As we transition into retirement, managing health insurance costs and healthcare becomes a pivotal aspect of financial planning. The rising expenses associated with medical care can significantly erode savings if not strategically managed.
Regardless of the type of your health insurance plan, learning how to save on health insurance costs and healthcare in retirement is a smart – if not necessary – move. This article explores four smart ways to mitigate healthcare and insurance costs, ensuring a financially stable and healthy retirement phase.
And what do seniors get from that much insurance? Not as much as retirees would hope. This is particularly true in the United States. Health insurance companies and the pharmaceutical industry tend to maximize their profits at the expense of families’ health and budgets. For example, the US spends an average of about $13,000 per person every year on health care. No other country comes close to spending so much.
The U.S. healthcare system is also among the most innovative in the world. U.S. companies developed some of the first Covid vaccines. They also developed prostate-specific membrane antigen (PSMA) therapy, discovering what might be a potential biomarker for prostate cancer in the process.
But despite all its spending and innovation, the US has the lowest life expectancy of any high-income country in the world. That’s not because Americans are sicker than people elsewhere; nor are older Americans heavier users of medical care – although those are important factors.
Prefer to listen rather than read?
The main reason is that Americans pay more for doctor’s visits, medication, hospital stays, drug prescriptions, and surgeries than people in other countries. This is among the most important reasons why you should save on health insurance costs and healthcare early on.
Rising Insurance and Healthcare Costs in Retirement
The need to save on health insurance costs and healthcare applies to ageing populations elsewhere in the developed world. For instance, while the Australian government continues to work to bring down healthcare costs for its citizens, rising out-of-pocket healthcare expenditures have also become increasingly worrisome for the country’s ageing population.
The Australian Federal Government’s 2021 Intergenerational Report predicts a slower population growth in the coming years. The report suggests that the number of Australians aged 65 will double, reaching 6.9 million, by 2061. That would be a full 23 percent of the country’s total population.
This would, in turn, mean a smaller economy as more Australians retire. In fact, experts say the massive shift in age demographics will bring enormous economic and fiscal challenges associated with increased healthcare needs.
This early research indicates a higher demand for aged care services in Australia as the shift proceeds, leading to increased spending on healthcare. Older Australians spent around AUD 3250 a year for healthcare between the years 2018 and 2019. By the end of 2023, the report says these expenditures will have risen to nearly AUD 4,000 a year.
Public health insurance, such as Medicare, is a crucial safety net for many individuals, providing coverage for various medical services. However, it’s important to note that not all expenses are covered by public health insurance. Your out-of-pocket costs will vary depending on several factors, including your overall health condition.
For example, if you require specialized treatments or medications that are not fully covered by Medicare, you may have to pay for them out of pocket. Another factor that can impact your out-of-pocket expenses is your age. As you get older, you may require more frequent medical care, which can lead to higher out-of-pocket costs. Additionally, where you live can also play a role in determining your expenses.
For instance, some regions may have higher healthcare costs or limited access to certain medical services, which could result in higher out-of-pocket expenses for residents. Your income level is another important factor to consider when it comes to out-of-pocket expenses.
If you have a higher income, you may be required to pay more for certain Medicare services through income-related premiums. On the other hand, individuals with lower incomes may qualify for assistance programs that help cover some of their healthcare costs.
Supplemental Medicare policies, such as Medigap or Medicare Advantage plans, can also impact your out-of-pocket expenses. These plans provide additional coverage beyond what is offered by traditional Medicare, but they come with their own costs, such as premiums, deductibles, and copayments. It’s important to carefully review and compare these policies to determine which one best fits your healthcare needs and budget.
In real numbers, an older Australian couple that retires at 65 today will spend more than AUD 660,000 in retirement to cover health care costs. That means they will consume 68 percent of their Social Security benefits, according to research.
4 Foolproof Tips to Help You Save on Health Insurance Costs and Healthcare in Retirement
While lifestyle changes tend to reduce your overall expenses as you age, healthcare expenditures become nearly uncontrollable as you cross 60 years of age, regardless of your nationality. This is all the more reason for older people to save on health insurance costs and healthcare even before they retire.
The bills for routine check-ups and emergency hospitalization will continue to increase, along with treatment for pre-existing conditions and medication.
So much so that – even now – nearly half of the seniors who passed away in the US have less than $10,000 in their bank accounts. The good news is that you can still take action to save on health insurance costs and healthcare services. All it takes is a little research and some effort on your part and on the part of those who care for you.
Below are four foolproof tips to help you save on health insurance costs and healthcare in retirement.
Create an Emergency Fund to Save on Insurance and Healthcare Costs in Retirement
One of the best ways to save on health insurance costs and healthcare in retirement is to build a substantial emergency fund for sudden medical expenses during retirement. The funds should be easily accessible in a bank account.
Having an emergency fund will provide you with the financial security you need to address unforeseen health-related costs without compromising your overall financial well-being. These unforeseen costs could be costs expenditures on unexpected health issues or emergencies, such as the need to replace broken eyeglasses.
This kind of financial planning can help you save on health insurance costs and healthcare later on. During retirement, having a reliable source of funds becomes crucial for maintaining a comfortable and secure lifestyle despite the constant healthcare spending.
Having both liquid and accessible assets at any point during old age allows quick and convenient withdrawal of funds, which is always especially valuable in urgent situations.
Claim All Your Government Entitlements
To help you save on health insurance costs and healthcare in retirement, make sure you claim all the entitlements available to you. While many people associate government assistance with retirement through programs like Social Security and Medicare, there are additional government programs that could provide support to retirees.
Some research shows that a significant number of older citizens in both Australia and the US do not take advantage of them.
Experts attribute this lack of participation to various reasons, including a lack of awareness about the existence of these programs and the complexity of the application process.
For example, you may be eligible for significant tax offsets as a senior citizen. Tax offsets for senior citizens in Australia, like the Senior Australians and Pensioners Tax Offset (SAPTO), reduce the tax burden for seniors with lower incomes.
In the U.S., seniors may qualify for tax deductions based on factors like medical expenses, retirement contributions, and other eligible deductions.
Pensioner concessions, on the other hand, are discounts or benefits offered to individuals who receive the age pension or other government pensions. These concessions can include reduced costs for utilities, public transport, and council rates.
Medicare Part D in the US
Other healthcare benefits may include pharmaceutical subsidies. In the US, the government provides pharmaceutical subsidies through the Medicare program. Medicare includes a prescription drug benefit known as Medicare Part D, which is designed to help seniors save on health insurance costs and healthcare in retirement.
Medicare Part D is a voluntary program that offers prescription drug coverage to Medicare beneficiaries, including seniors.
Part D is offered through private companies either as a stand-alone plan, for those enrolled in Original Medicare, or as a set of benefits included as an adjunct service to help you further save on health insurance costs and healthcare with your Medicare Advantage Plan.
The Australian Commonwealth Seniors Health Card
To help seniors save on health insurance costs and healthcare, the Australian government offers its senior citizens the Commonwealth Seniors Health Card (CSHC). The card entitles holders to government financial assistance for the cost of prescription medicines and certain other health services.
The CSHC is not means-tested against income or assets but has eligibility criteria related to age and residency. This makes it a more inclusive way to save on health insurance costs and healthcare.
To be eligible for the CSHC, individuals need to be of pension age but not eligible to receive the age pension itself.
Unlike the Age Pension, the CSHC is not subject to an income test. This means that individuals can earn a certain amount of income and still qualify for the card. The CSHC provides access to cheaper prescription medicines under the Pharmaceutical Benefits Scheme (PBS).
While the CSHC focuses on health-related benefits, it may also provide access to other concessions and discounts on various services, including medical services, utilities, and public transport, depending on state or territory government policies.
Avail of Supplemental Security Income and Similar Programs to Offset Healthcare Costs.
You can save on health insurance costs and healthcare in retirement by availing of the Supplemental Security Income (SSI) and similar programs. The SSI is a program in the US. While Australia does not have an equivalent program with the same name or structure, both countries have social security systems that provide financial support to eligible seniors.
The SSI is a federal program administered by the US Social Security Administration. It is designed to provide financial assistance to aged, blind, or disabled individuals who have limited income and resources.
Eligibility is based on financial need and factors such as exact income, resources, and living situation. To help seniors save on health insurance costs and healthcare in retirement, the SSI program provides a monthly cash benefit to eligible individuals to help meet basic needs such as food, clothing, and shelter.
The benefit amount is determined by federal and state guidelines and may be adjusted based on the recipient’s other income.
SSI has strict limits on both income and resources. Individuals with income and resources exceeding these limits may not qualify for SSI.
Remember, SSI recipients are often eligible for Medicaid, a government program that provides health care coverage for low-income individuals. When properly utilized, Medicaid and the SSI provide an excellent basis to save on health insurance costs and healthcare in retirement.
The Australian Age Pension Program
The Australian Age Pension Program is the primary income support program for older Australians in retirement. It provides a regular income to eligible seniors, taking into account age, residency, income, and assets tests.
Within this program, the Disability Support Pension is available to individuals with a disability that prevents them from working.
The program also permits carer payment benefits, which the government provides to individuals who look after seniors with severe disabilities, illness, or medical conditions.
Payments are means-tested, considering an individual’s income and assets. The level of support is adjusted based on financial circumstances.
If You Are an American Citizen, Establish a Health Savings Account.
If you are a US citizen on a high deductible health plan (HDHP), establish a health savings account (HSA) to save on health insurance costs and healthcare in retirement.
This type of health insurance plan typically has higher deductibles and lower premiums. It requires individuals to pay more out-of-pocket expenses before the insurance coverage kicks in.
An HSA is a savings account that allows individuals to set aside pre-tax money specifically for medical expenses. This includes costs such as deductibles, copayments, and coinsurance. HSAs are associated with HDHPs.
Right now, in the US, individuals can contribute up to $3,850 to an HSA for individual coverage and up to $7,750 for family coverage. Individuals aged 55 or older can contribute an additional $1,000.
“HSAs offer triple tax advantages,” says Brian Colvert, the CEO of Bonfire Financial in Colorado Springs, Colorado. “Contributions to an HSA are tax-deductible, which can lower your taxable income. The funds in the HSA grow tax-free, meaning you won’t owe taxes on the interest or investment gains. And when you use the funds for qualified medical expenses, withdrawals are tax-free.”
The Best Way to Reduce Your Health Insurance Costs is to Stay Healthy
No matter what your nationality and where you live, the best, most intelligent way to save on insurance and healthcare costs in retirement is to stay healthy.
Your well-being can have a positive impact on your finances, reducing everything from health insurance premiums to your out-of-pocket healthcare expenses.
You can prevent and manage many chronic conditions, such as diabetes, heart disease, and hypertension, through a healthy lifestyle. Prevention reduces the need for expensive medical treatments and long-term care, thereby lowering overall healthcare costs.
For seniors, staying healthy also often involves preventing or managing conditions that might require ongoing medication. This can result in lower prescription medication costs, as healthy individuals have fewer medical needs.
Some health insurance plans even offer discounts or incentives for policyholders who actively engage in health and wellness activities. This could include discounts for gym memberships, wellness programs, or participation in preventive care programs.
If you are eligible for such incentives, then you would have a fairly easy way to save on insurance and healthcare costs in retirement.
In your younger days, your health may not have been a primary focus. Younger individuals often have more energy and a more resilient body, which might lead to less emphasis on self-care.
But, as you age, taking care of yourself becomes more of a priority. The physical and mental changes that come with aging make self-care and a health-conscious lifestyle essential for your overall well-being.
You can best save on insurance and healthcare costs in retirement if you simply follow your doctor’s orders, eat and rest well, maintain a healthy exercise routine, live as active a life as possible, and practice some measure of mindfulness.
What do you think?
FAQ: Savings on Healthcare Costs in Retirement
- What should I consider for my future long-term care needs?
- Planning for your future long-term care needs is essential as you approach retirement to safeguard your savings. Long-term care insurance can help cover substantial costs that Medicare often doesn’t address, preventing your savings from depleting faster than anticipated. Exploring options early, including hybrid policies or riders on life insurance, ensures you have financial stability and care flexibility as you age, with affordable premiums being easier to secure before turning 60.
- What options are available if I retire before I’m eligible for Medicare at age 65?
- If you plan to retire before 65, securing health insurance is essential to bridge the gap until Medicare eligibility. Options include joining your partner’s employer-sponsored plan, continuing your employer’s insurance through COBRA, or exploring private insurance or government exchange plans, which may offer subsidies based on income. High-deductible health plans with an HSA can also provide cost-saving benefits, but carefully assess each option’s coverage and cost to align with your health needs and budget.
- Are there other ways to prepare for healthcare costs in retirement?
- Building a substantial emergency fund is one of the best ways to manage health insurance costs and unexpected healthcare expenses during retirement. This fund should be easily accessible to cover unforeseen health-related costs, such as emergencies or replacing essential items like broken eyeglasses, without jeopardizing your financial stability. Pairing this with increased savings in retirement accounts like a 401(k) and leveraging the tax benefits of an HSA can further strengthen your financial preparedness for healthcare needs, ensuring flexibility and security in retirement.
- What are the benefits of earmarking funds specifically for healthcare in retirement?
- By setting aside funds specifically for healthcare expenses, you can better prepare financially for retirement, ensuring you have the necessary resources to cover potential medical costs.
- What types of expenses can HSA funds be used for in retirement?
- HSA funds can be utilized for a variety of eligible medical expenses, including long-term care services and insurance premiums, though they cannot be used for Medigap Supplement Insurance premiums.
- How does Medicare enrollment affect HSA contributions?
- Once you enroll in Medicare, you are no longer able to contribute to an HSA. However, you can still use the funds accumulated in the account to pay for most medical expenses and Medicare premiums.
- Who qualifies for an HSA?
- To qualify for an HSA, you must be enrolled in a high-deductible health plan. Additionally, you cannot be covered by another medical plan or be enrolled in Medicare.
- What is an HSA and how can it be used for retirement healthcare costs?
- An HSA, or Health Savings Account, is a savings tool specifically designed for medical expenses. It offers potential tax benefits, making it an advantageous option for covering healthcare costs in retirement.
- What does Medicare cover, and how much does it cost?
- Public health insurance, like Medicare, offers essential coverage but doesn’t account for all medical expenses, leaving room for out-of-pocket costs. Factors such as age, income, location, and health condition can significantly impact these expenses, especially for treatments or medications not fully covered by Medicare. To fill coverage gaps, you can explore options like Medicare Part D for prescription drugs, Medigap policies for additional support, or Medicare Advantage Plans, each with varying premiums, deductibles, and copayments that should align with your healthcare needs and budget.
Disclaimer
The content provided on MySeniors.World is for informational purposes only and is not intended as either financial or medical advice. Always consult a qualified professional before making any investment or health-related decisions.
Posts may contain affiliate links, meaning we earn a commission – at no additional cost to you, if you click through and make a purchase. Your support helps us continue providing valuable content.
