Health Care Coverage Planning for Retirement

There are decisions you will need to make as you begin thinking about retirement or signing up for Medicare.  If you think that Medicare is an easy solution to health care in retirement – think again!  As with any type of health coverage, there are many options to consider, many of which may be unique to your situation. Read on for some suggestions to help you get prepared.

Early Retirement Health Care Options

If you are contemplating an early retirement, you will need to bridge the coverage gap between employer-provided health care and Medicare. The first step should be consulting with your employer’s HR team to determine what continued coverage options are available to you (and any family members) through your employer. Generally, continuation of health care coverage, or COBRA, lasts up to 18 months. In some cases, your spouse and children can be covered for up to three years. The cost of COBRA coverage may come as a surprise, though. Employers generally pay 70-85% of health care premiums. To obtain COBRA coverage, you are required to pay 100% of the premium and may be charged up to 2% in additional administrative fees.  There is a short window to apply for COBRA so get the information about costs and benefits early. COBRA coverage does not necessarily qualify as “creditable coverage,” which could increase the length of a pre-existing condition exclusion period, so be sure to check this out!

Another option is to shop for health insurance at the Affordable Care Act Marketplace (, where health and dental plans are available. Losing employer coverage is a “qualifying event” – so you don’t need to wait for open enrollment dates. With that said, current law requires that new coverage be in place within 60 days of loss of coverage. Information about plans and pricing is attainable without entering too much personal information – so take some time to check this out.

To establish a baseline, determine how much you are paying for health care now.
Don’t forget about the extras like dental or vision coverage.
Know how much your deductibles and co-payments could cost for all family members covered by the current plan.

Working Beyond Age 65 and Keeping Employer Coverage

If you have “creditable coverage” through a workplace plan (a policy whose coverage provides at least as much protection as Medicare) you do not need to sign up for Medicare at age 65. If your employer plan does not qualify as creditable coverage, you need to sign up for Medicare at age 65 to avoid penalties.

If you work for a small company (under 20 employees), your employer decides whether your health care benefits can continue and whether you will need to pay for them. If you work for a large employer (one with at least 20 people covered under a health care plan), your employer is required to offer you the same benefits offered to younger employees. This gives you a few options, but first you need to know if your employer plan qualifies for creditable coverage. If so, you can accept your employer’s health coverage and delay applying for Medicare without penalty, keep your employer coverage and apply for some Medicare coverage at the same time, or simply sign up for Medicare.

HSA, FSA, HRA, and Medicare

Once you begin receiving Medicare benefits, you may no longer contribute to a health savings account (HSA) or flexible spending account (FSA). However, health reimbursement accounts (HRAs) may be used with Medicare if they follow certain rules. There are a few types of HRAs, with different requirements and allowable expenses – so be sure to take a closer look at the guidelines if your employer offers such a plan.

Signing Up for Medicare but Delaying Taking Social Security Retirement Benefits

There is an initial enrollment period (IEP) for Medicare parts A, B, and D beginning three months before your 65th birthday. If you miss the IEP, you can be subject to delayed coverage and financial penalties in the form of permanent surcharges. Part A is free for most people if you qualify for Social Security (even if you choose to delay retirement benefits). Parts B and D are billed monthly; the cost of these benefits will vary based on your income. Premiums are based on your reported gross income from 2 years prior to your application date. So, your income from 2020 will impact your Medicare Part B and Part D cost for 2022. To see how your income will impact your cost of Medicare Part B and Part D, please go to:

Signing Up for Social Security and Medicare at Age 65

If you sign up for Social Security retirement benefits at age 65, you will automatically be signed up for Medicare Parts A and B.

Medicare Basics: Alphabet Soup

Medicare Part A is also known as Hospital Coverage. It provides coverage for semi-private room inpatient care at a hospital under a physician’s order when the hospital accepts Medicare. There is a $1,556 deductible for this coverage in 2022. Also included are meals, general nursing and drugs which are a part of your inpatient treatment. Not all services recommended by your health care professional are covered. After 60 days of care, co-insurance and additional costs begin to phase in. Medicare Part B will cover 80% of approved doctor’s services while you are in a covered hospital. It covers medically necessary services/supplies and some preventive services (like flu vaccines) whether in or out of the hospital. It also covers medically necessary durable medical equipment, such as nebulizers or some diabetic supplies. Some drugs (which usually are not self-administered) are also covered. Costs for Part B are variable, based on your income. The following are NOT covered under Parts A or B:

  • Long-term custodial care
  • Most dental care
  • Dentures
  • Eye exams for glasses
  • Acupuncture
  • Hearing aids
  • Routine foot care, or
  • Cosmetic surgery

Medicare Part D will pay for most drugs not covered under Part B.  Part D is not a government program, rather, it is purchased through private carriers. Each provider has a specific formulary that can be changed annually. To choose a plan, you will want to have a list of specific drugs you take to be sure that they will be covered by the formulary. There is no penalty for changing providers from year to year. After hitting a deductible ($480 in 2022), you will pay coinsurance which varies by plan and by whether your drug is generic or specific. Due to coverage limits intrinsic to Part D, there exists a gap in benefits after a certain level of costs have been covered and before additional coverage kicks in (the so-called “Donut Hole”). This gap serves as a reminder to carefully review your prescriptions when selecting a Part D plan. If you have a complex medical situation, consult a coverage specialist before making a choice for coverage.

Traditional Medicare or Medicare Advantage – a Big Decision

Retirees can also choose between a Medicare Supplement (aka “Medigap”) insurance or a Medicare Advantage Plan. These are different types of private policies that complement the various parts of Medicare, helping to fill in gaps and provide a more consistent cost experience for insureds. Understanding all the options is critical to obtaining the coverage that will serve you best without additional costs or being denied certain coverages because of pre-existing conditions.

Medicare Advantage is a bundled care plan provided by a private insurance company. Under a Medicare Advantage Plan, you will still have Part A and Part B coverage, but most of your coverage will be through the private insurer. Part D coverage is bundled into such plans. There are a great many services covered under these plans that are not covered under traditional Medicare: dental coverage, health club reimbursement, and transportation to medical appointments, to name a few.

There is a great variety in the services offered by these plans as well as differences in costs for coverage, co-pays and maximum out-of-pocket costs. Advantage plans also have their own rules about referrals to specialists and out-of-network services.  If you spend winter or summer in other locations, you will want to find a plan that has networks where you spend substantial time.  You will want to know what providers are available and what the costs are.

Because they are reimbursed by Medicare, some plans charge as little as $0 for monthly coverage. But whether they charge a monthly fee or not, you will still be subject to Medicare Part B premiums. Coinsurance and copayments can also be different from plan to plan, and some states have unique regulations of their own. The insurer decides what the costs will be from year to year, and details this annually under an “Annual Notice of Change.”

Medigap Coverage, a.k.a. Medicare Supplemental Coverage, offers 10 different plans with different co-pays, deductibles, out of pocket maximums, and a number of unique coverage options. You can change plans annually but only during open enrollment periods – generally from November 1 to mid-December. Medigap coverage also offers more service options than an Advantage plan. For example,  if you are planning foreign travel, you can select a plan for that year that would cover some emergency costs – or buy supplemental travel insurance. If you are planning on a hip or knee replacement, you might want to select a plan for that year that includes some skilled nursing or re-habilitation coverage. If you have preferred providers not in an Advantage Plan network, or special medical needs, Medigap coverage and Part D might be a better choice for you.

Other Considerations

Guaranteed IssueMedigap plans may impose restrictions under certain circumstances. Policy issuers can refuse to cover prior medical conditions for the first six months. To avoid this, buy your policy during an open enrollment period, and do not allow any gaps in coverage.

State Considerations

There are peculiarities for plans in all states. Following are some of those peculiarities in states where many of our clients reside:

Maine ME law requires that issuers offer Medigap A for sale to anyone regardless of health conditions during one month each year. Each carrier gets to choose which month for this offer to be effective. ME also has some unique features when switching from Medigap to Medicare Advantage. Carriers can charge different premiums for the same plan.

Massachusetts MA Medigap plans are different.  There are a Core Plan and a Supplement 1 and Supplement 1 A Plan. These plans have additional benefits. MA residents need to be aware of when they can change their Medigap plan. Carriers in MA are required to offer guaranteed issue from February 1 – March 31 of each year.

New Hampshire Plan F is no longer available. Medicare Advantage plans are usually less expensive in NH, but more restrictive.

Rhode Island RI follows the national standardized plans.

Your state not listed?  Call your Advisor – we’ll help you find that info – or check out

Final word

Our experience shows that most people underestimate the cost of health care. On average each person will spend between $12,000 – $50,000 annually for health care including Medicare and other insurance premiums, but not long-term care. How to Plan for Health Costs in Retirement – Some suggestions

    • Take an inventory of your health care costs now.  Include dental, vision, exercise groups, over-the-counter vitamins and drugs.  Determine how regularly you visit the doctor, dentist and other health providers.
    • If employed, talk with your HR department about various health care options.
    • Save as much as you can in HSAs before you sign up for Medicare. These accounts can continue to grow until you need to use them.
    • Determine if you will be subject to Income Related-Monthly Adjustment Amount (IRMAA) – you can ask your Client Advisor for a review and suggestions to help limit this additional expense.
    • Think about your family history and your current medical status – what additional considerations might be needed.
    • Get some help to sort through the options.  There are insurance specialists who, for a fee, can help you determine which options and plans are best for you.

Finally, review your coverage during the annual enrollment period to keep your coverage up to date with current medical needs.


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