Medicare: How Much Will My Healthcare Cost When I’m 65?
In a previous post I wrote about turning age 65 and what to do several months before this landmark birthday to get ready to enroll in Medicare. The Elephant in the room that we need to be aware of is how much is it going to cost? It would be naïve to think that signing up for Medicare Parts A and B would take care of all your health expenses, much like most of us can no longer think health insurance will pay all our expenses in this day and age. Medicare A and B cover many things, gaps in coverage could leave you with medical bills that threaten your retirement standard of living without Medigap or Medicare Advantage (part C) and Prescription Drug coverage (Part D). But how much do they cost, and what happens when your income is high enough in retirement that even your Part B coverage premiums could increase? Read on for answers!
The good news! Part A is “free”!
This taxpayer-funded program covering hospitalizations and some skilled nursing facilities (no Long-Term Care) does not require a monthly premium. Moving on…
Part B premiums grow progressively with Income, watch out for these sudden increases!
Your minimum charge for Medicare Part B, which covers Doctor office visits and outpatient care is 164.90 in 2023. As you make more money, you trigger premium increases starting at a modified adjusted gross income (MAGI) of $97,000 for single people, and $194,000 for married couples. This continues to increase in increments up to an additional $395.60/month for
those making $500,000 single or $750,000 married in retirement. It is important to remember the government uses a two-year lookback period to assess Medicare premiums, so if there is a sudden decrease in income due to retirement or death of a spouse, you can many times get these premium increases waived by petitioning the Social Security Administration to avoid paying steep Medicare premiums that don’t reflect your current income.
Medigap Coverage and Medicare Advantage (Part C), lots of choices, pay what you want depending on coverage!
There are many ways to go here to cover the sizeable gaps in coverage from parts A and B. Medigap coverage is recommended due to benefits that remain constant while Medicare Advantage plans, though many times cheaper, can have benefits changed or removed over the years, leaving someone with a “bait and switch” feeling for some plans. Medigap is good to sign up for when you sign up for Plan B because you are not penalized for pre-existing conditions and the premium is lower when you sign up at 65. The costs can rise over time due to inflation and medical costs but as of 2023, a basic Medigap Plan G averages around $150 for a 65-year old, depending on sex and state of residence, while the “deluxe” Plan F averages about $250/month.
Plan D averages about $50 a month, but there’s a catch!
Plan D coverages can be as low as $10/month with a $500, deductible, and cost over $100 with no deductibles but the cost can go up progressively just like Plan B premiums, and they are incremental, meaning that there are premium additions based on the same income thresholds as Plan B.
Adding it all up, what it costs now and in the future:
For the majority of couples that fall below the $194,000 income threshold for Part B and D premium increases, you will need to spend $400-$450/month per person for decent health coverage. In 10 years with inflation, this may cost $575-$600/month based on historical levels of inflation at 3.75%. It is important to plan these costs into your retirement plan, and work to make sure you don’t go over any unnecessary premium increase cliffs due to not planning how retirement expenses are covered.
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