According to Fidelity Investments, a 65-year-old couple retiring this year will spend, on average, about $260,000 out of pocket on healthcare in retirement. One way to keep your healthcare costs in check is to be smart about Medicare and make savvy decisions. Here are three critical things to know.
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It's critical to enroll in Medicare on time
Many people don't realize that if you're late enrolling in Medicare, it can really cost you -- for the rest of your life.
So what's late? Well, you're eligible for Medicare at age 65, and can sign up anytime within the three months leading up to your 65th birthday, during the month of your birthday, or within the three months that follow. That's your seven-month-long "Initial Enrollment Period" (IEP). Miss it and your part B premiums (which cover medical services, but not hospital services) can rise by 10% for each year that you were eligible for Medicare but didn't enroll.
That's the bad news. Here's the good news: If you fail to enroll during your IEP, you can still enroll during the "general enrollment period," which is from January 1 through March 31 of each year -- though that coverage won't begin until July and the late penalty might apply.
Better still, many people won't end up penalized because if you're already receiving Social Security benefits as you approach 65, you'll likely be automatically be enrolled in Medicare. You'll know this has happened because you'll receive your Medicare card in the mail three months before your 65th birthday. Most people start collecting Social Security before age 65 (the earliest one can start is 62), so this penalty won't affect as many people as you might think. You can also avoid the penalty and be able to skip the deadline if you're still working, with employer-provided healthcare coverage, at age 65, or if you're serving as a volunteer abroad. Such people will get a special enrollment period based on when they return, when they stop working, or when their employer-provided coverage ends.
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It's important to choose the Medicare plan that best serves you
As a Medicare enrollee, you'll need to choose a plan, and you have two main choices: "original" Medicare or a Medicare Advantage plan.
Original Medicare includes Part A (hospital coverage) and Part B (physician/medical insurance). Part D is optional, and provides prescription drug coverage. In addition, many enrollees opt to add on a private Medigap plan to pay for more of what Medicare doesn't pay.
Medicare Advantage plans, sometimes referred to as Part C, are offered by private insurers but are regulated by the U.S. government. They're required to offer at least as much coverage as original Medicare, but many go well beyond that. Prescription drug coverage is often included, for example, and vision, dental, and/or hearing coverage may be offered, as well. Medicare Advantage plans can sometimes be your best bet, as they may cost less and provide more coverage.
When it's time to choose, read up on all the options available to you where you live. (Different Medicare Advantage plans, for example, are offered in different regions by different insurance companies.) Don't just compare premiums, either, because Medicare Advantage plans may offer different co-payments, deductibles, and so on. Compare total expected out-of-pocket costs, and consider other pros and cons, too. For example, Medicare Advantage plans are typically rooted in your local area, limiting you to a certain network of providers (though some networks can be rather large). If you plan to travel a lot, original Medicare plans may be preferable as they're honored by providers nationwide. On the other hand, some Medicare Advantage plans offer limited coverage abroad, which original Medicare does not do. The Medicare Plan Finder at the Medicare website can help you compare plans and choose. Note the star ratings of your candidate plans and favor plans with four or five stars.
Once you decide, know that you can change your mind and choose a different plan next year. In fact, it's a good idea to review all your options and their costs each year.
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It's smart to make the most of your Medicare coverage
Once you're enrolled in Medicare, make the most of it, taking advantage of available services to be as healthy as possible. Getting screenings and preventive care (that are often available at no extra cost) can help identify problems early, before they grow worse and more costly. (There are many such services available, such as mammograms, colonoscopies, diabetes screenings, flu shots, and even smoking and tobacco-use cessation counseling.) That can keep you healthier and living longer and better, while keeping your healthcare costs down. If you're not convinced, consider this: According to a 2014 study from the Insured Retirement Institute, "A 65-year-old male in excellent health can expect to live to age 87, while the same male in poor health (e.g. high blood pressure, high cholesterol, and tobacco use) has a life expectancy at age 65 of approximately 81years." For women, excellent health offers a life expectancy of 89 and poor health only 84 years. That's five or six extra years of life!
Make the most of wellness benefits included in your Medicare coverage, too. For starters, you're entitled to one wellness visit annually at no extra charge. That's when you can see your primary care doctor to review your health. Don't skip this, as it gives your doctor a chance to discuss ways to get you healthier instead of just addressing the illness or injury you walked in with. You may have access to other benefits, too, such as discounts on gym memberships. Find out what your plan offers. When you're shopping for a Medicare plan, review available wellness perks, too, to see which would serve you best.
Being smart about Medicare -- by not enrolling late and by choosing a plan that serves you well and then actually using it -- can help you live longer and better.
