Review: The Best Health Insurance Plans after Retirement

We originally covered this topic in 2011, but with the rollout of the Affordable Care Act (ACA), better known as Obamacare, it’s prime time for an update. The effect of the act on health insurance plans in retirement is actually minimal, but it’s will worth considering any changes that have taken place.

If you currently have health coverage through your employer, or through a self-funded plan for the self-employed, health insurance will change completely once you turn 65 – but not because of Obamacare. Health insurance policies traditionally terminated at age 65, well before Obamacare was even implemented.

Medicare will become your foundational health insurance coverage, but there are different plans that you can supplement it with, or even replace it completely.

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 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.

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, 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 the answer might be a little less because of Medicare. As long as you contributed to Social Security and Medicare for 40 quarters (10 years) of your working life, Part A is free – it doesn’t get any better than that.

For Part B, the monthly premium for 2014 is $104.90, if your income does not exceed $85,000 per year, or $170,000 if you are married filing jointly. Part B also has an annual deductible of $147.

Part D is processed through private insurance companies and will vary by provider.

Even before Obamacare was rolled out, there were persistent rumors that it would result in the termination of the Medicare program, but this assertion was never true. In addition, the law will not require you to buy more health insurance coverage than what Medicare already provides.

Obamacare will actually improve certain benefits. As a result of the act, seniors are now entitled to free preventative care, including flu shots, cancer and diabetic screening, colonoscopies, mammograms, and annual wellness exams. Also, under Medicare part D, there should be 50 percent discount on brand-name drugs covered under the plan.

So far so good.

Another popular claim in regard to Medicare is that Obamacare would result in higher costs to seniors, and that is at least partially true.

As noted above, for most Medicare recipients, premiums will not increase. However premiums will rise for single people with incomes in excess of $85,000, or married couples whose incomes exceed $170,000. Once you exceed these thresholds, higher premiums will apply.

There will be small increases in deductibles and co-pays, such as the co-payment paid by beneficiaries for inpatient hospital care, which will rise to $304 (from $296) per day, if your stay exceeds 60 days, but no more than 90 days. The increase beyond 90 days goes from $592 to $600 per day. But for the most part, those increases would have occurred with or without Obamacare.

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 but are 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 and what company you buy insurance through. Investigate plans from several different companies before choosing which is right for you.

Under Obamacare, there will be no changes to the Medicare advantage program, other than slight increases in certain co-payments that had already been scheduled. In addition, having Medicare Advantage will mean that you will be fully compliant with the new law.

This is also and excellent time to bring up another point. You know those low income health insurance subsidies you’ve been hearing about in connection with Obamacare? They don’t apply to Medicare or to any plans related to Medicare.

Medicare Supplemental Insurance, A.K.A. “Medigap”

Medicare supplemental insurance, commonly known as Medigap, typically pays the deductibles and co-payments 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.

Like Medicare, 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 (but covered under Medicare Part D).

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.

And yes, denials and higher premiums are possible under Medigap for pre-existing conditions, even though Obamacare made it illegal for other types of health insurance providers to do the same.

As you can see, the effect of Obamacare on Medicare and related health insurance is minimal. In fact, in certain circumstances the effect has even been positive. However it’s important to understand that Obamacare is still a very new law, and will be subject to changes, challenges, and modifications as the years unfold. While the impact on Medicare has been minimal up to this point, it’s not inconceivable that changes will be more substantial over the next 10 to 20 years.