Medicare is an important program that gives millions of older Americans access to healthcare coverage. But it's important to understand the ins and outs of Medicare, not just as an enrollee, but prior to reaching enrollment age. That's because the more you know about Medicare and what it will cost and cover, the better you can plan financially for retirement as a whole.
Recent TIAA data reveals that among current retirees, 10% expect Medicare to cover 100% of their healthcare costs. Among those not yet retired, 12% anticipate Medicare picking up 100% of their healthcare tab.
But Medicare won't come close to paying for 100% of your medical needs. And the sooner you recognize that, the sooner you can begin to plan accordingly.
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Know what to expect
There are various out-of-pocket costs Medicare enrollees are likely to grapple with. First, under Part A, which covers hospital care, you have to pay a deductible on a per-admission basis, the exact amount of which can change from year to year.
In 2024, you're looking at a whopping $1,632 per hospital admission. You should also know that this year, you'll pay a daily hospital coinsurance rate of $408 if your hospital stay extends beyond 60 days, up to the 90-day mark.
Meanwhile, under Medicare Part B, which covers outpatient care, there's a $240 annual deductible you'll have to meet. Otherwise, you should expect to pay for a portion of each specific service or treatment you receive. In most cases, Medicare Part B pays 80%, and you cover the remaining 20%. But that could be a significant amount of money if there's a year in which you end up needing lots of care.
Now, Medicare enrollees can sign up for Medigap, or supplemental insurance, which could help cover the aforementioned deductibles and co-insurance costs. But there are certain services that Medicare won't pay for at all, like eye exams, hearing aids, and dental cleanings. Those are expenses you'll need to pay for completely on your own. And a Medigap plan won't help there, since it doesn't pay for services not covered by Medicare itself.
Save accordingly
Clearly, you might incur your share of out-of-pocket costs as a Medicare enrollee. Read up on those costs ahead of retirement and pad your savings accordingly.
You may also want to consider putting money into a health savings account, or HSA, if you're eligible to do so. You'll need to be enrolled in a high-deductible health insurance plan to fund an HSA. But if that option is on the table, take advantage.
Not only that, but do your best to reserve as much of your HSA balance for retirement as you can. You might really need it once your Medicare coverage begins.
All told, there's lots of confusion about Medicare. But don't wait until you've enrolled to start learning about how the program works. Instead, set yourself up with that information ahead of retirement so you can make smart savings choices that result in less financial stress when you're older.
