How to Get Health Insurance in Retirement and Minimize Medical Expenses

After figuring out your finances and Social Security benefits, one of the biggest mysteries of retirement is health care. 

The fact is:

As we get older, we typically have more health care expenses.

That makes figuring out which option to choose a bit more complex.

Many people even end up having a pre-existing condition, but thankfully that isn’t as big of an issue as it once was.

  • If you retire at the traditional retirement age of 65 or older: the health plans you can choose from are pretty straightforward.
  • If you’re one of the early retirees: your health insurance coverage options are completely different.

Here’s what you need to know so you can plan to have proper health coverage in retirement.

Health Care Options at Traditional Retirement Age (65+)

If you’re planning on retiring when you’re 65 or older, chances are you’re going to get your health insurance in retirement through Medicare

You become eligible for Medicare at age 65, but you must also meet other requirements.

You can enroll in Medicare plans 3 months before you turn age 65, the month you turn age 65 or up to 3 months after you turn age 65. 

Open enrollment

After the first initial enrollment, you can change plans during the annual election period. Sometimes this is called an open enrollment period. 

This period typically lasts from October 15th to December 7th.

Any changes you make are effective on January 1st of the following year. If you miss this period, you have to wait until the next year to enroll or make changes.

There are fees and penalties that result in higher premiums if you don’t sign up for Medicare when you first become eligible.

For that reason, it usually makes sense to sign up for Medicare when you become eligible rather than waiting until you’re older.

Now:

Medicare isn’t like traditional health insurance.

Instead, it comes in many parts.

Traditional Medicare is just Medicare Part A and Medicare Part B. Today, you can also buy Medicare Part C or Medicare Part D, as well.

Medicare Part A

Medicare Part A covers inpatient hospital stays, nursing facility care, and home health care

There isn’t a monthly premium for this coverage as long as you or your spouse worked and paid Medicare taxes for at least 10 years.

You paid for it while you were working.

If you don’t qualify for premium-free Part A coverage and you’re a U.S. citizen or permanent resident, you may qualify to buy Medicare Part A coverage.

You can also qualify for Medicare, including Part A coverage, in a few other ways. One example is having Lou Gehrig’s disease. 

Medicare Part B

Medicare Part B usually covers things like doctor visits and other medical services like diagnostics and certain supplies.

Notably:

This part of Medicare does come with a monthly insurance premium.

Medicare Part C

Medicare Part C is often called Medicare Advantage plans.

These plans aren’t offered by the government. Instead, they’re offered by private insurers. 

They take the place of Medicare Part A and Medicare Part B. They pay all claims instead of having government-run Medicare paying claims. 

These plans are required to offer the same benefits as Medicare Part A and B, but can provide more benefits, as well.

Medicare Part D

Medicare Part D offers coverage for prescription drugs.

This is another part of Medicare that is offered by private insurers.

It is not offered by the federal government.

Medicaid may be an option

Medicaid may be another option to get health insurance in retirement.

If you’re age 65 or older and meet certain income and asset limitations, you may qualify. 

Unfortunately, the requirements vary from state to state.

Typically, these requirements involve a very low income and little to no assets. You will have to check your state’s requirements to see if you qualify.

Medicaid offers coverage for many services including doctor visits and hospital expenses. One major difference between Medicare and Medicaid is Medicaid covers long-term care costs. 

These long-term care costs can include nursing homes and at-home care. That said, Medicaid does not cover prescription drugs.

Health Care Options During Early Retirement

If you retire early before 65 age, you likely won’t qualify for Medicare or Medicaid.

Instead, you’ll have to find other ways to get health insurance coverage. 

There are plenty of health insurance options that might work for you.

1. COBRA

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act.

Surprisingly, this act allows you to get access to health insurance after you leave a company.

In particular, the act allows you to continue to stay on your employer’s group health insurance plan.

Most people can do so for up to 18 months after they leave their job. Unfortunately, it doesn’t apply to every employer.

COBRA coverage is only required to be offered by private industry employers that employ more than 20 employees. It also applies to state and local governments but it does not apply to the federal government.

While COBRA coverage sounds great, it can be costly. Employers aren’t required to pay any of your premiums like they might when you’re employed.

Instead, you’ll have to pay the whole premium yourself in addition to an administrative fee.

That said, this coverage can be useful if you’re retiring just a few months before you become eligible for Medicare.

2. Spouse’s health insurance

One benefit of group health insurance coverage that many employers typically offer is the ability to add a spouse to your health insurance plan. 

While not every employer that offers health insurance will allow you to add a spouse, many do.

With that said:

Be prepared for the cost to be much higher. 

Many employers pay for part of an employee’s health insurance costs.

However, the companies generally don’t subsidize coverage for your spouse.

3. Healthcare retirement benefits from previous jobs

Some jobs come with generous retirement packages.

These packages may offer retirees health insurance plans to use after they retire but before they reach age 65. This retiree coverage can be very valuable.

Sadly, these retiree health benefit plans are becoming rarer.

Some of them do still exist, though. In particular, government positions are some of the last positions to offer this coverage.

In the past, teachers, military and large company employees may have had access to these retiree health benefits.

4. Health insurance marketplace

Another great place to get health insurance coverage is your state’s health insurance marketplace.

Some states have set up their own marketplaces. Others allow Healthcare.gov to manage it for them.

Either way, the healthcare marketplaces list health insurance options that meet the Affordable Care Act requirements.

If your income falls below certain limits, you may even qualify for a premium tax credit to lower the cost of the insurance plan.

Enrollment periods

In general:

Open enrollment happens toward the end of each year.

During this time, you can pick a health insurance plan or change plans if you’d like. Coverage generally takes effect on January 1st of the following year. 

If you don’t sign up during open enrollment, you have to wait until next year to sign up.

You may also qualify for a special enrollment period to enroll during other times of the year.

Ways to qualify for a special enrollment period may include the following:

  • Losing qualifying health coverage such as leaving a job that provides your health insurance
  • Getting married or divorced
  • Having a baby
  • Gaining a dependent
  • Changing your primary place of living

How to Prepare for Out of Pocket Medical Expenses

Out of pocket medical costs can put a huge dent in your budget. This is especially true if you haven’t planned for them.

One great way to prepare for these expenses is having an emergency fund. An emergency fund is usually cash set aside in a savings account. Depending on your situation, emergency funds can hold as little as $500 to as much as a year’s worth of expenses.

The backup funds will be useful if you have unexpected medical expenses such as breaking your arm.

They shouldn’t be used for ordinary and expected medical expenses, though. You should plan for these expenses as part of your regular budget.

Budget for anticipated expenses

For expenses you know you’ll incur each month or year, plan to set aside the money ahead of time. These can include routine doctor visits, prescription costs, and routine bloodwork.

If your income can handle big expenses, you can simply budget each expense in the month it occurs.

If you can’t, consider saving a portion of the expense each month leading up to the date of the expense.

Fortunately:

Health insurance plans have out of pocket maximums that limit the total amount of medical expenses you may have to pay in a year. 

One way to make sure you can always pay for your medical care is keeping this amount in a savings account.

Then, as you use the money to pay for medical expenses, refill it over the next few months.

Summary

Whether you plan to retire early or at regular retirement age, you’re now aware of your options for health insurance in retirement. There’s no one size fits all answer to which option is best. 

Instead, you’ll have to investigate the types of health insurance offered.

Then, you can decide which is best for your situation. What may make sense for one person could be a huge mistake for someone else. 

If you need help, consider consulting a health insurance agent that can help you think through your options.

Related Articles

What is Retirement Annuity: Should You Buy it?
How a Reverse Mortgage Works for Seniors
What to Do With Old 401(k) Plans
How to Save and Invest Without a Company 401(k)
How to Recover Lost Retirement Accounts
401k vs. IRA: Which Retirement Plan is Better?

Ask a Question