Although Medicare is a form of health insurance designed to cover certain health expenses, it does not offer comprehensive coverage. It is inevitable that as you get older, the cost of healthcare increases. Medicare does not cover everything. You must still pay out-of-pocket expenses, and there is no coverage for dental treatment, vision treatment, or long-term care.
Obviously, your health expenses increase as you get older, but the scale of the added cost will surprise you. According to HealthView Services, the average monthly cost for a healthy 65-year-old couple is $583. The same couple will pay twice that amount whenthey reach 85 years of age.
How Much Will It Cost Overall?
The answer to this question depends on a variety of personal factors, and the figures vary according to who conducts the research. What we do know is that the cost is rising annually. HealthView suggests that the average 65-year-old healthy couple will spend approximately $266,000 on Medicare premiums alone. This figure does not include long-term care costs or out-of-pocket expenses.
A report from the Employee Benefit Research Institute (EBRI) says that you need to save $349,000 per couple if you want a 90% chance of paying all your out-of-pocket expenses, assuming that you need prescription medication.Trying to create a budget for your healthcare needs is a tough task because there is no way of knowing your future health status or life expectancy. In its report, the EBRI created a simulation of potential costs with the following data:
- You purchased a Medigap plan
- Includes the cost of Part B and D premiums
- Includes the cost of Medigap premiums
- Includes out-of-pocket spending and other expenses not covered by Medicare or its supplemental plans
- You turned 65 in 2016
Here is a look at what you could pay at varying levels of prescription drug use. The EBRI also offered different estimates according to gender.
- Male with Median Drug Expenses: Must save $72,000 to have a 50% chance of covering healthcare expenses or $127,000 to have a 90% chance.
- Male with Drug Expenses in the 90th Percentile: Must save $97,000 for a 50% chance of coverage or $168,000 for a 90% chance.
- Female with Median Drug Expenses: Must save $93,000 to have a 50% chance of covering healthcare expenses or $143,000 to have a 90% chance.
- Female with Drug Expenses in the 90th Percentile: Must save $124,000 for a 50% chance of coverage or $187,000 for a 90% chance.
- Married Couple with Drug Expenses in the 90th Percentage:Must save $349,000 to have a 90% chance of covering healthcare costs.
Why Is Senior Healthcare So Expensive?
Your Medicare premiums are the biggest healthcare expenditure, as you must pay for Part B and Part D premiums. There is also the matter of supplemental insurance. Part B rates are inflation based, so when the cost of living rises, so does your Part B premium.
The main issue is that Medicare covers approximately 62% of your healthcare costs while private insurance covers 13%. Seniors pay significantly out-of-pocket for the healthcare they need. If you have a serious medical issue, the cost can escalate quickly. For example, the costs associated with treatment for a heart attack (even a minor one) could exceed $760,000.
A limit exists to the amount of supplemental insurance you can purchase. There is practically no method of avoiding deductibles or cost sharing on prescription medication. Approximately 13% of the population is aged 65+, but they use one-third of prescription drugs.
How to Mitigate Costs
Medicare Advantage: Although it is impossible to avoid paying for healthcare in retirement, there are ways to reduce your expenditure. For example, consider a private Medicare Advantage program in your area. You pay monthly premiums toreceive coverage for a higher percentage of claims and medication.
Health Savings Account (HSA): An HSA is similar to a personal savings account, but the money you save is for healthcare expenses. These savings are tax-free, but you cannot open one of these accounts unless you have a high-deductible plan. In 2017, only health plans with a minimum deductible of $1,300 for a single person ($2,600 for a couple) are eligible for an HSA. The maximum you can invest each year is $3,400 per individual or $6,750 per family. You can make a $1,000 “catch-up” contribution if you are aged 55+. You can invest the money in stocks and bonds just like a 401(k).
You are not allowed invest money in the account once you’re on Medicare, but you can withdraw cash to pay for Medicare premiums and out-of-pocket expenses, such as dental costs, deductibles, and co-pays. You are not permitted to use it for Medigap premiums.
Establish a Plan: It isn’t easy to predict the future, but you should create a clear savings goal. For example, you could decide to save your plan’s out-of-pocket maximum in a year to cover an emergency. If you are planning an elective procedure or have a chronic illness, divide the out-of-pocket sum by 12 and save that amount per month. When in doubt, at least have your deductible amount saved.
Make sure your healthcare savings are easily accessible and consider tax-advantaged retirement accounts as soon as possible. If you don’t need the money over the course of your lifetime, you can leave it to your children. With a little planning, you can cover your healthcare expenses and relax, safe in the knowledge that you can handle any medical problem from a financial perspective.