Planning for Health Care Costs During Retirement

The cost of health care is an important factor that should be considered when creating a plan for retirement.

Workers want to ensure they are going to be covered when they retire to avoid the stress that comes with unpaid health care bills and not being able to receive needed medical care. Because seniors statistically require more health coverage per year than the average American adult, quality and availability of health care is a necessary component of any retirement plan.

There are many steps that can be taken to plan for health care costs during retirement, such as assessing future health care expenses, reviewing available insurance options and saving for medical-related bills. Seniors should also understand how new health care laws may affect retirement plans and Medicare benefits. Consider the following points to learn in-depth information about how to prepare in advance for future retirement health care expenses.

Assess Future Health Care Costs

Because health care is one of the largest expenses during retirement, Americans should understand the amount needed to cover medical costs as a senior. When planning for future health care coverage, estimate your anticipated health care cost as a retired senior. While it is not possible to come up with a definitive monetary amount, an estimate can give you insight as to whether your health care expenses during retirement will be higher or lower than average.

Consider your current overall health, including chronic conditions and diseases, when estimating the cost of retirement medical bills. Diseases and chronic conditions result in higher health care costs for seniors. In the estimate, include the regular care you receive now and any additional medical services you anticipate needing in the future. Other factors to keep in mind are where and when you plan to retire, as health care costs vary by location and age.

Budget and Save for Medical Expenses

Saving for future health care costs well in advance is a good way to prepare for medical expenses during retirement. Savings can be used to pay for unexpected bills, medical emergencies and costs that are not covered by insurance. With an estimated yearly retirement health care cost in mind, you can create periodic savings goals. Having health care savings available can bring peace of mind and allow you to enjoy your period of retirement without worrying about impending medical bills.

If your employer offers a health insurance plan with a health savings account (HSA), placing money into an HSA is beneficial to save for future medical costs. An HSA allows you to save money before taxes to be used for certain medical expenses during retirement. Unused HSA funds have the potential to grow with interest over time and maximize your available health care savings.

Retired seniors can budget their income to ensure they have enough money available to cover monthly medical expenses. Extra money left over each month can be saved and used to supplement future health care costs, if desired.

Review Available Insurance Options

Choosing the best retirement health insurance plan for you is a vital part of preparing for retirement. Medicare is a main health insurance option for older Americans, available to most seniors at a certain age. However, some retirees may opt to use a private health care company and/or supplement their insurance plan with extra coverage. In order to choose a health insurance plan that fits your specific needs and budget, research and consider the options available to you. Learn about some of the available insurance plans for seniors below.

Learn About Medicare

Many seniors are eligible to apply for Medicare just before turning 65 years old. Medicare is a federal program that provides health insurance plans for older Americans. There are different Medicare plans available, such as Medicare Part A, B and D. Each plan provides different forms of medical coverage, and seniors can choose which plans they would like to enroll in. However, the program does not include certain areas of coverage or pay for some health costs. Retired seniors could be left paying premiums and deductibles under Medicare coverage. Understanding the benefits available, costs involved and coverage gaps with Medicare insurance is essential for workers preparing for retirement.

Workers preparing for retirement should be aware of their enrollment period for Medicare to ensure they begin receiving benefits when needed and avoid being charged penalty costs associated with late enrollment. Seniors who miss the required date to apply for Medicare may experience a delay in health insurance coverage and/or have to pay fees for enrolling in a plan after their deadline.

For those with Medicare who are not covered for certain benefits and/or medical costs, supplemental insurance called Medigap is available. Medigap bridges coverage gaps by paying out-of-pocket health care costs. Seniors can purchase different levels of Medigap coverage depending on their personal needs and finances.

Private Insurance

Some seniors may choose to receive private health care coverage, possibly through an employer-provided insurance company or spouse. If the private insurance company provides greater coverage, lower deductibles and/or better quality of care, the plan could be a better option than receiving insurance through Medicare. However, private insurance may only be available to you for a limited amount of time, such as while you or your spouse is employed. Be sure to consider all options for insurance coverage and review the Medicare rules and regulations before making a decision on using private insurance.

Consider New Health Care Laws

The new laws implemented by the Affordable Care Act (ACA) could change health care coverage for some retired Americans. Seniors should understand how the laws affect their medical insurance benefits, whether through Medicare or a private insurer, during retirement. Considering these new laws when planning for retirement is important, as the legislation has changed the entire health care system in the U.S.

Specifically for Medicare, the ACA provides revisions on existing laws and new legislation that increases coverage areas, creates better quality of care and covers more prescription costs. Generally, the new provisions for Medicare are beneficial for seniors. However, there are many laws enacted by the ACA that may have differing effects on senior health insurance plans. How the ACA affects your retirement plan and future health coverage depends on your individual retirement benefits and unique personal and financial situations.

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