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How to Avoid the Medicare Mistakes Most People Make

Published on: Sep 28 2020

Retirement medical expenses are high enough when you don’t overpay, but many retirees don’t fully understand Medicare and make mistakes that cost them quite a bit during the course of retirement.

The latest estimate of total retirement medical expenses is $295,000. That is how much a married couple, each spouse each 65 today, will spend out-of-pocket on medical care during their average life expectancy, according to the 2020 Retiree Health Care Cost estimate from Fidelity.

Of course, those who live longer than average life expectancy are likely to pay more. The estimate includes deductibles, copayments, premiums, prescription drugs and care that isn’t covered. But it doesn’t include over-the-counter medications, dental care and long-term care.

About 39% of the retirement medical expenses will be for Medicare Part B and Part D premiums, according to the study. Another 42% will go to co-payments, co-insurance, deductibles and the like. The remaining 19% will be for prescription drugs, including generics, branded drugs and special drugs. But many will pay more.

The up-coming annual Medicare Open Enrollment period (Oct. 15 – Dec. 7) is your opportunity to minimize those out-of-pocket costs while ensuring you receive the medical care you need.The fact is, there are many retirement medical expenses Medicare doesn’t pay. I’ve seen estimates that for the average retiree, Medicare pays about half of medical expenses incurred. Some studies put Medicare’s share lower.

To put some hard numbers on it, the lowest estimate I’ve seen of the average retiree’s annual medical costs in retirement is $5,000. That’s the out-of-pocket costs that include premiums for Medicare Part B and other cover-age, deductibles, copayments, dental and other expenses. Some estimates are over $8,000.

Those are the cost estimates for a retiree with a good package of insurance. Someone with less coverage likely will pay less annually for a few years because of lower insurance premiums. But the first time there’s a medical problem, the coverage gaps in Medicare will become apparent and the out-of-pocket costs will be higher, perhaps much higher.

Each year Open Enrollment provides the opportunity to review the coverage options available to you and decide which is best.

The first decision is whether to enroll in original Medicare or a Medicare Advantage plan.One key difference between the two is a Medicare Advantage plan restricts your choices of doctors, hospitals and other providers. But a Medicare Advantage plan covers most of the gaps in Medicare and provides you a one-stop package of doctors, specialists, hospital coverage, prescription drugs and more.See more details about the differences between the two choices are in our July 2020 issue.

If you opt for original Medicare, you should add two types of insurance policies.The first is a Medicare supplement, or Medigap, policy. This policy will cover many of the expenses not covered by Medicare Part B.

There are 10 different policies to choose from with each having different levels of coverage and premiums. The policy with the broadest coverage is known as Plan G. Medigap policies are offered by private insurers but regulated by Medicare. For details see our October 2019 issue. The second policy is a Part D prescription drug policy. Again, these policies are offered by private insurers and regulated by Medicare.

Prescription drugs are the largest medical expense for most retirees and are the fastest-increasing retirement medical expense. This is where it can pay to work with a financial planner or insurance broker who specializes in Medicare, especially Part D. Next month, I’ll give you more details about shopping for a Part D policy.

You’ll also need to decide how to pay for the other major retirement medical expenses these sources don’t cover. Those expenses are dental, vision, hearing aids, over-the-counter medications and long-term care. You know these costs can be substantial over time, and you need to provide for them in your retirement spending model.

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