Top Healthcare Costs in Retirement

It's concerning to learn that in a 2021 survey, 32% of all workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement.¹ Regardless of your confidence, being aware of potential healthcare costs during retirement will help you understand how much you should budget for healthcare in your retirement income planning. 

Healthcare retirement planning becomes even more complex for first responders as municipalities often try to negotiate different aspects of their healthcare in retirement and first responders are more likely to retire before being eligible for Medicare. The first step in being aware of potential healthcare costs is understanding the different types of expenses. Here, we’ll explain the main categories of healthcare costs in retirement. 

Pre Age 65: Health Insurance Premiums

Before you become eligible for Medicare, one of the largest costs faced in retirement will be premiums for health insurance. Premiums will vary widely based on your plan depending on if you use an affordable care act plan, a spouses insurance, your new company's plan, or an off the exchange plan.

For first responders, understand the benefits, if any, that are provided to help with post-retirement health insurance planning. They may include premium offset plans, lump-sum deposits, HSAs, or trusts to help with costs.

It will be important to work with a professional to determine what health insurance option will be best for you and your family. The right answer may not always be the lowest cost premium plan. Or the lowest deductible. Finding plans that have your preferred providers can be just as important as cost.

Age 65: Medicare Premiums

Once you reach eligibility, the first cost in healthcare to consider is your Medicare Part B premium. According to Medicare.gov, your premium amount depends on your adjusted gross income (AGI) as reported on your IRS tax return.² Most people pay the standard premium amount of $148.50/month, but the premium can go up to $504.90/month depending on your AGI.

In addition to your premium, you’ll also have to consider the Part B deductible which, in 2021, was $203. After you meet your deductible for the year, you will likely pay 20% of most doctor services, outpatient therapies, and some durable medical equipment (walkers, wheelchairs, canes, etc.).

Healthcare Copays

The next healthcare cost in retirement that you should consider is any co-payments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (aka Medigap) or other health insurance. 

These copays can relate to specialist visits, prescription costs, and other healthcare needs that aren’t completely paid for by your insurance. Drug costs can vary by pharmacy, supplier costs, whether there is a generic option, and more. 

Speaking of prescription drug costs, once you and your plan spend a combined $4,130 (including the deductible) on drugs in 2021, you’ll pay no more than 25% of the cost for prescription drugs until your out-of-pocket spending is $6,550.³

Expenses Not Covered by Medicare

Lastly, there are healthcare expenses that may not be covered by Medicare and this is where your healthcare costs in retirement have the potential to skyrocket. 

One example of a service that may not be covered under Medicare is long-term care. This includes medical and non-medical care for people who are unable to care for themselves. Medicare and most health insurance plans don’t pay for long-term care.

In addition to long-term care, Medicare may not cover expenses related to⁴:

• Most dental care
• Eye exams related to prescribing glasses
• Dentures
• Cosmetic surgery  
• Acupuncture  
• Hearing aids and exams for fitting them
• Routine foot care

While Medicare is a great option for many healthcare expenses for retirees, some people also choose to purchase a Medicare health plan to cover some of the above rather than paying out of pocket. Medicare health plans are health plans offered by a private company that contract with Medicare to provide health benefits.⁵ They may cover expenses that the regular Medicare plan doesn’t. 

One example of a Medicare health plan is a Medicare Advantage Plan. Medicare Advantage Plans are offered by Medicare-approved private companies and may offer a higher level of coverage depending on your needs.⁶ Sometimes, Medicare Advantage Plans are called Medicare Part C.

The costs associated with a Medicare Advantage Plan will vary depending on the health insurance company you purchase your policy from. You can also choose between a Health Maintenance Organization (HMO) plan and a Preferred Provider Organization (PPO) plan. You must have Medicare Part A and Part B coverage to apply for a Medicare Advantage Plan. 

VEBA: Offsetting Retirement Plan Expenses

A Voluntary Employees’ Beneficiary Association Plan (VEBA) is typically employer-funded and can be used to pay for specific medical expenses. Your employer deposits funds into a VEBA, which is a tax-exempt irrevocable trust arrangement, for you to use for current or future out-of-pocket health-related expenses. The VEBA doesn’t replace your group health insurance plan. It works with your plan to provide additional coverage options.

If you are a first responder, speaking with leadership about a VEBA can be an important next step towards reducing your healthcare costs in retirement. There are many healthcare costs in retirement, from routine checkups to unexpected medical expenses. Building the cost of medical insurance into your retirement plan is an important part of retirement income planning. Schedule time with our team to further discuss your retirement plans.