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by Darla Dernovsek



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Protecting your retirement stash begins with finding the right health insurance to cover your retirement health-care costs.

Retirement health insurance options can vary significantly based on age, employer policies, pre-existing conditions, spouse or family needs, and other factors.

If I retire before age 65, what happens to my health insurance?

Some employer-based or union-based health benefits cover retirees, but just 6.2% of private employers offer this coverage, according to an Employee Benefit Research Institute study released in 2010. You may have to pay the premium your employer paid on your behalf when you were employed, not the subsidized amount you paid while working. Employers can discontinue this coverage at any time.

If you lack employer-based coverage and your spouse is still working, see if you can purchase benefits through your spouse's employer-based plan.

Apply for Medicare during your initial enrollment period even if you do not plan to use it immediately.  If you work for a company with 20 or more employees, you can buy benefits from your employer for up to 18 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA). But you'll have to pay the full cost of the policy, which can be expensive.

Lacking those options, you'll have to buy individual health insurance coverage, which is also expensive and may exclude pre-existing conditions. You may be able to reduce your costs if you qualify for membership in organizations or professional associations that offer group plans.

If I retire at age 65 or later, what are my options?

If your employer does not offer health benefits for retirees, your best option is to enroll in Medicare and purchase supplemental health insurance.

If you prefer to retain your existing, employer-based coverage, COBRA rules still allow you to purchase your existing employer-based coverage for 18 months. After that, you would need to enroll in Medicare at the next election period or buy an individual plan, if one is available.

If you're among the fortunate few retiring from an employer that offers insurance for retirees, the plan is probably modified when you turn age 65 to provide insurance that supplements Medicare coverage, rather than replacing it. Again, that means you must enroll in Medicare promptly.

What is Medicare supplemental insurance and why do I need it?

Just like any insurance policy, Medicare sets limits on coverage and requires co-pays and deductibles for some services. Supplemental insurance is designed to fill Medicare's holes in coverage, which is why it is sometimes described as Medigap insurance.

You can learn more about what Medicare covers and how to shop for supplemental insurance at the government's official Medicare site.

How do I pick the right supplemental plan?

Shopping for retirement insurance requires weighing your needs against plan options in your area.

As co-owner of a small business in Ladysmith, Wis., Patricia had experience in shopping for health insurance for herself and her husband, both age 75. She compared plans for Medicare supplemental insurance along with options to add vision, dental, and prescription coverage.

Patricia knew health coverage was essential, but weighed actual costs against quoted premiums for vision and dental coverage and examined several prescription options.

In 2011, Patricia and her husband paid a combined $352 a month for Medicare supplemental health insurance provided by a local health system, while each paying a separate $110.50 monthly Medicare Part B premium. The couple participates in a state plan for low-cost prescriptions and pays for vision and dental care out-of-pocket.

Their plan requires the couple to spend at least six months of the year at their Midwestern home, allowing them to head south to Arizona for the winter as long as they notify the health plan before they temporarily relocate.

"What a person has to look at is what their health needs are, where they live, how they can maintain relationships with existing physicians, and how their lifestyle choices could affect their coverage," Patricia advises.

The Medicare site offers more information about choosing a Medigap policy.

Will coverage cost more in retirement?

That depends on the type of coverage you had and your age when you retire. If you received benefits through an employer, it probably will cost more to buy an individual policy before age 65.

If your spouse is still working, see if you can purchase benefits through your spouse's employer-based plan. But if you were paying for individual insurance or even enrolled in an employer's high-deductible plan and are now eligible for Medicare, it's possible you'll save money on monthly premiums for supplemental coverage.

For example, Patricia and her husband paid a combined $800 a month before age 65 for private plans, but pay only $573 a month for Medicare and a supplemental policy 10 years after retiring.

Should I wait to enroll in Medicare until I plan to use it?

No! Apply for Medicare Part A during your initial enrollment period (IEP) even if you do not plan to use it immediately.

You may, however, wish to delay enrolling in Medicare Part B if you are covered by another plan, such as an employer-based plan. Part B requires a monthly premium and would probably provide minimal benefits while the group plan is still in effect.

The IEP covers a seven-month period:

  • Three months before the month of your 65th birthday
  • The month in which you turn age 65
  • Three months after the month of your 65th birthday.

If you fail to enroll during this window, you could face higher premiums, a late enrollment penalty, and limits on when you can apply.

During your IEP, you also have the legal right to buy any Medicare supplemental insurance policy offered in your state. That makes your IEP a good time to shop for supplemental coverage.

If you delay enrolling in Medicare Part B because you are still working and covered by employer-based benefits, you will have eight months to enroll in Part B after either your employment or your group coverage ends, starting with whichever event occurs first.

If I have insurance, will I still need savings to cover health costs?

Yes. Fidelity Investments, Boston, Mass., estimates that a 65-year-old couple retiring in 2011 will need $230,000 to pay for out-of-pocket medical care throughout retirement, including premiums, deductibles, and co-payments.

Many people plan to use retirement income to cover some of these costs, but most retirees will need to tap their savings.

Do I need long-term care benefits?

Medicare typically does not pay for "custodial care" in long-term care facilities. That means that you or your family will need to pay the high cost of a nursing home or skilled care facility for long-term stays.

Long-term care insurance helps pay those costs but carries a high price tag. This insurance typically costs less if you purchase it at a younger age.

The Medicare site offers more information about long-term care.

What does health reform mean to my coverage?

The Affordable Care Act's many changes include protecting your options for buying supplemental insurance, modifying prescription coverage and premiums, and establishing a national long-term care insurance program.

Weigh your needs against plan options in your area.  Other efforts to reform health care and change the Medicare program are ongoing. Continually monitor developments to understand the impact of proposed changes and maintain the coverage that's right for you.

Types of Medicare coverage

  • Part A—Helps pay inpatient hospital expenses.
  • Part B—Helps pay outpatient expenses, including physician fees. Usually requires a monthly premium.
  • Part C—Covers both Part A and Part B services with a private insurance "Advantage" plan that typically requires you to use the plan's doctors and facilities. Advantage plan premiums are more expensive, but they generally cover more expenses.
  • Part D—Provides coverage for prescription drug benefits. Usually requires a monthly premium.

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Published July 5, 2013

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