide access to coverage; the cost of the coverage is assigned to the individual. Unfortunately, coverage under COBRA can be extremely expensive - in some cases as much as seven times what the employee paid for coverage while employed. Because coverage under COBRA must be identical to the coverage the employee had while working, a retiree is unable to choose a less-expensive plan to save money.

Private Insurance
Many early retirees will need private insurance, and it's a tough market for people ages 50 to 64. This age group is largely unprotected by government programs and is most likely to be denied coverage or hit with high premiums. If you have serious health problems, you may want to continue working to keep your employer-sponsored health coverage.

For healthy people ages 62 to 64, private health insurance costs $500 to $1,000 per month. If you are planning to retire before age 65, evaluate your health insurance options as soon as possible. Visit www.insure.com to get an instant online health insurance quote. If you can't obtain coverage, you may have no option other than to continue working until you qualify for Medicare.

Medicare
Last month, Steve Vernon put together some great information regarding Medicare. Following is a summary of Mr. Vernon's article, or you can view the full article here.

Enrolling and choosing a Medicare plan can most easily be thought of as a seven-step process. But first, you'll want to understand the four major parts of Medicare:

• Medicare Part A: Hospital Insurance - helps pay for inpatient hospital care, skilled nursing facilities, hospice care, and some home healthcare.
• Medicare Part B: Physician and Outpatient Coverage - helps pay for doctors' services, outpatient hospital care, and some other medical services such as blood work, lab tests, and preventive services.
• Medicare Part C: Medicare Advantage (MA) Plans - include Medicare Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Fee-for Service Plans, and Special Needs Plans. Coverage can also include prescription drugs. These plans include Medicare Part A and B.
• Medicare Part D: Prescription Drugs - necessary to obtain prescription drug coverage through Medicare. The coverage is offered through private health insurance companies.
  

Step 1: Check Your Eligibility
Eligibility for Medicare is similar to that of Social Security. You or your spouse must have worked 40 quarters (ten years) in Medicare-covered employment to receive free Medicare Part A coverage. Additionally, you must be 65 and a citizen or permanent resident of the United States. If you or your spouse hasn't worked 40 quarters, your monthly premium for Part A coverage could be as high as $450 per month.

Step 2: Determine When You Should Enroll
If you start your Social Security income benefits before age 65, you'll automatically be enrolled in Medicare Parts A and B upon turning 65. If you haven't started your Social Security benefits by age 65, you'll want to enroll in Parts A and B within three months of your 65th birthday. You'll also want to enroll in Part D at this time unless you're getting prescription drug coverage elsewhere.

If you delay signing up there might be a penalty applied to your premiums. Even if you're covered by an employer-sponsored plan, your employer may still require you to enroll in Medicare Part A at age 65. Ask your HR department for more information. If you don't enroll in Parts B and D because you're covered by your employer's plan, the late enrollment penalty won't apply.

If you decide you'd rather be covered by a Medicare Advantage (MA) plan than by Medicare Parts A and B separately, you'll want to enroll before your 65th birthday to avoid penalties. However, you won't want to elect a MA plan while you're covered by your employer's plan since you'd be duplicating coverage. In this instance, you may want to apply for Medicare Part A coverage at age 65 and then switch to a MA plan after retiring.

Step 3: Choose Between a Medicare Advantage (MA) Plan or Enrolling in Medicare Parts A and B
Medicare Advantage Plans combine Medicare Parts A and B, often cover Part D and may cover some of the amounts you might normally pay for Part A's deductibles and copayments.

The advantages of MA plans are:

• All coverage comes from one source.
• MA plans may have lower premiums when compared to premiums for Medicare Parts B, D and Medigap.
• Some MA plans provide benefits not covered by Medicare, such as dental, vision and wellness.
  

The disadvantages of MA plans are:

• You may be restricted to doctors in the plan's network.
• You may need to cover 100 percent of the cost to visit a doctor outside your network.
• You may need to pay a co-payment each visit.
  

Compare features and premiums of the MA plans in your area to enrolling in Medicare Parts A and B separately. Check to see if your preferred doctors or specialists participate in the MA plans you consider. Also, check out this tool offered by Medicare to help determine whether to take traditional Medicare Parts A and B, or enroll in a MA plan that offers coverage for both.

Step 4: Determine Whether You Should Purchase Parts B and D
The basic premium for Medicare Part B (generally $115.40 per month) only covers about one-fourth of the cost; the federal government pays for the rest. For high-income individuals, the monthly premium for Part B can be as high as $369.10. Part D benefits provide essential coverage since most retirees take prescription drugs. Monthly premiums generally range from $20 to $50. Both Parts B and D are good deals for most individuals.

Step 5: Shop For Part D Coverage
Medicare Part D, covering prescription drugs, is insurance you typically buy from an insurance company. You can select among many companies that offer Part D benefits. Mr. Vernon emphasizes that when choosing a provider, consider the plan's formulary - the list of drugs that the plan covers. There are plenty of tools offered by nonprofit organizations that can help you identify the provider that is right for you.

Be aware that Medicare Part D includes the dreaded donut hole. For example, if your total drug costs exceed $2,840 in 2011, you might be paying 100 percent of the costs until your total out-of-pocket costs for drugs reaches $4,550; at that point, you'll be eligible for catastrophic coverage and you'll only pay a small part of the remaining costs.

Step 6: Evaluate Medigap Insurance
Medicare has substantial deductibles and copayments which can lead to thousands of dollars each year in out-of-pocket expenses. Medigap insurance provides coverage for these gaps in your Medicare coverage. Monthly costs for Medigap plans generally range from $50 to several hundred dollars, depending on the type of Medigap coverage chosen.

Medigap plans come in 10 standardized policies, lettered A, B, C, all the way up to N. Each Medigap Plan A has the same features, each Medigap Plan B has the same features, and so on. Once you select the type of Medigap plan you need, you can easily compare the costs among different insurance companies. View a list of the different policies here.

Note: if you enroll in a MA plan you won't need Medigap insurance because that would duplicate coverage.

Step 7: Dealing With Expenses Not Covered By Medicare
Medicare Parts A and B and most Medigap plans don't typically pay for long-term care, vision, dental, hearing aids, or eyeglasses. If you need hearing aids or eyeglasses, you'll want to determine if either your Medigap or Medicare Advantage plan covers these expenses. This can be an item to consider when deciding between Medicare Parts A and B or a MA plan. If the plan you choose doesn't cover these expenses, you'll want to factor these costs into your budget.

Final Thoughts

Mr. Vernon estimates that by the time you add up all the costs involved, you should expect monthly expenditure of $500 or more per person for medical costs. Factoring these costs into your monthly budget can help you decide when you can afford to retire.

Finally, when you see how much money you could be spending on medical insurance and out-of-pocket costs, you might get really motivated to take care of your health to potentially reduce the amount of money needed. Wouldn't you rather spend your money doing fun things than on medicine or trips to the doctor?