Retirement Healthcare Expenses That Are Not Covered by Medicare

Retirement is the onset of the golden years of life. But this is also the time when your age may start impacting your health, and you spend more on medical costs than before. According to a report, a 65-year old couple retiring in 2020 will probably spend $295,000 in today’s dollars towards healthcare expenses. This is exclusive of any long-term care costs, which, as per a report, are required by at least 70% of seniors above the age of 65 at some point in life. With such appalling expenses, it helps to have an understanding of your healthcare needs with an adequate plan in place to support you during your non-working years. A major healthcare aid in retirement is Medicare. However, even though Medicare plans are beneficial, they cannot be adequate alone.

Here are some things to know about Medicare, its exclusions, and what you can do to bridge the gaps:

What is Medicare?

Medicare is a federal health insurance program that covers hospital and medical costs at subsidized rates for the following group of people:

People over the age of 65
People who are disabled before their retirement age
People suffering from permanent kidney failure and requiring dialysis or a transplant

The program is funded by the U.S. federal government through a variety of sources. The tax money deposited as per the Federal Insurance Contributions Act (FICA) supports Social Security benefits and Medicare deductions. For 2020, employees can contribute 7.65% of their paycheck towards these programs, consisting of 6.2% in Social Security benefits and 1.45% in Medicare. Employers also match the employee’s contributions to these plans. As per government directives, the contribution limits will remain stagnant in 2021.

What is included in Medicare plans?

There are essentially four parts of a Medicare plan – A, B, C, D. Each of these parts caters to different healthcare needs.

Part A offers hospital coverage. This part pays for patient care in a hospital or a similar facility.
Part B offers medical coverage. This part sponsors services or supplies used in diagnosing or curing a medical condition. This portion of Medicare also supports costs incurred in the preventive treatment of issues like flu. This comprises in-and outpatient expenses, including ambulance charges, lab work, and some specific outpatient prescription drugs.
Part C is Medicare Advantage. This part of the Medicare plan is sold by private companies and has two distinct categories.
Health Maintenance Organization (HMO)
Preferred Provider Organization (PPO)

Both of these policies offer similar advantages as Medicare plan A and B. A portion of Medicare Advantage is also like Medicare plan D. In addition to these specific benefits, Medicare Advantage also offers dental care, vision care, hearing aids, and other wellness-oriented services.

Part D covers prescription drugs. This part pays for specific prescription drugs (known as a formulary). Each prescription plan has a list divided into sections and prices.

Medicare part A premiums are free for people who make Medicare contributions for ten years or more via their payroll taxes. For all other parts of the Medicare program, patients are responsible for paying the premiums. Most people can sign up for Medicare three months before they turn 65.

What is not covered by Medicare?

Typically, Medicare Part A and B cover a significant portion of the Medical costs once you are 65 or older. These two portions of the plan are referred to as the Original/Traditional Medicare. Even though each of these Medicare parts covers some health expenses at lower premiums, they leave a significant gap.

Some of the most critical costs not covered by Medicare plans are:

- Prescription drugs: The original Medicare Plans, A and B do not cover prescription drugs. You would need to purchase a separate Medicare Plan D to include the cost of prescription drugs in your plan. You can also consider investing in a Medicare Advantage policy that reimburses both medical and drug costs. You can opt for Plan D or the Medicare Advantage Plan at the time of Medicare plan enrollment.

- Long-term care: Long-term care, a significant expense expected during the latter part of your life, is not covered in Medicare. Medicare does offer skilled nursing benefits, but there is no relief given for custodial care, which includes dressing, bathing, and other support activities. To overcome this disadvantage, you can consider investing in a long-term care plan and a life insurance policy to adequately cover long-term care expenses.

- Deductibles and co-pays: The traditional Medicare Plan A offers relief for hospital stays, and Plan B covers outpatient care and doctor services. However, you are to pay $198 in annual deductibles for Part B for 2020. This is an increase of $13 from the figure of $185 that was due in 2019. For 2021, this would likely be $203. That said, for Part A, the inpatient hospital deductible payable when admitted to the hospital is $1,408 for 2020 and would be $1,484 in 2021, (an increase of $76). Further, there are co-pay clauses for long-duration hospital stays. In Medicare Plan B, once you meet the deductible clause, you pay 20% of the Medicare-approved figure for the concerned services. To fill the gaps, you can always opt for a Medicare Advantage plan or a Medigap policy. Medigap plans offer various standardized policies to cover different out-of-pocket medical charges. The price of Medigap is generally $50 per month or a few hundred dollars, varying by the type of policy and your residential area. However, Medigap excludes prescription drugs. So, you would need an additional Medicare D policy.

- Dental care: Original Medicare Plans A and B, do not offer any coverage for dental visits and related procedures like dentures, fillings, teeth cleaning, extractions, etc. However, if you invest in the Medicare Advantage option, you can cover dental X-rays, gum disease, fillings, dentures, and cleaning procedures with an annual cap between $1,000 and $2,000. You can additionally opt for an insurance plan to fill in the reimbursement gap.

- Routine vision care: Medicare usually excludes eye checkups or glasses. However, an annual eye exam for diabetic patients or those who have undergone cataract surgery is a part of the plan. But some Medicare Advantage plans provide vision cover. Alternatively, you can take an insurance plan that includes both dental and vision care.

- Hearing aids: Routine hearing exams or hearing aids are not a part of Medicare. But specific Medicare Advantage plans offer this coverage. Moreover, if you own an HSA (Health Savings Account), you can use its funds to cover the costs of hearing aids and other out-of-pocket expenses.

Overseas care: Medicare plans offer no support outside of the U.S., except in some defined circumstances. However, Medigap can cover 80% of the emergency care abroad, with a lifetime cap of $50,000. Alternatively, some Medicare Advantage plans also include emergency care overseas. That said, you can also consider a travel insurance policy, which will be of help in case of medical emergencies and evacuation outside of the U.S.

To sum it up

Medicare plans can be a part of your healthcare retirement security, but they cannot be the only means for it. It is important to understand the terms, inclusions, and exclusions of Medicare plans, and accordingly, supplement the gaps with additional healthcare options like Medicare Advantage, Medigap, private insurance plans, HSA, long-term care insurance, travel insurance, etc.

You can also consider reaching out to professional financial advisors to discuss your retirement healthcare plan.