Healthcare in Retirement with Donald "DJ" Kerr III, CFP®, CKA®

Discussion Points

So the main discussion points that we’ll cover today are healthcare costs, Medicare overview, long-term care, and steps that you can take to prepare.

Potential Costs

Fidelity estimates a 65-year-old couple will spend approximately $315,000 on healthcare expenses, including premiums, deductibles, copays, and coinsurance in retirement.

That dollar amount is a ballpark estimate, though, and it does not include the cost of long-term care, which we will discuss later.

Healthcare costs are expected to continue to increase at a pace of 5.1% annually, which means most retirees will see increasing costs as they age in retirement.

Medicare Overview

Let’s discuss the primary component of retiree healthcare, the Medicare System.

Medicare is healthcare insurance for people 65 or older, and for some individuals under 65 with certain disabilities.

It is important to understand that Medicare does not cover all of your healthcare expenses.

There are two general paths for Medicare coverage.

First, you enroll in what’s referred to as original Medicare, which is administered through the federal government and consists of Part A, which is hospital insurance, Part B, which is medical insurance.

After being enrolled in original Medicare, you make the decision on what additional coverage you need and how much you would like to obtain that coverage.

The left path, you can choose to keep your original Medicare coverage and add Part D—prescription drug coverage—and Medigap, which helps supplement some of the costs original Medicare does not cover.

Both of these parts are optional and purchased through private insurance providers.

On the right path, you can choose the Medicare Advantage path, which is a private alternative for all Medicare coverage and has an all-in-one plan model.

Medicare Advantage generally includes prescription drug coverage, and may also include coverage for vision, dental, hearing, and wellness services.

If a Medicare Advantage plan does not include Part D, you can purchase a Part D drug plan separately.

Many factors need to be considered when evaluating what path is optimal for you. Let’s take a look at each part of Medicare a little closer so you can gain a better understanding.

Medicare Part A

Here’s part A, which is the hospital insurance. I like to say that it gets you into the hospital, to your care provider, which includes hospital inpatient care, skilled nursing facility, home healthcare, hospice care. We’ve already paid our Part A premiums when we were working or while you’re working or are working, through payroll taxes, so there are no premiums once you are on part A and not working anymore. Most individuals do not pay that premium, as long as they are covered by Medicare, for at least ten years of covered employment.

We can see here that you pay a deductible for hospital stays of fewer than sixty days, and there are out-of-pocket expenses for frequent or extended hospital stays, and that can be very expensive and add up fast.

Medicare Part B

Part B insurance is the medical insurance that gets you to the doctor in person, basic services such as outpatient medical services, durable medical equipment. It’ll pay for preventative care, clinical laboratory services.

Most enrollees will pay about $165 per month. And if you are collecting social security, that is deducted from your social security benefits.

Or you have to pay separately if you’re not, if you’re delaying your Social Security.

If your income is higher, the more you’ll pay. There is no maximum out-of-pocket.

In 2023, you pay $226 for your part B deductible.

After you meet your deductible for the year, you typically pay 20% of approved Medicare expenses for common care such as most doctor services, care where you are in-patient, outpatient therapy, and durable medical equipment.

Medicare Part D

Part D is gonna get you your prescriptions, if you need to take prescriptions or will potentially at some point in the future. The enrollment is voluntary, but penalties do apply for enrolling late.

Part D is offered by private insurance companies.

And drugs and pharmacies that are covered vary by plan. The late enrollment penalty amount typically is 1% of the national base beneficiary premium for each full uncovered month that you are not enrolled in Part D.

So that can get expensive fast.

Coverage Gaps

Now there are some coverage gaps in the original Medicare.

It’s a hospital deductible, hospital coinsurance, part B coinsurance, part B deductible and excess charges and emergency care abroad.

So this is showing that some of the more expensive gaps that are not covered by Medicare could require significant out-of-pocket expenses.

One way to cover some of the gaps is by purchasing a Medigap plan.

Your Benefits Information

Your benefits statement that you can view online at ssa.gov will show your Full Retirement Age as well as an estimate of how much you’re eligible to collect at age 62, your Full Retirement Age, and your age 70. Those amounts will change over time if you continue to add years of working at a higher income level.

Medigap

Many of you are probably familiar with a Medicare supplement and Medigap plan, either from family members, a spouse, friends, TV commercials, but the Medigap is exactly in essence itself defined. It’s a medical plan filling the gap.

Medicare supplemental insurance helps reduce out-of-pocket expenses for Part A and Part B.

There are ten different Medigap plans that are identified and letters A through N policies are offered by private insurance companies.

And policies that have more generous coverage, as you would imagine, are gonna have higher premiums.

And premiums may vary significantly by geography, each plan type and provider.

Plan F is the most comprehensive and thus most expensive.

You can determine your coverage needs by shopping multiple providers in your area.

Part C: Medicare Advantage

Medicare Advantage plans offer the convenience of bundling all of your healthcare coverage into one plan. The trade-off for this convenience of a bundled plan is a generally limited network of hospitals and doctors you can receive care from.

So what are the pros and cons behind an original Medicare with a supplement Medicare Advantage? Well, let’s start with original Medicare.

It’s flexible or more flexible to receive care from any doctor or hospital that accepts Medicare.

There are no geographic restrictions in the US.

The downside, you must purchase a Part B and Medigap to avoid gaps in coverage.

There is no out-of-pocket limit. There’s no dental, vision, or hearing.

Medicare Advantage, from the pros. It’s the convenience of one plan.

There is an out-of-pocket limit and may include dental, vision, hearing, wellness.

The downsides of Medicare Advantage? You’re limited to a network of doctors and hospitals.

Increased costs for going out of network and plan providers and benefits can change year by year.

I like to look at original Medicare with supplement much like an employer-sponsored healthcare plan that is a PPO preferred provider healthcare plan. We have the network, but you have the freedom of more providers, generally, whereas an HMO plan, a lot of you, and I have been on the healthcare with Kaiser in the past. And I would look at Medicare Advantage kinda like a Kaiser plan, you know, that bundled healthcare experience.

And maybe some of you have been on both. And, oh, yeah, there are pros and cons to both. But you might wanna consider those experiences to help give you perhaps a direction that you might want to initially explore between Medicare Advantage or original Medicare.

Medicare Enrollment Periods

Enrollment periods. This can be very confusing to navigate. So let’s walk through this.

To avoid potential penalties and coverage gaps, it’s important to understand how Medicare enrollment works.

Most individuals should consider enrolling during their initial enrollment period, which is a seven month period around their 65^th birthday. Specifically though, the three months prior to the month they turn age 65, so they will have their coverage begin the month they turn age 65. Enrolling the month they turn 65 or later will result in coverage delays of at least one month.

If you’re already receiving benefits from Social Security, you’ll automatically get Part A and Part B starting the first day of the month you turn 65.

If you weren’t automatically enrolled in Medicare, or you missed your initial enrollment period or IEP, you can still apply for Medicare Part A and/or Medicare Part B during the general enrollment period, which runs from January 1^st to March 31^st each year.

If you enroll in Medicare during the general enrollment period, your coverage begins in July in the annual open enrollments, which applies for Medicare Advantage and Part D plans.

If you’re 65 and still working, you might be wondering how does this apply to you? If you’re covered under a group health plan based on employment at age 65, you should discuss how Medicare works with your employer benefits. You may not have to enroll in Medicare at 65. And when you retire or no longer have employer health coverage, you have a special enrollment period to sign up for Part A and or Part B that is eight months long.

Penalties for Late Enrollment

And as you would imagine, there are also penalties for late enrollment in part B. Does this apply if you did not enroll when you were first eligible?

If you are 65 and you’re on an employer sponsored plan for either your employer or your spouse’s employer, these penalties would not apply to you.

And these are permanent lifetime penalties for part B and D.

The Part B premium is 10% per year premium increase for life and one percent for Part D each month enrollment is delayed. You can see that can add up fairly fast.

ClearMatch Medicare

One of the benefits that our OnPoint investment clients have is access to a resource called ClearMatch. This is where we are able to assist our clients in researching assessing what our plans might be best for their circumstances regarding their health, geography of where they live, what plans are available, discuss suitable options, and try to find the best value for you in your specific area, as well as to assist with enrollment and billing and then support on an ongoing basis. We recommend having your healthcare supplements, whether it’s Medicare Advantage or original Medicare and supplement reviewed each year. If you don’t have a good source for that, if you’d like to talk to our investment team about your needs, you’ll see how to get in touch with us at the end of our presentation.

Long-term Care

Now many people do mistakenly confuse long-term care versus healthcare. So healthcare is going to be a health issue, and you need to see a doctor. You have an illness, you have a situation where you need to see a doctor and get your body fixed up.

Long-term care is separate. Different. Long-term care is you need help, or growing older, or perhaps we have an accident, and we need help with basic activities of daily living.

Two separate needs, and they also impact the pocketbook differently. Many of you may have stories of a spouse or parents or grandparents, neighbor, family friend who had a prolonged, long-term care event where they needed assistance, getting dressed, eating, remembering to take their medications, and perhaps toileting.

So, those are not healthcare issues. They’re long-term care issues. And the average 65-year-old couple today would need to self-insure have $140,000 set aside in savings or investments to grow through retirement to provide for the average long-term care needs or retirement. And the statistics show us that those 65 or older have a 70% chance of having a long-term care event in their lives.

They usually last about two and a half years, those long-term care events.

The annual cost of long-term care is not getting cheaper. These statistics are a handful of years old, but they’re still relevant. The average nursing home cost is $100,000 a year.

All the way down to a home health aide or assisted living, about $50,000 a year. This is 2018. At the inflation rate of 5-6%, you can see we’re almost doubling those costs just over a twenty-year period.

Again, many of you may have some personal stories and experiences of seeing these costs escalate for loved ones or friends that have been in this type of season.

Long-term Care Insurance

Now, there are different strategies to hedge your financial plan as well as to protect your family yourself if you’ve been in a long-term care season of life. For some, long-term care insurance may be a strategy to consider.

Having that type of coverage can help protect your assets. For yourself, for your spouse, as well as your financial legacy for family, charitable aspirations. There may even be an option that provides options for better quality care. I think this third bullet point is personally and professionally where I’ve seen long-term care insurance be of big value and the idea that it can relieve family and friends from the stress of providing care.

I’m sure again, think through your stories.

There are circumstances or a plan where people will self-insure and have family be their providers.

But I’ve seen that put a lot of physical, emotional, mental, and financial stress on those family members. So long-term care insurance generally is not positioned to relieve all financial and family care, but it can relieve and protect, as well as preserve your independence and dignity overall.

So long-term care insurance for most people should be a strategy to consider.

And three, proper discovery process to determine what strategies as self-insuring or some form of long-term care insurance would be beneficial for your financial plan. And there are different options for long-term care.

Long-term Care Funding Options

We’re just discussing. You can self-insure.

You have $140,000. You can set aside the appropriate investment portfolio to grow and source as needed down the road for long-term care costs.

There’s a stand-alone traditional long-term care insurance, and there’s also what we call asset-based insurance or long-term care insurance that can be used within an annuity for life insurance, and one of the benefits there is that if you do not use that source for long term care, then there’s a living benefit for you to use, an annuity or potentially as a legacy benefit of life insurance for your family or charitable causes that are dear to you. Which strategy is best for you, that’s a conversation you need to have with your financial advisor, but there maybe it’s a combination of several or a couple of these different strategies that might be the right fit for your vision, values, and goals and finances.

Next steps

So what are the next steps you might wanna consider?

One is to estimate your healthcare costs in retirement, which we can do because we know what the averages are for what we’re discussing today from the long-term care and healthcare perspective. Develop a retirement income plan to cover those costs, ideally in a perfect world, a perfect financial plan, we have enough reliable income Social Security, pension, annuity income, maybe real, rental income. We have a very reliable income that would cover our essential costs, including our healthcare costs.

Consider using the ClearMatch resource that we have available through Raymond James to find suitable Medicare coverage for you.

And through this discovery process, they evaluate appropriate long-term care funding options that are suitable and the right fit for your unique circumstances, but also monitor and revisit your plan on a regular basis.

And I would like to bring up the idea of continuity, financial planning continuity, hear a lot about business continuity, but financial planning continuity is the idea that there’s a plan in place, there’s a team that knows the vision, values and goals, what makes one cry, what makes one smile, And when life stages change and there is heartache in the family, that there’s continuity in one’s overall financial investment plan because there’s a team that is managing the finances on behalf of the family. And then when a spouse needs to show up to that meeting for the first time by herself or himself or the heirs, there’s a plan in place, and the financial gaps are minimized, and the plan can continue while hearts are heavy within a family, whether it’s a long term care circumstance or the passing of a loved one, I would suggest that would be a very intangible consideration when deciding if you want to work with a financial guide.

Frequently Asked Questions

Now, we’re gonna address some frequently asked questions.

I’ve addressed many of the frequently asked questions throughout this presentation, but there are a couple topics that I’d like to bring some clarity to. A common question that I find families are trying to sort out is that once they enroll into Medicare, they wanna know if they can continue to contribute to a Health Savings Account.

And unfortunately, you cannot, you lose your eligibility once you enroll in Medicare, so you cannot make additional contributions to your HSA account. However, you can use your HSA to pay premiums and other qualified medical expenses from your HSA.

Another crossroads that seems to have a lot of vagueness to it is this idea that if one works past age 65, can they stay enrolled in an employer plan and not enroll in Medicare, or do they need to enroll into Medicare?

As you’re well aware, Medicare usually starts at age 65, but if one works long, you may be able to extend your eligibility for employer-subsidized healthcare insurance or if you’re on a healthcare plan from the spouse’s healthcare insurance from an employer, thus helping to further minimize your out-of-pocket expenses.

Plus the initial income you could save towards those future costs not covered by Medicare. When the employer plan ends, though, you will want to enroll in part A and B within eight months after this coverage.

Now I do find it common that someone may have their employer-sponsored plan or spouse’s employer-sponsored plan due to primary insurance enroll in Part A as a secondary insurance because you’re not paying premiums for that. If you are enrolled in Social Security at age 65, and this is your situation, you will need to opt out of part B and possibly part A, which again, you may want to stay enrolled in part A. This idea of enrolling after the plan ends within eight months also applies to Medigap policy as well.

Investment Services Contact Information

Thank you so much for joining me today to learn more about Healthcare and retirement.

OnPoint Investment Services is a team of Raymond James Financial Advisors throughout both Oregon, and Southwest Washington to serve our members. We are here to help and look forward to connecting with you. If you have any questions related to healthcare, retirement or our financial and investment client services, simply email or call us, and we can connect you with a financial advisor in your area.

I’m DJ Kerr, Thank you for tuning in to our webinar today.