"Get Your Finances Ready for Retirement"-Covering Healthcare Costs in Retirement
Monday, August 11, 2008SUSIE GHARIB: Fewer and fewer retirees are receiving health care benefits from their former employers. And many soon-to-be retirees mistakenly believe Medicare will cover all of their health care costs. As we continue our ongoing series, "Get Your Finances Ready for Retirement," Joe Collum reports that proper planning is essential to pay for medical bills in retirement.
JOE COLLUM, NIGHTLY BUSINESS REPORT CORRESPONDENT: After years trying to get around on a pair of painful arthritic knees, Tony Basone decided to have them replaced.
TONY BASONE, RETIREE: We went to Disney World with our grandkids and couldn't walk with them. We couldn't keep pace, so we ended up with electric cart. That's when it tells you, you got to do something.
COLLUM: So last January, at age 69, Basone had the surgery. Two months later he was playing golf pain-free for the first time in years, but Basone's biggest surprise came when he got his bill for the $110,000 procedure. What did you pay?
BASONE: $69, amazing. We expected to pay more.
COLLUM: Only $69 out of Basone's pocket because Medicare paid approximately 80 percent of the tab, while his Humana Medigap insurance paid the remainder. Medigap or supplemental insurance, covers many costs that Medicare doesn't. Policies vary in coverage and costs and can be expensive. But in Basone's case, Medigap really paid off.
BASONE: We probably would have had maybe a $20,000 bill, yes.
COLLUM: Many baby boomers assume that when they hit 65 years of age and Medicare kicks in, their days of paying big medical and health insurance costs will be over. But unfortunately, that's hardly the case. Sunit Patel is an actuary at Fidelity Investments who conducts an annual survey on retirement health costs.
SUNIT PATEL, ACTUARY, FIDELITY INVESTMENTS: What we found was that a couple who's age 65 in 2008, that they would need $225,000 in savings in order to pay for health care costs over their life expectancy.
COLLUM: Dr. Kathryn Votava of goodcare.com cites similar figures.
DR. KATHRYN VOTAVA, PRESIDENT, GOODCARE.COM: The average American today who is 65 needs to budget $5,500 to $6,700 a year out-of-pocket for all their premiums, co-pays and other things like glasses and so on and so forth that they need to buy.
COLLUM: Although Medicare is available to everyone over 65, it's not a free ride. Take Medicare Part A, which covers hospital stays and rehabilitation. Even though it is provided to most Americans at no cost, it does have a deductible of just over $1,000. Medicare Part B carries a $96.40 monthly premium, which rises every year. It covers 80 percent of the cost for doctors' visits, outpatient hospital care and ambulance transportation and there's a $135 deductible. Since Medicare's Part D prescription drug plan is offered through different insurance companies, its costs vary. But in addition to a monthly premium, most people also have to pay a large share of their initial drug costs. And Medicare doesn't cover eye exams, dental care or hearing aids, nor most long-term-care in nursing homes. Medical costs are expected to continue going up faster than the rate of inflation. So anyone planning to retire at age 65 or above should be sure to have the right Medicare coverage in place. It's also a good idea to look into a Medigap policy and to have cash reserves to pay for the items that insurance may not cover. Joe Collum, NIGHTLY BUSINESS REPORT.
