How-to Guides

Ask a group of seniors what their top financial concern in retirement is, and chances are they'll answer "health care." With health care costs skyrocketing and limited coverage by programs such as Medicare, many retirees face stiff monthly health insurance premiums, or worse yet, no coverage at all.

Health care for seniors can be a labyrinth of programs, eligibility restrictions, coverage limitations, and overlaps, with terms varying widely from program to program and plan to plan. In addition to federal programs such as Medicare and Medicaid, some agencies such as the Veteran's Administration offer benefits for specific constituents and many states have different programs of their own with varied eligibility requirements. Additionally, unions and trade organizations may also offer retirement health care benefits. Which of these you may qualify for will depend on your individual circumstances. In general, however, most retirees have two main health care options: Medicare and managed care.
Back to top

Medicare is the nation's largest health insurance program, covering 40 million Americans. As long as you've contributed enough to the program (through FICA taxes), you'll be eligible for Medicare when you turn 65, regardless of whether you're retired or not. The best time to apply for Medicare is at the first opportunity to do so: the seven-month period that starts three months before your 65th birthday. The program is divided into two components: Part A and Part B.

Part A is called hospital insurance and covers most of the costs of a stay in the hospital, as well as some follow-up costs after time in the hospital. Part A pays some other outpatient medical services, including medically necessary equipment and supplies, home health care, and physical therapy. Under most circumstances, you do not have to pay a premium for Part A.

Part B is medical insurance. This optional coverage is intended to help pay doctor's bills for treatment in or out of the hospital. It also covers many other medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests. If you elect Part B, the monthly premium is automatically deducted from your Social Security check. But there are some out-of-pocket expenses that Medicare will not pay for, including prescription drugs, although a Bush Administration proposal to incorporate a prescription drug benefit into the program is under consideration in Congress.

You now have three options for Medicare Part B coverage: the Original Medicare Plan, a Medicare Managed Care Plan (like an HMO), and the Medicare Private Fee-for-Service Plan. Each of these programs has pros and cons. And some may not be available in certain geographical areas. With the Original Medicare Plan, you pay your Part B monthly premium and then pay for additional services as you use them. Medicare Managed Care and Private Fee-for-Service plans are offered by private insurance companies. These programs were initiated to give Medicare recipients more choice in their coverage. With these plans, you must continue to pay your Part B premiums, and you may also have to pay an additional premium to the insurance company as well as any related deductible or co-insurance payments. However, the services you receive may be more comprehensive than those offered through the Original Medicare Plan.

If you opt for the Original Medicare Plan, you might also be interested in securing Medicare Supplement Insurance, or "Medigap" insurance. The term Medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Medigap doesn't fill in all the gaps -- but it helps. Before you buy a Medigap insurance policy, consider not only the services covered but also the amount of benefits and the monthly cost of the policy. Also pay attention to how much premiums may rise in years to come. You might also want to compare Medigap with the Medicare Managed Care and private fee-for-service programs, if they are offered in your area.
Back to top

"Managed care" refers to the large variety of health care plans offered through employers, unions, insurance companies, state governments, and private institutions. Managed care plans generally fall into two main varieties: health maintenance organizations (HMOs) and preferred provider organizations (PPOs). HMOs are generally less expensive than PPOs, but usually more restrictive in their services and choice of doctors.

For retirees, the decision of which managed care plan to choose often boils down to two factors: local availability and cost. Depending on where you live, your choices may be limited to a handful of organizations or plans. Both HMOs and PPOs have restrictions as to coverage and doctor participation, so it pays to find out what's available in your area. Plan costs also vary widely. Generally speaking, annual costs for Medicare enrollees may vary from under $100 per month to over $500 per month for an individual, depending upon coverage, utilization, and location.

Some companies and unions will provide health insurance as a retirement benefit to their employees and members, or will offer the option of extending their health care coverage to retired employees at group rates. But this benefit is offered by fewer and fewer companies. For example, a survey by the Kaiser Family Foundation and Hewitt Associates found that 43% of companies with 1,000 to 4,999 workers currently offer retiree health benefits. However, between 2004 and 2005, 12% of employers eliminated all subsidized health benefits for future retirees.

However you plan to provide for your health care in retirement, here are some points you'll want to consider:

• Be aware that most retirees need some form of supplemental coverage to pay for health care costs not covered by Medicare.
• Look into coverage and availability well before you retire.
• Check with your employer to see if it offers a retirement health care benefit -- and evaluate its ability to continue providing this benefit throughout your retirement.
• Be prepared for heath problems in retirement. Health issues are part of aging. Don't wait until they happen to cover the costs.

Medicaid is a program that pays for medical assistance for those with low incomes or disabilities. Eligibility criteria vary from state to state, but in general, you must have a very low income and few financial resources to qualify. In New York State, for example, the monthly income limit for a one-person household in 2006 was just $692, and financial resources could not exceed $4,150.

Source: New York State Department of Health.
Back to top