Retiree Health Insurance: The Basics You Must Know

While you dream about the leisurely days ahead of you in retirement, it’s also important to think about some of the less glamorous items, including health insurance. In this new season of life, your old policies may no longer suit your needs or may come to an end. So, what types of coverage should you be considering for your golden years? What do you need to keep in mind as you prep for the transition?

We’ll explore the transition into retirement, the intricacies of Medicare, and various options available to ensure you’re adequately covered. This is an essential conversation for anyone approaching retirement and looking to navigate the complex world of healthcare costs.

Here’s some of what we discuss in this episode:

• The surprise many people get when they see how much health insurance costs if you pay on your own.
• Why might your health insurance change when you retire?
• What you need to know about the Medicare enrollment process.
• The different parts and deciding which you need.
• You might need supplemental coverage because Medicare doesn’t cover everything.

Full Transcript:

Ben (00:01):

Well, coming up on this episode, we're talking all about retiree health insurance, what you need to know as you get prepared to make that transition into retirement, your different options. We'll break down Medicare as well. We'll do all that with Ryan Cravitz coming up

Ryan (00:16):

When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations Retirement Talk with Ryan Cravitz of Cravitz Financial and Insurance Solutions.

Ben (00:31):

Well, hello and welcome in to Candid Conversations Retirement Talk with Ryan Cravitz there, Cravitz Financial in Orange, California. I'm Ben George. Ryan, how are you?

Ryan (00:40):

Things are good over here. Definitely excited to talk about this topic here today. It's a hot topic, a lot of questions as it relates to healthcare and planning for retirement. So looking forward to this.

Ben (00:55):

Yeah, this is an important conversation. I know it's a big piece of the planning puzzle as you're putting together for someone getting to retirement. I think a lot of times, Ryan, we've relied on our employer for so long that we don't really know how expensive it is. We don't really know what we need to do about coverage. It's all kind of a new thing for a lot of people when they get into retirement or get prepared for that transition.

Ryan (01:15):

Yeah, it definitely is. And I think a lot of times people are surprised, especially if they retire or they're planning to retire prior to 65, just how much it might cost. And actually I was talking to a guy, I forget what it was, it was probably a couple months ago now, but he did retire at like 61 or 62 and he was sharing with me just how much more he has to pay now for his health insurance. He had gone on COBRA as it turned out, and he told me, he goes, I can't believe it. The company, they must really not like that I retired and left because they're sticking it to me. Look at how much I'm paying. And the reality is they weren't sticking it to 'em. That was the cost of health insurance. It's just the company was subsidizing it during that time. So I know we're going to talk about that. That's an important time period, especially before 65.

Ben (02:19):

Yeah, that's a good point and a good story and a good way to set this up. So as we go through this today, we talk about the transition, talk about Medicare, talk about your options, things to be thinking about. Remember, you can always follow up with Ryan at Cravitz Financial. 714-462-9155. Alright, Ryan, so let's jump into this conversation. Let's start off then with that transition as someone's approaching retirement. And you kind of touched on this with that story you just shared, but why might your health insurance change when you retire? What are some reasons or some things just to be aware of?

Ryan (02:52):

Yeah, definitely. I mean that story for sure is a big reason. It's largely because your health insurance through your employer is probably highly subsidized. And now as a result, if you're no longer working now, you got to pick up that full cost of health insurance. And I think most people know this. I mean, and because a lot of the conversations that I have with people is that they want to retire. If they're in the early sixties or let's say maybe late fifties, they want to retire and they think financially they might be able to retire before 65, but they know that cost of health insurance is going to be so much. So they're thinking, well, I've got to wait till 65 to go on Medicare. Now the reality is, is that there's some options if you retire before 65, which could work to make your health insurance more affordable. One of them being with the ACA plans with the Affordable Care Act is one option. And a lot of people are surprised to find out that even ones that have been pretty high income earners over the years, that they could possibly get an ACA plan and still get subsidies. So it's all about how you position your money, your income in that year. And so it is a possibility. It doesn't work for everybody, but a lot of people are highly surprised by the fact that they can get those subsidies.

Ben (04:28):

Yeah, it's important too, and especially if you're going to retire before 65, right? You got to be able to bridge that gap and that's a big piece of it. Before you can retire, you have to make sure you have that covered.

Ryan (04:38):

You do. I mean, and there's other options too. I mean of course there's the ACA, like I just mentioned, private health insurance also, a lot of people might be eligible just under their spouse's plan and then they can switch to that and get some good coverage at an affordable price. The other thing is too, sometimes I find some people are in such a good position for retirement, yet they're thinking that they have to wait until 65 to go on Medicare. Sometimes for some people it makes sense arguably to go ahead and pay that high cost to health insurance and retire at 62 or 63 or 64 as long as the planning has been done and based upon the results of that, if it still looks good and you can still afford to retire and still have all the money that you want to do and have the lifestyle that you want to have in retirement, it might very well be worth it to go ahead and retire sooner, especially if you're in a job you're just not enjoying.

Ben (05:40):

Alright, so again, bridging the gap is so important to talk through some of those options, kind of understanding what's available for you until you get to Medicare. Now let's shift then to the Medicare options, Ryan, and getting prepared for that. So now that you have everything else in place in terms of bridging the gap, you got to really become familiar with the different parts of Medicare and understand what your needs are when you're selecting coverage. So as you get to that transition into Medicare, how does that enrollment process work and what are some key items that people need to know about?

Ryan (06:11):

So generally speaking, once you get to 65, that's when most people are going to go on Medicare and there's that open enrollment time. It's seven months, three months before the month of your birthday, then three months after the month of your birthday. Now not everybody needs to enroll in Medicare, even if you turn 65, if you work for a larger company and you have what's considered credible coverage, which is typically 20 or more employees. Or also too if you work for a union or government employees, I mean there's other types of retiree healthcare there, but the key thing is you have to enroll unless you have credible coverage and make sure that you do because otherwise you're hit with penalties both for part B and then also for Part D if you don't enroll in time. That's really the key.

Ben (07:08):

So important to know those kind of deadlines. And again, all this stuff is laid out for you I know on their website, but is it easy to kind of sort through this information and find those deadlines when you get to this point?

Ryan (07:21):

It's interesting, I find with both Medicare and also Social Security as well, both being government websites, there's so much information on there that sometimes the feedback that I get is, well, I was able to get some of my questions answered, but now I've got additional questions, I got kind of confused on something else. So now can you explain how this part works? Right? So that's just what I find is or is the feedback that I get.

Ben (07:50):

Yeah, a big surprise that the government makes it a little more complicated when you're trying to sort through it, then maybe it needs to be, but that's the reality. All right, so as you start evaluating this health insurance then, and the options you have with Medicare, how do you determine and what are you looking at to make the decision on what kind of coverage is most suitable for you?

Ryan (08:12):

So when you go on Medicare, you've got part A, which is primarily hospitals or hospital visits. And then part B is your doctors, your outpatient, that sort of thing. So the part A is considered free. It's not really free. I mean you've paid into it all these years as a part of your FICA taxes, but you've got your part A and then part B, I forget the premium this year, it's somewhere around $174 in 2024. Now you may pay more than that if your income is higher. There's the IRMAA surcharges that you have to worry about, but you've got part A, you got part B, and then you also have Part D, which is the prescription drugs, prescription drug plan to go on. Now the part C, the one that I skipped there, that's Medicare Advantage. So the way that it works is when you go on Medicare, the Part B is really the easiest way to explain, it's more or less an 80 20 type of plan.

(09:16):

So you're picking up for the most part 20% of the cost sharing. And the problem there is unlike probably your health insurance while you're working where there was that maximum out of pocket here, there is no limit. And so I mean it's an easy fix, but you have to fix it. And the options are either to stay on original Medicare and then pick up a supplement, and there's different ones there. The most comprehensive is today anyways for new people into Medicare is the Plan G, and that covers just about everything. I believe the only thing it doesn't cover is just that small deductible each year, which is somewhere around $250. It changes every year, but that will pick up all the rest of those costs. Now you have to pay for that as a separate payment each month for that supplement. The other option is to not go the supplement route, instead go the Part C or the Medicare Advantage route.

(10:21):

And then if you do that, now this is, think back to a lot of the healthcare that you had in your working years. There might be a lot of HMO plans, there are PPO plans, but you're going to have a lot of HMO plans within these and you're going to have networks and different doctors might be part of a plan or they may not. And so the answer to which one's better Medicare supplement or Medicare Advantage, it just depends upon the individual and it makes sense to do that compare and contrast when deciding which way to go.

Ben (11:01):

Right. I know that's something that Cravitz Financial can help you with as well. If you have questions and want to go through your options, start thinking about what coverage you might need. 714-462-9155 is the number or log on CravitzFinancial.com. Alright, let's talk about what Medicare doesn't cover. And maybe that comes as a surprise for some people, Ryan, because I think the assumption is, okay, well I'll get Medicare and I should be all set, but it doesn't cover everything, does it?

Ryan (11:28):

It definitely doesn't cover everything. And it is important to understand like you said, what it doesn't cover. Because beyond that, that's when we start getting into long-term care. And so then the question is, okay, how are we going to pay for these expenses if Medicare isn't going to cover this? And there's different types of long-term care. A lot of times people think of long-term care as like that, just that nursing home type of care. It's that, but it's also so much more. It includes home care, which is where most people want to get cared for. And it also includes going to an assisted living facility as an example. So there's a whole scope there, but to your point, it's so important to know what it covers, what it doesn't cover, and then for the things that it doesn't cover, how are you going to pay for that? What's going to be the plan? Is it to buy long-term care insurance? Is it going to be to self-insure? So either way can be okay. You can't go into retirement with blinders on and think that those expenses aren't going to happen because it is likely they will. It's just to the extent how much they're going to cost. In other words, how much care might you need there in the future.

Ben (12:48):

Alright, Ryan, so how many people then that you're working with them on Medicare and deciding what kind of coverage they need and getting them prepared for retirement? How many clients typically, and you don't have to give me a specific number obviously, but just is it common I guess for people to take advantage of the supplemental options or decide to use those as well alongside Medicare?

Ryan (13:08):

Well, definitely. I mean, you don't want to just go in and pick up Medicare alone, number one, you want to make sure that you pick up, either go that Medicare supplement route or go that Medicare advantage route. You want to have one or the other. Again, which one's going to be right for you. It just depends upon the individual because again, just Medicare alone, there is no max out of pocket there, so you need to go one route or the other. Just again, the question is which one's right for you?

Ben (13:39):

All right, very good. So health insurance, big piece of what you need to be prepared for in retirement. Again, if you have questions and need help with that, Cravitz Financial can certainly sit down with you and start working through your options, help you decide what kind of coverage you need. And you can find Ryan online at CravitzFinancial.com or you can give a call at (714) 462-9155. And Ryan, is this a common thing somebody comes to you for the first time about as they're thinking about retirement? Because I'm guessing there's a lot of questions that come along with Medicare and it's kind of a great starting point for a lot of people that are just meeting with you for the first time.

Ryan (14:14):

Yeah, it's important. It is such an important component of the overall retirement plan. Now, from a big picture standpoint, that's really the role that I play, but when it comes to actually knowing the specific plans, like for instance, the specific drug plans which change every year and different carriers get more competitive with each other, that's really where you want a Medicare specialist to talk to you about those specific types of plans. A Medicare agent that will help you there. But as far as the big picture in planning and understanding how these different things work, the decisions that need to be made, one example I should have mentioned even earlier, Ben, is it's so important when we're thinking about healthcare in retirement is even before 65 for people that are thinking about, okay, well maybe I am going to go on with an ACA plan, I'm going to get those credits. The other thing from a planning perspective that needs to be balanced is does it make sense to try to position that income to get those ACA credits or should you be focusing more on doing Roth conversions instead where you are going to now have higher income and where you're going to pay the tax now as a result. So that's something that is definitely important, needs to be considered within the planning to make sure that good decisions are being made around that.

Ben (15:41):

Alright, very good. Well hopefully this has been a helpful conversation for you as you think about health insurance and the need for that. And retirement could be a big expense for many people, so you want to be prepared for that. And especially if you're retiring early, you want to be able to bridge that gap until Medicare can be turned on as well. Alright, Ryan, as always, thanks for your time and again, I encourage anyone with questions or want to go through their planning in a little more detail. Ryan can help you with that as well. He's been doing it for many years and has a lot of experience in Medicare and beyond and the overall planning process as well. So CravitzFinancial.com, best place to connect online, but you can always call us (714) 462-9155. Ryan, thanks as always, appreciate the time today and we'll do it again soon.

Ryan (16:24):