What affects health care costs for retirees
Your health care costs in retirement depend on a few factors. The good news is that you have some control over most of them!
Here are the 6 biggest factors according to our research.
Factor 1: Your health status
It's no surprise that the worse your health (or your family's health history) is when you enter retirement, the more you can expect to spend.
3 questions to consider:
- Are you a smoker?
- Do you visit the doctor often (at least 10 times a year)?
- Do you have 2 or more chronic health conditions?
If you answer "yes" to at least one question, you should plan to spend a larger portion of your retirement income on health care. However, if you don't have any chronic conditions (and no family history), you've never smoked, and you don't go to the doctor often, you can probably plan to spend less than average.
Factor 2: Your location
There's a big difference in price tags between the most expensive locations and the cheapest. Traditional Medicare coverage is the same everywhere, but prescription coverage (Part D), Medicare Advantage (Part C), "Medigap" supplemental plans, and private insurance vary, sometimes even within the same state.
For example, premiums for one supplemental plan* cost more than twice as much per year in the highest-cost area ($3,348) vs. the lowest-cost area ($1,488) in 2018.
Factor 3: The age you retire
Retiring before age 65 sounds great, but it means you may have to come up with other coverage until you're eligible for Medicare, the government-sponsored, subsidized health insurance program for retirees.
Here are some options:
- Stay on a spouse's plan. If your spouse or partner is still working and has employer-sponsored coverage, this is likely the cheapest way to stay insured.
- Stay on your former employer's plan. If you retire within 18 months before you become eligible for Medicare, you can use COBRA coverage to bridge the gap. It's the same coverage you had while working, but your employer won't subsidize it anymore, so your costs will increase.
If you're really lucky, your employer may also offer you continuing coverage as part of your retirement package. Win!
- Buy insurance on the open market or through a professional association. All states now have exchanges where you can buy coverage from private insurers, and many associations offer group insurance coverage. This is likely your most expensive option, unless you qualify for tax credits.