Paying for Health Care in Retirement

Plan ahead. It wasn’t raining when Noah built the ark.

It would be nice to believe that health care cost increases were a temporary phenomenon. Unfortunately, that’s not the case…the cost of medical care has outpaced inflation for the past 20 years and predictions are that medical and long-term care costs will continue to escalate as much as 10% to 15% per year into the future.

The decisions we make as to how and where we live in retirement are unique to each individual or couple. The options open to us, however, are frequently determined by our financial resources…our ability to pay. This review of the various ways to pay for health and long-term care costs during retirement is offered in the hope that it will be of assistance to you as you make decisions regarding your retirement plans.

The options available to pay for medical and long-term care costs in retirement include the following:

Retiree Health Insurance Plans: If your company provides retiree health care benefits, make sure you know how much of the premium you will be required to pay, as well as deductible and co-payment requirements. Retiree health insurance plans are generally designed to coordinate with Medicare benefits. Caution: Even if your employer currently provides retiree health care benefits, there is no guarantee those benefits will be available when you retire. The escalating costs of medical care, combined with the “Baby Boom effect”…a large “bubble” of people who will make a substantial contribution to the size of the aging population… are causing employers to rethink their retiree health care plans. Some companies are requiring that retirees pay a higher share of the premiums to cover themselves, their spouses and any dependents. Other companies are implementing higher co-payments and/or deductibles. Still other companies are discontinuing retiree health insurance plans altogether.

Medicare and “Medigap” Insurance: Most people qualify for Medicare insurance when they reach age 65. Medicare helps to protect you from the costs of medical care during retirement. One fact, however, is evident…there is no “free lunch.” You will have costs related to medical care and the likelihood is that those costs will continue to increase each year.

Medicaid: Medicaid is a joint Federal and state program that helps with medical costs for some people with low incomes and limited assets. To qualify for Medicaid, federal poverty guidelines for income and assets must be met. In addition, there are state requirements for Medicaid eligibility. Medicaid is essentially a safety net for those who didn’t adequately plan for their financial needs in retirement, or who encountered unexpectedly large expenses that depleted their financial resources.

Long-Term Care Insurance: Long-term care insurance can put you in control, preserving your dignity and allowing you to select the type of facility and setting in which you want to receive long-term care services, if needed. Long-term care insurance also helps protect your personal assets, preserving them for your use or as an inheritance for your family. Suggestion: Check with your employer…your company may offer long-term care insurance as a voluntary or supplemental employee benefit!

Personal Savings: Review your retirement plan to make sure that it adequately takes into account the potential costs of medical care and long-term care in retirement. If you find a shortfall, you may want to increase your personal savings now in order to have sufficient funds available after you retire. Some experts suggest setting up a separate fund or account specifically to pay for health care needs in retirement. This approach adds focus to your plan and better enables you to assess your progress.

Home Equity: Many retired people have built up substantial equity in their homes. There are a variety of ways to tap that equity if needed to pay for health care costs in retirement, including selling the home, arranging a home equity loan or line of credit or using a reverse mortgage to supplement your retirement income.

Going Back to Work: When it comes to planning for health care needs as we age, it’s time for a reality check. It’s fine today, when our health is good, to state the intention to return to work if financial needs arise, but how many 70+-year-old people with health problems really want to be out looking for a job? In reality, planning to return to work in order to pay for health care needs during retirement isn’t so much a plan as it is a hope…a hope that we won’t face substantial health care costs as we age.

Don’t wait until it rains to start building your ark… plan ahead while the choices are still yours to make!