Optimizing Health Care Costs

August 5, 2022

Topics: Health Care | Retirement | Retirement Income

Media type: Article, Podcast

Optimizing Health Care Costs

5.8 minute read • 

August 5, 2022

How to anticipate and prepare

Have you considered expected healthcare costs in your retirement plan?

According to a model we developed in partnership with Mercer Health & Benefits, average health care costs, even with Medicare, can exceed $5,000 per year. * Although costs vary from person to person, it is possible to estimate your situation – then plan accordingly.

Pre-retirement healthcare spending planning gives my clients more control. The more we plan, the more peace of mind they will have in retirement.

The amount you will need for health care is your biggest unknown expense in retirement. Once we figure that out – and how it changes over time (gap year coverage, Medicare at age 65, and potential long-term care costs) – it should make the transition much smoother.

So what constitutes the pattern that drives our individual estimates? Many factors influence health care costs, but according to our research, these are the 6 most important.

1. Health insurance options

When it comes time to enroll in Medicare (at age 65), take a closer look at the available plans and choose the right one for you based on your individual needs. You’ll re-enroll at around the same time every year, so you can re-evaluate your plan and choose different options to meet your changing needs.

When you enroll, you will need to make many decisions about your coverage, such as choosing between traditional Medicare and Medicare Advantage. If you choose traditional health insurance, you may need to add Medigap coverage – select it from the list of policies. You’ll also need to decide if you need additional prescription coverage, as well as dental and vision coverage (if your plan doesn’t cover it).

Costs vary by coverage, so you want to make sure you’re not paying more than you need. But you also don’t want to pick a plan based on cost alone and end up with insufficient coverage. When considering your options, ask yourself if you would be willing to pay higher premiums (and/or additional premiums for additional policies) to increase the predictability of your payouts.

Choosing a health insurance plan can be complicated, but we can help. You can find more information in the retirement section of our website:

Learn more about Medicare Parts A through D

If you need help narrowing down your options based on your needs, you can use our Medicare Match tool, which is available to Vanguard Personal Advisor customers.

2. Health

Your health in retirement and your family’s medical history largely determine how much Medicare coverage you need and how much you can expect to spend on health care.

Some issues to consider:

Do you smoke

Do you see your doctor regularly (at least 10 times a year)?

Do you have 2 or more chronic conditions?

If you answered yes to at least one question, you should plan to spend more of your retirement income on health care. However, if you don’t have any chronic health conditions, have never smoked, don’t have frequent doctor visits, and don’t have any major health conditions in your family history , you can expect to spend less than the average.

However, keep in mind that higher health risks also increase the likelihood that you will need long-term care. Nearly half of retirees don’t need it, but if they do, it can get expensive. You may want to include long-term care as a separate expense in your plan.

Learn more about long term care

3. retirement age

Some of my clients are aiming for early retirement, so I work with them to make sure they save enough to cover their gap year healthcare costs before they become eligible for Medicare. To know how much they should save, I need to know their health insurance plan.

If your spouse is still working, one option is to continue using your spouse’s employer plan. You can also continue to use your employer’s plan through the Omnibus Fiscal Reconciliation Act (COBRA), which gives workers and their families the option to continue receiving health benefits as part of their group scheme. ** However, COBRA has higher medical costs than most employees. Care before retirement. Also, COBRA is only good for 18 months, so if you retire before you become eligible for Medicare, you may need to combine different sources of health care. If an employer-sponsored plan isn’t an option, you can purchase coverage on the federal market or purchase private insurance. All of these options have their own requirements and vary in cost, so you’ll need to do your research to see which ones are right for you.

Pre-retirement healthcare spending planning gives my clients more control. …the amount you’ll need for health care is your biggest unknown expense in retirement. Once we understand this – and how it will change over time (gap year coverage, Medicare at age 65 and potential long-term care costs) – it will make the transition much smoother. —Ellie Oligmueller, CFP®, Senior Financial Advisor

Things to Consider When Choosing a Health Insurance Plan

When researching the plans available, you’ll want to carefully consider what each plan offers and how it meets your needs. Here are some things to consider:

If you have a medical condition, consider a plan with greater coverage.

Learn more about each plan’s deductibles, co-payments, coinsurance and maximum payouts.

Check if your preferred provider or network supports the plan you want to choose.

If your retirement includes foreign travel, consider a plan that includes foreign travel benefits. Determine how the plan you choose will work with any employer-sponsored insurance you may still have.

Ready to plan for your healthcare expenses in retirement? Our advisors are always at your service. Please call us at 855-932-5449.

4. employer subsidy

If you have coverage through an employer plan, either yours or your spouse’s, your health care costs in retirement may seem higher. Research shows that when a worker retires, they lose an average of $6,440 in employer subsidies. † If this is your case or that of your spouse, you may need to make up the shortfall with other funds.

5. Location

Where you live in retirement can also affect your health care costs. While traditional Medicare coverage is the same everywhere, other costs such as prescription coverage, supplemental plans, and private insurance can vary from state to state, and even region to region. another within the same state. Top 5 States for Healthcare

best overall

The most affordable care

The top 5 states for health care fall into two categories:

The best overall and most affordable health care. The top five ranked states were California, Connecticut, Hawaii, Massachusetts and New Jersey.

we. News & World Report compiled data from the Centers for Disease Control and Prevention and then used it to show how states rank in several key healthcare-related areas. The graph above highlights the states with the highest overall ratings for health care. ††

6. Retirement income

If you plan to work after enrolling in Medicare, or if you have substantial income from retirement savings, the government may not subsidize your healthcare costs, depending on your gross income. However, the income levels that must be exceeded to trigger the deductible are high – currently $91,000 for individuals and $182,000 for married couples.