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3 Facts About Health Insurance Every Baby Boomer Should Know

By Maurie Backman – Jul 24, 2016 at 7:21AM

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Boomers nearing retirement need to plan for healthcare costs -- now.

If you're approaching retirement, it's natural to look forward to the leisurely lifestyle you've worked hard to earn. But leaving the workforce often means taking on the stress of navigating the complex world of retiree health insurance. Here are three key things you need to know about health insurance as retirement nears.


1. Coverage under Medicare isn't totally free

Some soon-to-be retirees assume that once they stop working and get on Medicare, their medical bills will be magically taken care of. But while Medicare Part A -- the part that covers things such as hospital visits and the like -- is free for most enrollees, parts B and D, which cover preventative care services and prescription drugs, respectively, come at a cost. Furthermore, Medicare comes with varying deductibles that can really add up, and unlike most large employer-sponsored health plans, traditional Medicare does not have an annual out-of-pocket spending limit.

Let's look at some of the costs you'll encounter once enrolled in Medicare. There's your Part B premium, which for most people is $104.90 as of 2016, but those with higher incomes are subject to higher premiums. Then there are deductibles. For 2016, the deductible under Medicare Part A is $1,288 per benefit period. If you think that sounds like a lot, it gets even worse. Medicare defines a benefit period as the day you're admitted to a hospital or skilled nursing facility up until you reach the point where you haven't received inpatient care for 60 days in a row . In other words, it's conceivable that over the course of a single year, you could be subject to multiple deductibles at $1,288 a pop. There's no limit to the number of benefit periods under Medicare Part A.

All in all, Medicare enrollees spend thousands of dollars each year to cover their health-related needs. According to the Kaiser Family Foundation, in 2010, Medicare beneficiaries spent an average of $4,745 on out-of-pocket healthcare expenses. Now that's hardly free.

2. You may need supplemental insurance

Medicare may not provide all of the coverage you need in retirement, which is why many people turn to supplemental insurance to help bridge that gap. Medigap can help pick up some, though not all, of the costs that Medicare itself doesn't cover, like copays and deductibles. The downside, of course, is that Medigap comes at a price, with the average plan costing $183 per month.

Then there's long-term care insurance, which you may need to cover the cost of nursing home care or assisted living facilities. While the average 60-year-old couple pays about $3,400 per year in premium costs, having a plan could save you countless dollars in the long run, and the sooner you sign up for one, the less you're likely to pay. The American Association for Long-Term Care Insurance reports that more than 50% of applicants aged 50 to 59 qualify for long-term discounts based on their health, but that figure drops to 42% among 60- to 69-year-olds and 24% for 70- to 79-year-olds. If you're serious about securing a plan, you may be better off signing up while you're younger and in (somewhat) better health.

3. You'll need to find -- and pay for -- your own health insurance if you retire before 65

Not all retirees get health coverage through Medicare, and if you stop working before you reach 65, you'll need to absorb the cost of health insurance on your own. If you received health insurance through your employer, you can continue your coverage under that same plan thanks to COBRA, which affords you this right for up to 18 months. Signing up for COBRA, however, means paying the full cost of your health insurance plan -- a plan your employer most likely subsidized. The Kaiser Family Foundation reports that in 2013, the average annual premium for an employer-sponsored health insurance plan was $5,884 for single coverage and $16,351 for family coverage. If you're planning to retire before 65 and fall back on COBRA, you'd better be prepared to foot what could be a very hefty health insurance bill.

Of course, there's also the option of shopping around on the Obamacare exchange, where you may find a lower-cost plan. But keep in mind that what you save on premiums, you may wind up paying for, at least partially, in the form of higher deductibles and copays.

With health insurance and related costs being so high in retirement, it's important to start saving and planning as early as possible -- ideally, while you still have a few working years left to sock away some extra money. Once you're retired, you'll be limited to whatever income your savings and Social Security benefits give you, so the more you can prepare financially for healthcare expenses down the line, the better off you'll be.

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