Last week, we discussed the importance of being knowledgeable and prepared to make critical decisions about when and how to claim your Social Security Retirement Benefits. This week we are going to talk about Medicare, which is something close on the heels of Social Security when people think of retirement and government-sponsored benefits.
Medicare is quite a can of worms, to say the least, and it can be very intimidating, but claiming your benefits can be smoother with the right information. While I can’t go over everything in great detail here, I am going to try to set you on the right course with a few points of guidance.
Many individuals approaching retirement believe that once they qualify for Medicare, their healthcare costs, or most of them, will be taken care of by this government-sponsored program. Unfortunately, this is not the case, and most people still have to cover many out-of-pocket expenses.
Over the last 30 years, consumer prices have rarely risen faster than healthcare inflation, from doctor visits to surgeries and prescription drugs. In fact, the inverse has typically been the case, particularly during economic downturns: after the 2008 financial crisis, for example, overall inflation slowed to almost nothing while medical prices continued to grow at a 2 to 3 percent rate.
According to Healthview, an average retired couple aged 65 in 2022 may need approximately $267,000 saved (after tax) to cover health care expenses in retirement.
In another survey conducted for the HAS, Fidelity found that those surveyed underestimated retirement healthcare costs by 50%. This survey information deals with averages and generalities, and every person’s or couple’s experience will be different. However, it is important to understand what expenses Medicare does and does not cover and to understand that we need to budget for significant out-of-pocket medical expenses during retirement.
Covered or Not Covered, That Is the Question
As the first step in understanding Medicare, let’s take a look at the different programs or “parts” within Medicare. Medicare Part A is designed to defray a large part of the cost of hospitalization. While Medicare Part B covers a large part of the cost of doctor's visits of many medical treatments and therapies received outside of the hospital. Then there is Part D, which provides coverage for prescription drugs.
What about Medigap?
Often, I am asked about Medigap insurance, what it covers, and how it works. This is an important fact, so to be crystal clear, Medigap is not, in fact, a Medicare program, although the available options are designed and monitored by Medicare. Medigap insurance is a term used to describe supplemental insurance coverage that can be purchased to cover many of the costs not covered by Medicare. It is especially useful in covering the cost of many of the deductibles that the patient is required to meet under Parts A, B, and D.
Finally, Part C refers to Medicare Advantage Plans. These are inclusive plans that are similar to HMO plans.
Medicare Part A
As I said earlier, Medicare Part A defrays much of the cost of hospitalization, but it does not cover all costs. There are significant deductibles that the patient must cover. But, before Medicare pays any part of the cost of a hospital stay, the patient must pay the first $1,216. Bummer, huh?
After the deductible is met, the program pays all of the costs of the first 60 days of hospitalization per benefit period. A benefit period begins the day you're admitted as an inpatient in a hospital or Skilled Nursing Facility (SNF). The benefit period ends when you haven't received any inpatient hospital care (or skilled care in an SNF) for 60 days in a row. If you go into a hospital or an SNF after one benefit period has ended, a new benefit period begins. You must pay the inpatient hospital deductible for each benefit period. There's no limit to the number of benefit periods.
If a Medicare recipient is hospitalized for greater than 60 days during a benefit period, the cost for which they will be responsible will be $304 per day. And if a patient is hospitalized for more than 90 days during a benefit period, there is a reserve of a further 60 days, during which the patient pays $608 per day. This 60-day is a lifetime reserve, not an annual allowance. In the (hopefully) unlikely event that the patient uses all of their reserve days and requires further hospitalization, Medicare will no longer cover the cost.
I don’t want to go into Medicare too much further, but I do want you to feel free to reach out with questions now that you have the basics. And in closing, I’ll share my handy-dandy little Grover Medicare Flash Card that explains it in a nutshell, a very small one, but a nutshell all the same!
Tune in next week, when we will get into the importance of estate planning and how to use your estate while you are still living.
Until next time…
One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.
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