The leading edge of the baby boomer generation is well into retirement, and as people age, their healthcare needs typically increase. Whether you've already retired or are still in the late stages of your career, you should better understand some key facts about health insurance to make sure that you get the coverage you need. In particular, knowing your insurance options and what kicks in when is critical in doing financial and retirement planning, and depending on your health, you might need to consider changing your retirement plans to avoid lapses in coverage that could devastate you financially.
1. Mind the gap
For those who haven't yet retired, the biggest question is how to ensure that you'll keep health insurance coverage after you quit work. Once you turn 65, you become eligible for Medicare, and most retirees find that Medicare coverage provides enough benefits to compare favorably with the insurance policies they had during their careers. If you're looking to retire before age 65, then you'll want to take into account the gap between your workplace coverage and when Medicare becomes available.
If you have 18 months or less between the time you retire and your 65th birthday, then using COBRA coverage from your workplace plan can be the simplest option. You'll need to be prepared to pay the full premium amount, which will include not only what you used to pay when you were working but also what the employer paid on your behalf. Some people have used federal healthcare exchanges under the Affordable Care Act to get coverage to bridge the gap between retirement and Medicare, but there's a lot of uncertainty about whether that strategy will be available in the future. Those who are married and eligible for coverage under a spouse's policy can also use that option, and that might be the most cost-effective solution.
2. What Medicare covers and how much it costs
Once you're eligible for Medicare, it gets easier to cover your healthcare needs, but the program doesn't eliminate healthcare costs entirely. Part A hospital coverage is typically premium-free if you paid Medicare payroll taxes during your career, but you'll still be responsible for deductibles and copayments. Part B medical coverage has monthly premiums, and you'll also typically be responsible for 20% of the cost of care. Part D drug prescription plans vary in their costs, but most participants pay at least a small copayment for the medications they need.
In addition, Medicare doesn't cover all of your potential healthcare service needs. The most notable uncovered expense is long-term care, as Medicare coverage is limited to skilled nursing services and won't cover the custodial care needs that many retirees get in nursing homes and assisted living facilities. Other expenses also are left out of Medicare, including dental services. You'll want to look at other options to cover those expenses, such as long-term care insurance or separate dental plans.
3. How Medicare Advantage or Medicare supplemental insurance can help
One of the most dangerous aspects of traditional Medicare is that there's no out-of-pocket maximum provision included in the service. Theoretically, your share of costs is unlimited. That makes risk management more important, and there are a couple of things you can do to protect yourself financially.
Medicare Advantage plans are provided by private health insurance companies as an alternative to traditional Medicare. They offer all the services that Medicare provides, but they also have additional provisions, including out-of-pocket maximums. Premium costs for Medicare Advantage plans can vary from what you'll pay for regular Medicare Part B coverage, but they can also offer different copayments and insurance percentages to reduce your out-of-pocket costs when you need care.
If you prefer to keep traditional Medicare coverage, Medicare supplemental policies can achieve the same goals. These plans, also known as Medigap plans, cover various costs under Medicare, including the coinsurance percentages, copayment amounts, and deductibles. The most comprehensive Medigap plans cover all of these things, while less comprehensive options are available at a less expensive additional monthly premium.
Baby boomers can't afford to neglect the key role that health insurance coverage plays as they grow older. In considering your decisions about retirement, make sure you keep these things in mind about your health insurance and how you'll need to take action to protect yourself during your golden years.