Throughout our working lives, our employers usually provide us with health insurance. Often these plans have low deductibles so our exposure to significant medical debt is somewhat limited by having robust insurance.
However, as we age, our health care spending climbs. In fact, it's been reported that medical costs are among the top financial worries of Americans, and with good reason: Medical expenses are often the largest anticipated expense for seniors.
Fortunately, there are steps you can take to avoid medical debt in your retirement years.
Sign up for Medicare on time.
There are significant penalties for late enrollment into Medicare. These penalties accumulate the longer you wait to enroll and can be very costly. You can avoid penalties by signing up for Medicare when you are first eligible.
Everyone gets a seven-month initial enrollment period when they turn 65. This begins three months before the months you turn 65 and continues for three months after your birthday month. Enroll in Medicare Parts A, B and D during this window if you don’t have any other creditable health insurance coverage, such as employer coverage. You’ll avoid penalties by simply signing up when you are supposed to.
Are you still working at 65? If your employer has more than 20 employees, you can delay Medicare Parts B and D until you retire without incurring the late enrollment penalty. Both Parts B and D have monthly premiums and the benefits are somewhat redundant because your employer plan already includes outpatient benefits and drug benefits.
By delaying coverage, you can save these premiums. Set that money aside for medical costs during retirement.
Cover the gaps.
While Medicare provides a strong foundation, it doesn’t cover 100% of your health care services. You are responsible for some cost-sharing. Medicare Part A has a hefty $1340 deductible and Part B has a smaller deductible as well. Most troublesome is that Part B only covers 80% of your outpatient benefits. This means that you are responsible for paying the other 20% as your coinsurance.
Considering that Part B covers costly services like outpatient surgeries and chemotherapy, that 20% can be financially devastating without other coverage.
There are two types of coverage you can choose from to fill in these gaps. Medicare supplements have been around for decades. These plans pay after Medicare to cover your deductibles, coinsurance and copays. They also allow you to see any doctor in the nation who accepts Medicare.
A newer form of coverage that has been gaining steam is Medicare Advantage. Some 33% of Medicare beneficiaries now opt for this form of coverage. Advantage plans, or Part C plans, are a private form of Medicare insurance that you choose instead of Original Medicare. Most of these plans have networks. By treating with doctors in the network, you have lower cost-sharing. All Advantage plans have an out-of-pocket maximum limit that caps the amount of medical exposure you have each year.
Enrolling in solid supplemental coverage is perhaps the single most important thing you can do to limit or avoid medical debt during retirement.
Examine your bills carefully.
Don't assume that your medical bills are correct. In fact, billing errors are so common that we ask our policyholders send them to us for verification before they pay them. We find many of them to be unwarranted bills, due to miscoding by the doctor's office or because the provider sent the bill before giving the Medicare supplement company a chance to pay. In many cases, when we review the invoices, our clients actually owe nothing.
Imagine how many people out there don't know this and just pay the bills, assuming they are correct.
Always review your quarterly Medicare Summary Notice carefully to spot errors. Question errors by contacting your doctor's office before you write those checks.
Beef up your health savings account (HSA).
If you are still working and have access to a health savings account based on your qualified employer health plan, do everything you can to max out the annual contribution. Money that you contribute to this account is a tax write-off. You can then later use these funds to pay for medical expenses in your retirement.
In 2018, you can contribute up to $3450 per year as an individual or $6900 if you have family coverage. The IRS also allows a catch-up contribution of up to $1000/year for people age 55 or over.
You can use funds in your HSA to later pay for Medicare premiums, copays and deductibles, as well as prescriptions and vision and dental services. Someone who begins saving earnestly in their HSA in their fifties could enter retirement with a medical savings account that has thousands or even tens of thousands of dollars in it.
Once you are on Medicare, you can no longer contribute to a health savings account, so plan to invest in yours well before you turn 65.
Don’t put medical expenses on your credit cards.
If you do incur significant medical expenses, try not to charge them to your credit cards where you will incur additional finance charges as you work to pay them off. Speak with your medical provider to ask for a payment plan that you pay directly to the entity that you owe. This is usually an interest-free solution.
By planning ahead and making wise Medicare decisions, you can hopefully avoid medical debt that would otherwise put a damper on your golden years.