Health insurance plans change after retirement. For the most part, gone are employer-sponsored plans or the private plans of the self-employed. And if you have your own shop, coverage from disability insurance for self-employed people stops when the business stops or when you reach age 65 (in most cases). Sorry.
For most retirees, Medicare will form the basis of their health care coverage. There are different plans you can add to basic Medicare coverage that will provide you with as much health insurance as you are likely to need.
The one glaring exception in the coverage, however, is long-term care insurance. This is an important insurance type and one that needs to be obtained from outside sources as Medicare offers no coverage in this regard. (But if you are considering buying such a policy, you might want to read this before you get an LTC insurance quote.)
Basic Medicare: The Foundation of Retirement Health Insurance
Medicare is a government sponsored and administrated program that specifically provides health care insurance to people 65 and older and to certain disabled individuals. More than 55 million people are covered under the plan, and the number is rising every year.
Because of the size and growth of the program, Medicare covers a large portion of certain basic medical costs. Benefits are quite specific as to when and how much of a given cost will be covered, and it rarely pays 100% even of covered services and procedures. Fortunately, there are supplemental policies you can get to cover what Medicare won’t cover, and we’ll get to those in a little bit.
Medicare is broken down into three parts, each covering a different set of medical costs:
- Part A is the basic hospitalization plan covering use of medical facilities such as hospitals and skilled nursing facilities
- Part B is the major medical coverage (physicians, lab work, outpatient facilities, etc.)
- Part D provides prescription drug coverage
Since each part of the program covers different costs, it’s important have all three in order to maximize your benefits.
As far as cost, Medicare is just about the best health care deal any retired senior can get. So if you’re asking how much money do you need to retire, the answer might be a little less. As long as you contributed to Social Security and Medicare for 40 quarters (10 years) of your working life, Part A is free — it doen’t get any better than that. For Part B, the monthly premium for 2011 is $115.40. Part D is processed through private insurance companies and will vary by provider.
Medicare Advantage Plans
We just outlined Medicare Parts A, B and D, so perhaps you’re wondering about Part C — or if there even is a Part C? There is, and it’s called Medicare Advantage Plans. These are health insurance plans that are approved by Medicare but offered through private insurance companies. Approximately 20% of people eligible for Medicare opt for Medicare Advantage Plans.
As a rule, Medicare Advantage Plans have benefits comparable to Medicare in benefits but more cost-effective than the Medicare/Medicare Supplemental combination (explained below). The plans vary greatly in cost and benefits and also largely depend on what state you live in. Investigate plans from several different companies before choosing which is right for you.
Medicare Supplemental Insurance, A.K.A. “Medigap”
Medicare supplemental insurance, commonly known as Medigap, typically pays the deductibles and copayments not covered by Medicare Parts A or B. They’re sold by private insurance companies to fill in the gaps in Medicare, hence the term “Medigap.” Most states have regulations limiting Medigap to no more than standard policies. There will be variations in the cost of the plans from one state to another, so you’ll need to check with local providers to determine the specific cost of one of these policies.
Medigap plans don’t cover long-term care, like nursing homes, so you will need to purchase separate long-term care coverage — if you need it. If you’re planning your retirement, these are important considerations. Other important exclusions include private duty nursing and dental and vision coverage. Also, prescription drug coverage is specifically excluded.
It’s important to understand that Medigap policies are set up as individual policies, which is to say that you and your spouse will each need a separate plan. In addition, you will only be eligible for Medigap coverage if you have both Medicare Parts A and B. You can purchase Medigap policies through any insurance company licensed to sell them in your state.
Be sure to shop for policies because prices can vary from one company to another.
It’s critically important that you sign up for Medigap during the open enrollment period (within six months of turning 65 AND covered by Part B, in most cases). Insurance companies cannot use medical underwriting during this window, which is to say that they can’t refuse coverage or charge a higher premium for health conditions.
They can, however, exclude coverage on pre-existing conditions for up to six months, but only if you don’t have “creditable coverage” (previous insurance coverage) prior to the start of the Medigap plan. But here’s something that will put your mind at ease: Medigap policies are guaranteed renewable in spite of health conditions. Once covered, the only reason a policy can be canceled is for lack of paying the premiums.