Apr 6, 2017 5 min read

Health care is a large potential expense for many seniors. As we age, we typically utilize more medical treatment than when we were younger. There have been studies that estimated that these costs could be over $200,000 during the lifetime for many retired couples. This could be devastating to them. Our health care delivery system has two principal divisions. People under age 65 often get insurance from their employers, COBRA and individual health plans. After you turn 65, Medicare is the primary insurance.

Medicare was signed into law in 1965 by President Johnson. It is administered by the Centers for Medicare and Medicaid Services and enrollment is handled by the Social Security Administration. Almost everyone must enroll in this program. The only exception is if you or your spouse are still covered as active workers by a company plan with 20 or more workers.

Everyone else must enroll in a timely fashion or face penalties and possibly large medical bills. The initial enrollment period is the seven months surrounding when you turn 65 and three months before your birthday, your birthday month and up to three months after you turn 65. You should do so as early as possible to make sure that coverage begins at the start of the month you turn 65.

Since Medicare is the primary insurance for all people over 65,that means they pay first and any other coverage only pays after Medicare. That means you could get stuck holding the bill for any medical cost if you did not sign up. If you sign up later, you will have to pay higher premiums for the rest of your life. This is because if you waited to apply when medical care was needed, there would not be enough money available to pay your claims. Money is pooled from all of the healthy people and then used to pay for care when needed.

There are four parts to Medicare. Part A covers hospital care while Part B pays for doctors. Some people have Medicare Part C, which is advantage plans. If you select this option, Medicare pays a private insurance company that creates a network to cover your medical costs. Part D is for drug coverage. Sometimes advantage plans cover prescriptions so you would not want to duplicate this coverage. If you do not enroll in Part D when first eligible, you will pay a penalty.

Medicare plans do not cover all of your medical expenses. In fact, there are some very big gaps. Medicare does not cover long-term care. It will cover up to 20 days in a facility if you have been admitted to a hospital for at least three days. It will provide for up to 80 more days with a high deductible and then there is no more coverage. This is useful if you need some short-term therapy or a short time to recover from surgery. If you need this benefit, check with the hospital to make sure you have been admitted. Some people are staying at the hospital the three days and then are denied this benefit because they wee considered “under observation” and not “admitted.”

If you are receiving Social Security at 65, you will automatically be signed up for Parts A & B. If you are still working and the company plan covers 20 or more workers, you can decline the Part B until you are no longer participating in the employer plan. They will not automatically?sign you up for Part C and D.

If you have not started receiving your Social Security at age 65, you must proactively contact Social Security and sign up.

Many people do not retire early because of how expensive health insurance can be. Healthy people in their early 60s will be paying around $350-$400 per month for coverage. This can add up to close to $10,000 per year for a couple, and can be a big chunk of retirement income. Many people think that once they hit 65 and are covered by Medicare this will not be a problem. The truth is that Medicare does not eliminate this problem by itself. While the monthly premium for Part B is only about $104 per month, there are a number of deductibles and co-pays that will consume retirement income.

After your deductible, Medicare pays 80 percent and you are responsible for 20 percent. Twenty percent of a $100,000 hospital bill can have a big impact on your assets. There are many other things that Medicare will not cover, including dental and hearing services.

Long-term care can be a major budget wrecker that is not covered by Medicare. Someone with cognitive issues such as dementia or Alzheimer’s disease can easily spend $35,000 to $50,000 per year. To qualify for Medicaid to pay these expenses, you have to spend down most of your assets.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

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