Yesterday, I spoke to the insurance needs of people in their early 60s. People in that age bracket are paying more for health insurance than they ever will. To add salt to the wound, the major medical insurance policies they are paying for has holes. It will not pay for all the expenses associated with a serious illness or injury.
In Health Insurance When You Are 60-64 I pointed out two holes; a potential loss of income and the need for an aide. In neither case will major medical insurance help pay the bills.
The good news is that your insurance costs may drop significantly in the last half of your 60th decade. The month that you turn 65, your health insurance needs will change drastically. Your need for disability insurance will disappear once you are eligible for Social Security Retirement benefits.
Your health insurance will change from the private major medical type policy to the public Medicare plan. When that happens, your premium obligation will go down drastically.
Unfortunately, your odds of needing to hire a home health aide will continue to increase as you get older. If you have not locked in a lower premium when you are younger, the premiums for Long Term Care insurance will only get higher.
Below you will find 3 areas that you will need to focus on during retirement.
MEDICARE VS. MAJOR MEDICAL
Before you turned 65, you probably had major medical insurance. It was the most comprehensive health insurance available. Like the planets circling the sun, all your other insurance policies were dependent on it.
Before you retired, major medical insurance was extremely expensive. In many cases, the cost of it prohibited you from getting the supplemental insurance you needed. Now, that you are eligible for Medicare, that has changed.
Major medical insurance requires everyone to chip in enough money to pay all the anticipated medical bills for everyone in the group. Unless your employer paid a portion of your premium, you were required to pay it all.
Medicare is not as expensive. If you have earned wages in the United States, you have been contributing to Medicare since your first job. Part of your paycheck was used to pay FICA taxes. That money was used to fund Medicare for your parents.
Since your parents used up most of the funds for Medicare, the FICA your children and grandchildren will pay will be used to pay for your medical needs. At least that is the theory behind “Inter-generational taxes.”
The accounting is a technical matter that I am certain would bore you [unless you are an accountant.] The bottom line is, since you or your spouse paid FICA during your working years, the government will subsidize the costs of Medicare for most Americans.
Currently, most Americans will find there is no premium for Medicare Part A. There is only a nominal premium for Medicare Parts B and D. [If you do not know what each part covers, read the CMS publication, “Medicare and You.”]
DISABILITY INCOME VS. MEDIGAP + MEDICARE D (PDP)
Now that you are age 65, your need for disability income insurance is minimal. If you have retired, there is no work-related income to replace. Premiums for disability insurance would be a waste of money.
If you are still working, you may want to consider whether or not you still need disability insurance. If you are eligible for Social Security and become disabled, you can just start taking your Social Security retirement benefits. It will mirror what disability income insurance would pay.
That strategy would eliminate the premium you have to pay for disability income insurance. However, before you spend that windfall on a new TV, think things through.
Medicare is full of cost sharing holes. Medicare Part A requires you to pay a massive deductible each time you have to be admitted into the hospital. The deductible for Medicare Part B is significantly less but it has an unlimited co-insurance exposure.
A part of the money that you were spending to plug your disability hole needs to be redirected to pay for a good Medigap plan. Medigap pays the medical bills that traditional Medicare does not. Without it, you will have to use the money from your retirement income or savings to pay doctors and hospitals. You can learn more by reading our book, “Understanding Medigap.” It normally sells for $ 4.99 but you can get a copy for free by clicking here.
Not only are there holes in Medicare’s coverage for hospitals and doctors. Medicare does not pay for any prescription medications obtained outside of the hospital. For insurance coverage for prescriptions you will need an additional policy called a Medicare D (PDP) policy.
Medicare D (PDP) policies are usually very inexpensive but they are a new concept for people turning 65. Previously, prescriptions were covered in their major medical health insurance. That is not the case with Medicare. If you or a loved one is about to turn 65, remind them that they only have a limited time in which to get prescription drug coverage.
If they do not enroll in Medicare D during their Initial Enrollment Period, they must wait until the next Annual Enrollment Period. At that time they not only have to pay the base premium. They also must pay a 1 % premium penalty for each month they could have had Medicare D but did not.
Medicare only helps with bills that are medically necessary. In order to determine if a service is medically necessary, Medicare asks, “Is there a chance for improvement?”
If Medicare feels that your treatment will lead to physical improvement, Medicare will help you with your bills. If Medicare pays towards your bills, you Medigap will help with the bills that Medicare does not pay.
If, however, you are receiving “custodial” care, Medicare will not help you with those bills. Custodial care helps you with the Activities of Daily Living (ADL) or Instrumental Activities of Daily Living (IADL).
If you are going to want help with those bills, you will either need to be able to qualify for Medicaid in your state or have a Long Term Care insurance policy.
If you cannot qualify for Medicaid because you have accumulated too many assets, you will have to liquidate your assets to pay for your care until you can qualify. That is referred to as a “Spend Down” plan. It is your only option if you do not qualify for Medicaid and have no Long Term Care insurance policy.
HINT: If you are going to want insurance to help you with the non-medical costs associated with Long Term Care, get it early. You can lock in a premium that is significantly lower at age 55 than if you wait until you are age 65 for the exact same benefits.
- Do You Need Medigap Insurance? (wisebread.com)
- the efficiency of Medicare vs. private insurance (schansblog.blogspot.com)
- Medicare eligibility to age 67; yet another proposal – Obama would consider (quinnscommentary.com)
- Medicare Health Insurance – Investing Money Now (mydecorarticles.com)
I get asked very often for updates on the court cases over Obamacare’s Individual Mandate. When I learn anything new, I share that information, along with other insurance information on The Insurance Barn’s Facebook page. If you want to keep up to date, click here and “Like” the page. You will be notified whenever I learn anything that I feel is important.