Back in 2013, we wrote about the differences between Medicare Parts A and B, as well as supplementary coverage options to help readers with their retirement planning. Given recent legislative changes to Medicare, we feel it’s time to revisit the topic.
Discussing medical costs and coverage with your financial advisor is wise because medical costs can constitute a sizable portion of post-retirement budgets. As changes are made to programs like Medicare, it’s important to stay abreast of developments and integrate changes in to your wealth planning strategy.
One of the difficult aspects of planning for the future is trying to anticipate unknowns such as medical costs. You never know if you’ll enjoy perfect health in the coming year or if you’ll find yourself at the doctor’s office frequently. Insurance like Medicare helps to temper the risk of the unknown, but you should still be prepared for out-of-pocket costs.
Out-of-Pocket Healthcare Costs
The Employee Benefit Research Institute reported that Medicare pays 62 percent of health care costs for Medicare beneficiaries ages 65 and older. If you depend solely on Medicare to cover your health care costs, you can anticipate spending nearly 40 percent of your expenses out of pocket or with some other type of insurance.1
In addition to preparing for out-of-pocket health care expenses, Medicare beneficiaries also may need to adjust for higher premiums.
Higher Medicare Premiums
Known as the “doc fix” bill,2 the “Medicare Access and CHIP Reauthorization Act of 2015” was passed in April 2015. One of the effects of this bill is higher Medicare premiums for higher-income Medicare beneficiaries.
Fortunately, these increased premiums will not take effect until 2018, so people have time to make adjustments in their short-term budgets and long-term retirement planning.
Medicare premiums are set on a sliding scale, so people who earn above a certain threshold have already been paying higher premiums than those who earn less. These amounts are determined by IRMAA (income related monthly adjusted amounts).
Your IRMAA is based on your modified adjusted gross income (MAGI). The “doc fix” legislation changes three of the five tiers on the income-adjusted scale. Therefore, more Medicare beneficiaries will find themselves paying higher premiums beginning in 2018.
As you work through your retirement plan and the ways the Medicare changes will affect your budget, consider changes to supplemental coverage as well.
Supplemental Coverage
When we talked about Medicare back in 2013, we explained the differences between Medicare Part A and Medicare Part B. Essentially, Medicare Part A covers hospitalization and inpatient care, and Medicare B covers medically necessary treatment and services, or outpatient care (doctor’s visits, physical therapy, and so forth).
Under the new Medicare changes, supplemental coverage, which is known as Medigap, will no longer pay for Medicare Part B deductibles. This change doesn’t start until 2020, but again, it’s wise to plan ahead for the higher costs in the future.
Potential Health Coverage Strategies and Options
As you discuss these changes with your financial advisor, you may want to consider some of the following solutions to these new challenges:
- Take a close look at any employer-provided prescription drug benefits that are available to you.
- See if high-deductible health insurance plans may be a cost-effective way to manage your health-related expenses.3
- Discuss the tax advantages of HSAs (health savings accounts) with your financial advisor. Funds are deposited pretax, and contributions are tax deductible.
- Consider location. State laws vary considerably in the ways they implement Medicare. For instance, maximum costs for prescription drug Medicare Part D plans cost $12.60 in New Mexico but $171.90 in Florida, according to Kaiser Family Foundation.2
As you can see, there are many different options for funding your health expenses, even if the new Medicare changes alter your original plans. For more information about Medicare changes, or to speak with a wealth manager about other retirement planning topics, call WrapManager at 1-800-541-7774 or contact us here.
Sources:
1. Employee Benefit Research Institute
2. FA Mag
3. FA Mag
