APPROACHING AGE 65, when you become eligible for Medicare? Spend some time perusing Medicare.gov, the federal government website. Here’s what you’ll discover:
- You typically aren’t charged a premium for Medicare Part A, which helps cover hospital bills, a skilled nursing facility for a limited time, hospice care and some home health services.
- You are charged a premium for Part B, which covers doctor’s visits, surgeries, lab tests and supplies such as walkers and wheelchairs. In 2019, the standard Part B monthly premium is $135.50. You also pay a monthly premium for Part D, the prescription drug program. At higher income levels, you’re charged steeper annual Part B and D premiums. The premium increases are based on your so-called modified adjusted gross income income, as reported on your tax return from two years earlier. MAGI includes both regular taxable income and tax-exempt interest from municipal bonds, but excludes Roth withdrawals.
- In addition to the monthly premiums, you may rack up substantial out-of-pocket medical costs. To cover some of those costs, you can buy a Medigap policy, for which you’ll pay an additional premium.
- Instead of so-called original Medicare, with its Parts A and B, you can opt for a Medicare Advantage plan. Also known as Part C, Medicare Advantage plans are privately run health plans for retirees. Many of these plans operate like a health maintenance organization, or HMO, which means you have less choice in the doctors you can see.
- Original Medicare doesn’t cover dental care, eyeglasses, long-term care, over-the-counter medicines and hearing aids. Some Medicare Advantage plans cover items like vision and dental care. But like original Medicare, they don’t cover all medical services—especially the biggest potential expense, which is a long stay in a nursing home.
Even with Medicare, retirees face substantial out-of-pocket medical costs. The Bureau of Labor Statistics calculates that health care accounts for an average 15.6% of spending by households headed by someone age 75 or older, versus 8% for all households. Fidelity Investments estimated that a 65-year-old couple retiring in 2016 would spend an average $260,000, in today’s dollars, on their retirement medical costs—not including the cost of long-term care.
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