Understanding Healthcare in Retirement

When people save for retirement, one of the most often overlooked expenses is the cost of health care. Even when people enroll in Medicare at age 65, their out-of-pocket expenses for health care services can be sizable. For example, a 65-year-old couple may have to pay $315,000 over the remainder of their lives for expenses like insurance premiums, copayments, deductibles, and uncovered services.¹

Given the high cost, it’s important to prepare for how you’ll meet medical expenses once you stop working. Following is an overview of your options if you retire before or at age 65. Knowing all the choices available will help ensure that you obtain the right coverage and keep your overall healthcare expenses manageable.

Retiring before age 65

If you retire early, you may have several options for continuing your health insurance coverage.

Continued benefits from your previous employer

In some cases, organizations offer retirees the same health insurance benefits they enjoyed when they were employed. For example, when companies are looking to downsize their staff, they may offer older workers the option to take early retirement packages that include health care coverage until they reach Medicare age. The amount of coverage provided, and the out-of-pocket costs that come with the co-payment of premiums and plan deductibles, may be the same, or more than they were when people were actively working and enrolled in their employer’s health care plan.

COBRA benefits

COBRA gets its name from the legislation that established this right – the Consolidated Omnibus Budget Reconciliation Act of 1985. If your employer doesn’t offer continued health care coverage, you still have the right to extend it for up to 18 months after your employment ends, or longer under certain circumstances.²

You can generally take advantage of COBRA benefits after your employment terminates, unless you were fired for “gross misconduct.”³

During the COBRA benefit period, the employer doesn’t have to continue paying any portion of the premium for your health insurance, however group premiums are generally lower than individual plans, so there could still be a benefit to continuing your coverage. Under COBRA, you will have to pay the entire premium, plus up to a 2% administration fee.

If you had a Health Savings Account (HSA), you will still be able to use any remaining amounts in the HSA, and make contributions, to cover qualified medical expenses, and possibly your COBRA premiums.

Spousal coverage

If you’re no longer employed, but your spouse still is, you may be able to obtain coverage through a family plan offered by your partner’s employer. Be sure to check with your spouse’s employer to determine if this option is available to you. Of course, the above would apply to their coverage as well once their employment period ends.

 ACA Health Care Exchanges

The Affordable Care Act (ACA) also sometimes called “Obamacare,” passed in 2010 is designed to extend healthcare coverage to more Americans. If you don’t have other affordable options for care after retiring, you may be eligible to obtain a plan through your state. The advantage of this option is that you may, depending on your income level, get a subsidy to cover a portion of the premium. If you’re not working, other sources of income such as a pension, other retirement plan withdrawals, or early Social Security benefits, will all be used to calculate your income.

As with most insurance, your options increase if you’re willing to pay a higher monthly premium. The plans available are labeled “bronze,” “silver,” “gold” and “platinum,” with the premium costs rising as your coverage and freedom to select providers increases. If you’re willing to pay for the higher-cost plans, you may find the types of coverage you receive and the access you get to medical practitioners are the same as what you enjoyed through your former employer’s plan. The options available in your state’s exchange can be reviewed online. You can enroll on your own or with the help of an expert advisor who can guide you through your options. The open enrollment period for these plans is held annually from November 1 to January 15. However, you can enroll at any time during the year if you’ve recently lost other coverage.

Private insurance or self-coverage

If you don’t have access to other insurance coverage and prefer not to enroll in an ACA-compliant plan, you can obtain coverage on your own by purchasing a private health insurance plan. The premium costs for individual or family coverage are likely to be very high. People under age 30 have the option to select a low-cost, high-deductible catastrophic health plan⁴ that will provide coverage for care only when it is needed in a worst-case scenario, like a severe car accident. Those aged 30 and over, however, generally aren’t eligible for these plans unless they can prove they have experienced an extreme personal or financial hardship.

The typical costs

The average cost in 2022 of family coverage for an employer-sponsored health insurance plan was $22,463⁵, according to the Kaiser Family Foundation. The typical worker, during their employment, paid $6,106 of the cost. As a former employee using your COBRA benefits, you may have to pay all of the premium, plus the 2% administration fee for a total annual cost of $22,912.26. That equates to a $1,909.36 monthly payment you’d have to add to your household budget.

The costs of an ACA-compliant plan will largely depend on what state you live in, what your age is, how much coverage you want to obtain, and what level of income you have. As an example, to obtain a “silver” plan through Pennsylvania’s state-run health insurance exchange, known as “Pennie,” a 60-year-old couple with an annual income of $75,000 who opt for family coverage might have to pay monthly premiums starting at $1,580. Pennsylvania residents can choose from a variety of plans offered by the 13 insurers that, as of 2023, participate in the Pennie program.

Retiring at or after age 65

Once you reach age 65, you can qualify for Medicare, the federally run health insurance plan that is available to everyone who worked, or whose spouse did, and paid Medicare taxes for at least 10 years. With Medicare, you won’t simply get all your medical expenses covered for free. It’s important to understand the different parts of the program and what the out-of-pocket costs associated with each type of coverage are, as outlined below. Unlike the state-run Medicaid programs for lower-income individuals, there are no income restrictions that will affect your Medicare eligibility. Still, your income may affect the premiums you pay for some of the coverage offered beyond the core insurance for hospital stays.

Medicare Part A for hospital stays

Once you enroll in Medicare, you will have coverage for the costs of hospital stays up to 60 days in length⁶. You will not have to pay any premiums to obtain this coverage, and all the expenses you incur during this stay will be covered after a deductible of $1,600 per stay is met. The premium costs for stays longer than this increase, and in the extremely rare cases of a hospital stay lasting more than 150 days, you would have to cover the entire cost.

Medicare Part B for general medical insurance

Part B generally covers the cost of doctors’ office visits, outpatient care, lab tests, medical care, some home health care, and physical or occupational therapy. The cost of Medicare Part B premiums, as of 2023, is $164.90 per month. Your cost for this coverage, though, scales upward if your annual income exceeds $97,000 as an individual or $194,000 as a couple who file a joint tax return. It’s also important to enroll in Medicare Part B when you’re eligible at age 65. You’ll pay an extra 10% in premiums for each year you could have signed up for Part B but didn’t.

Medicare Part D supplemental plans for prescription drug coverage

Part D provides prescription drug coverage plans from private insurance companies that contract with Medicare. The average monthly cost for a base plan in 2023 is $32.74⁷. Once again, people with higher incomes – more than $97,000 annually for individuals and $194,000 for couples filing jointly – will have to pay more.

Medicare Part C “Advantage” plans

For simplicity’s sake and for expanded coverage, you may opt for a Medicare Advantage plan through a private insurance company that contracts with Medicare. With these plans, Medicare Part A and B coverage is combined, and you may receive coverage for additional benefits that Medicare doesn’t cover, like vision and dental insurance. You will pay a higher premium, given these additional benefits, but the cost of Medicare Part A and Part B coverage will still be paid by the government to the insurance company on your behalf. The total out-of-pocket expenses you might incur with these plans will vary. It will likely be helpful to shop for these plans with the guidance of an advisor who has expert knowledge of Medicare-related plans.⁸

Medigap policies

Some people opt for additional insurance from private companies to cover all the medical expenses Medicare doesn’t cover, like copayments and deductibles, or care obtained when traveling outside the United States⁹. To sign up for these plans, you must be enrolled in Medicare Part A and B, often referred to as “original Medicare.” The cost of this extended coverage will depend on the plan you select. Even with all these supplemental plans, it’s also important to remember you may still not be covered for certain medical expenses. The cost of long-term care, for example, generally isn’t covered by original Medicare or supplemental plans. To cover the expense of an extended nursing home stay or lengthy in-home care, you will need to obtain long-term care insurance separately from private insurers.

Get Expert Guidance

The full range of health insurance choices for retirees, and all the associated costs, can be confusing to navigate. The team at Trinity Wealth Management can offer expert guidance to help you plan for the cost of healthcare in retirement.

The commentary on this website reflects the personal opinions, viewpoints, and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

---

Sources:

1. “Healthcare in Retirement Will Cost an Average of $315,000,” PlanSponsor, May 16, 2022
2. “How Much Does COBRA Insurance Cost?,” Insure.com, Feb 6, 2023
3. “What is Gross Misconduct Under COBRA?,” Legal Beagle, Jul 14, 2021
4. “How to Pick a Health Insurance Plan,” HealthCare.gov, Accessed Feb 22, 2023
5. “2022 Employer Health Benefits Survey,” Kaiser Family Foundation, Oct 27, 2022
6. “What does Medicare Cost?,” Medicare.gov, accessed Feb 22, 2023
7. Ibid
8. Ibid
9. “What’s Medicare Supplement Insurance (Medigap)?,” Medicare.gov, accessed Feb 22, 2023