How to cover what Medicare doesn’t

Medicare is a robust program, but it doesn’t cover every cost. That makes it important for anyone planning for retirement to plug any potential gaps in his or her coverage.

Let’s look at some common gaps in Medicare coverage and what you can do to make your retirement health care plan even stronger.

It’s not free

In theory, you’ve been paying for Medicare for years through your taxes, so that means it kicks in for free once you’re qualified for it, right? Not exactly. If you or your spouse have been paying Medicare taxes during your career, when you hit 65, you’ll automatically qualify for Medicare Part A, which is hospital insurance that provides a basic level of in-clinic care.

Medicare Part B requires a monthly premium payment to cover doctor services, outpatient hospital care, and other medical services like physical therapy and certain types of home health care. For most people, that means a payment of $104.90 each month (which can scale up to $335.70 depending on your income), plus $147 per year for the Part B deductible and a 20 percent co-pay.

Part C is a policy that allows private health insurers to deliver Medicare benefits, while Part D provides outpatient prescription drug coverage through private companies — both typically require an additional expense.

It’s critical to plan ahead for these added costs, so take steps to incorporate premium payments and co-pays into your retirement budget.

It’s not a full coverage plan

Even if you’re qualified for Part A and are paying the premiums for Part B, Medicare is unlikely to cover the full costs of your health care expenses. According to the Employee Benefit Research Institute, on average, Medicare covers 62 percent of the cost of health care services for beneficiaries 65 and older, while private insurance covers 15 percent and out-of-pocket spending accounts for 13 percent.1 The remaining 10 percent is split between Veterans’ Affairs coverage, Medicaid, Tricare, and other private plans.

That means you can expect health care spending to take a chunk out of your retirement savings or income. The EBRI estimates that an average man would need $64,000 in savings and a woman would need $83,000 to have a 50 percent chance of having enough money to cover health care expenses in retirement. For a 90 percent chance of having enough savings, a man would need $116,000 and a woman would need $131,000 dedicated to health care costs.

One option to consider is long-term-care insurance, which provides reimbursements to pay for personal services that help with day-to-day living needs. This type of insurance can offer support throughout the span of your retirement, and the earlier you purchase it, the lower the annual premiums.

It’s not retirement-based

The Medicare program is strictly age-based, which means that if you retire early (before the age of 65), there’s a strong risk of having a coverage gap of several years before the government program kicks in. So how do you bridge this gap? There are a number of options available, such as paying for continued employer coverage under COBRA, purchasing your own medical insurance policy, or signing onto your still-employed spouse’s plan.

Most of the options to bridge your health coverage gap will require added costs, so it’s important to start planning early and get the financial advice you need to be prepared for post-retirement insurance.

1“Needed Savings for Health Care in Retirement Continue to Fall.” Employee Benefit Research Institute (EBRI). October 28, 2014.