Most Americans think Medicare is free. It’s not. Medicare fees are based on a sliding scale that’s linked to income level.
Eligibility
Eligibility starts at age 65, and the 7-month initial enrollment period begins 3 months before the month you turn 65. Make sure to enroll when you are first eligible because there are late enrollment penalties.
Costs
According to Medicare.gov, for a married couple in 2022 filing a joint tax return of more than $340K per year, Medicare insurance will cost approximately $21K per year. These costs are solely for the insurance and the couple will need to cover costs for the deductible, co-pays for days in the hospital, and 20% of their health care expenses. These additional costs can be large as Medicare Part A isn’t capped.
Fidelity Investments updated its 2022 research on the rising cost of healthcare and found that health care costs continue to be one of the largest expenses in retirement. On average, when looking at total medical costs in retirement:
- 44% goes to deductibles, co-pays, and other medical expenses
- 39% goes to premiums
- 17% goes to specialty, non-generic drugs.
Applying these percentages to the $21K premium number, the total anticipated annual medical costs can exceed $50K per year after tax.
Medicare Options
Medicare is broken into four categories as follows:
- Part A is hospital insurance that covers inpatient hospital stays including mental health, care in a skilled nursing facility, and very limited coverage for some hospice care and home health care costs. Most people get Part A free. Costs depend on how many quarters you paid into Medicare taxes. The maximum cost is $499 per month.
- Part B is medical insurance and helps cover medical services, such as doctors’ visits and outpatient care, that Part A doesn’t cover. Part B is optional. The monthly costs range from $170 to $578 per month. Higher-income beneficiaries pay more. This is known as the “income-related monthly adjustment amount,” or IRMAA.
- Part D is prescription drug coverage. Costs vary between $12 and $79 per month and, as with Part B, are based on income.
- Medicare Advantage plans or Supplemental policies, commonly referred to as Medigap policies, are provided through private insurance companies and offer coverage in areas outside Parts A, B, or D. Each individual needs to research and decide on what type of supplemental coverage is best for them.
Early Retirement
If you retire before you reach age 65, you can get insurance through the Affordable Care Act (ACA). 2021 costs for the ACA vary by state and by plan (Bronze, Silver, Gold). The ACA Gold Plan provides the best coverage but is also the most expensive, sometimes costing upward of $10K per person per year. Not included in the premium is the deductible and 20% of medical expenses. Also, to obtain the most coverage, you need to use the approved network of providers. The ACA is known to have a narrow selection.
Other Considerations
Aside from health insurance, during retirement, you also will want to consider the following types of health-related coverage:
- Concierge coverage
- Long-term disability
- Medical costs pay-ins if you are living in a retirement community.
To find more information about Medicare and Medicare costs, go to Medicare.gov.
Throughout the “The Nuts and Bolts” section of this blog, we will introduce you to the ins and outs of these insurance plans as well as other practical needs in retirement.