Medicare budget

[Target59]

My company 401k plan includes free access to a FA, so I let him look at my plan. He had me at FIRE a bit later than I had calculated, primarily because of his estimate of healthcare costs once I hit Medicare age. His estimate was a present value of about $13k, inflated at average health increases of 6.5% until I'm 65 (2029). That put the number at $26k/year in future dollars. That's about $10k more than I had in the budget, which explained the delayed FIRE recommendation.

I understand that there's a lot of variability and we could draw the short straw and have major health issues. But I'd like to budget a reasonable number and know I can adjust if we experience higher than normal expenses. Right now, we're really healthy and active with less than $1500 in total medical expenses each year, including dental, eye care, and all medical. I was thinking my budget of $16k was very conservative (ie inflated), but now I'm not so sure.

I'll appreciate any insight that will help me arrive at the right number for my budget. Thanks.

 

[joeea]

You are trying to project healthcare costs for >10 years out?

Personally, I'd go with the more conservative number provided by the adviser.

 

[Walt34]

I understand that there's a lot of variability and we could draw the short straw and have major health issues.

How lucky do you feel? I didn't have any major health issues either - until I did. Summer 2014 I ended up with two stents in my heart. Shortly after that the atrial fibrillation started, multiple ER visits (I think about eight) until a cardiac ablation (about a 7-hour procedure with a couple MRIs thrown in) has apparently solved the issue, at least for now. I've been warned it can recur. I didn't keep track of the costs but I'm pretty sure I smoked through at least a quarter-million $ AFTER the insurance-negotiated rates in the last four years. I shudder to think what it would be for someone with no or inadequate insurance.

Oh, and last spring I had a complication for a procedure that kept me in the hospital for four days under observation and DW in a hotel for the same period. As I understand it Medicare won't cover "observation" stays but my insurance, secondary to Medicare, does cover it.

While I'm fortunate to have excellent heavily subsidized health insurance such that I didn't pay any OOP for any of that except copays on prescriptions, and that very little, and of course the hotel/meals expenses when away from home, not everyone does have that.

 

[ivinsfan]

My company 401k plan includes free access to a FA, so I let him look at my plan. He had me at FIRE a bit later than I had calculated, primarily because of his estimate of healthcare costs once I hit Medicare age. His estimate was a present value of about $13k, inflated at average health increases of 6.5% until I'm 65 (2029). That put the number at $26k/year in future dollars. That's about $10k more than I had in the budget, which explained the delayed FIRE recommendation.

I understand that there's a lot of variability and we could draw the short straw and have major health issues. But I'd like to budget a reasonable number and know I can adjust if we experience higher than normal expenses. Right now, we're really healthy and active with less than $1500 in total medical expenses each year, including dental, eye care, and all medical. I was thinking my budget of $16k was very conservative (ie inflated), but now I'm not so sure.

I'll appreciate any insight that will help me arrive at the right number for my budget. Thanks.

Are you talking after you hit 65, in that case I think his number is too high. Medicare part B,plus supplement plus perhaps some drug costs shouldn't hit 26K.. right now B is around 134, a supplement here that pretty much guarantees no OOP medical expenses around 264... I'm not very knowledgeable about drugs costs. Did you ask the FA where he came up with the 13K number?

 

[ivinsfan]

How lucky do you feel? I didn't have any major health issues either - until I did. Summer 2014 I ended up with two stents in my heart. Shortly after that the atrial fibrillation started, multiple ER visits (I think about eight) until a cardiac ablation (about a 7-hour procedure with a couple MRIs thrown in) has apparently solved the issue, at least for now. I've been warned it can recur. I didn't keep track of the costs but I'm pretty sure I smoked through at least a quarter-million $ AFTER the insurance-negotiated rates in the last four years. I shudder to think what it would be for someone with no or inadequate insurance.

Oh, and last spring I had a complication for a procedure that kept me in the hospital for four days under observation and DW in a hotel for the same period. As I understand it Medicare won't cover "observation" stays but my insurance, secondary to Medicare, does cover it.

While I'm fortunate to have excellent heavily subsidized health insurance such that I didn't pay any OOP for any of that except copays on prescriptions, and that very little, and of course the hotel/meals expenses when away from home, not everyone does have that.

Remember if you have Medicare a quarter million turns to around 50K,(not saying that's a small number) and a supplement will lower that cost considerably, you can buy a supplement that will knock that 50K down to zero.As for observation stays Medicare is very clear you hospital must put that in writing and give you the chance to ask for a different status or simply decline to be admitted.

 

[Walt34]

As for observation stays Medicare is very clear you hospital must put that in writing and give you the chance to ask for a different status or simply decline to be admitted.

For that observation stay declining was not an option. I was in so much pain I could barely walk and was on IV Dilaudid and Morphine. Didn't eat anything for two or three days.

Actually I don't know if the status was actually "observation" but there was a sign on the wall that said "Observation Unit" so I made that assumption. Could be wrong though. Since I knew insurance would cover it I didn't worry about it.

 

[ivinsfan]

For that observation stay declining was not an option. I was in so much pain I could barely walk and was on IV Dilaudid and Morphine. Didn't eat anything for two or three days.

Actually I don't know if the status was actually "observation" but there was a sign on the wall that said "Observation Unit" so I made that assumption. Could be wrong though. Since I knew insurance would cover it I didn't worry about it.

It depends on the hospital coding but they are supposed to notify you in writing because Medicare won't cover observation admissions.

 

[Walt34]

It depends on the hospital coding but they are supposed to notify you in writing because Medicare won't cover observation admissions.

DW might remember, I was high on drugs at the time from the ER-administered Dilaudid so don't remember much. As said, I knew one or the other would cover it so it wasn't a concern.

 

[Katsmeow]

Remember you have to count the cost of premiums for Medicare, supplement, and Part D.

DH is 70 and on Medicare. Part B is $134 (note that this can be income adjusted upward). His supplement (AARP UHC F) is about $220 a month, increasing each year in June and his birthday month. He does not pay a Part D premium as it is paid by the company he retired from. Check out the cost of Part D.

For 2 people though just the cost of the above will use the lion's share of $16k.

The question is what expenses will you have beyond that. Depending on the supplement you choose that will vary. You won't have Plan F available to you so need to plan on the Part D deductible. Let's assume you get G and so everything else is included. Things you have to pay for though:

1. Possible prescription costs. Yes, yes, I know you don't have this as a big cost for you. As people get older, though, there is more risk of chronic conditions with ago. Some meds are very expensive even with a Part D plan. I do know someone who has very high cost due to an ongoing medication.

2. Cost of eye exams and glasses. Again, almost everyone eventually needs reading glasses.

3. Possible hearing aid. You may or may not ever need it.

4. Possible medical expenses not covered by Medicare. Yes, it covers a lot but you might want a particular test that Medicare doesn't cover, etc.


Oh about the issue of observation status. It is incorrect as I understand to say that Medicare doesn't cover observation status. The issue is whether a stay is covered under Part A or Part B. Part A covers inpatient status. Part B covers outpatient. Observation status is generally considered outpatient status. So different deductibles and co-pays apply. One important one is that medications that you receive as an outpatient normally aren't covered by Part B. They are covered under Part D (prescription drug coverage). So the medications may be covered differently if you are using Part D than if you are in patient.

Whether it can be inpatient or outpatient varies but Medicare often uses a 2 midnights rule to be in patient.

https://www.medicare.gov/Pubs/pdf/11435.pdf

 

[ivinsfan]

Its confusing you could get into a grey area for sure..but I still think they are required to explain which observation status you are in

 

[Target59]

OP here. Thanks for the feedback. The $13k figure the FA cited was supposedly an average out-of-pocket cost for a couple on medicare. Is that reasonably close to what is experienced by those of you currently on Medicare?

 

[Fedup]

Not yet. We’re relatively young, 67 and 58 here. Is that including premium?

 

[REWahoo]

Here is a similar thread from a few months ago: http://www.early-retirement.org/forums/f28/retirement-planning-for-medicare-costs-91376.html

 

[Katsmeow]

OP here. Thanks for the feedback. The $13k figure the FA cited was supposedly an average out-of-pocket cost for a couple on medicare. Is that reasonably close to what is experienced by those of you currently on Medicare?

If it includes premiums then yes. See my prior post where I detail this.

Medicare itself is $134. DH's supplement (he is 70) is about $220. So if you figure 2 people the combo of those is about $8500. That doesn't include the cost of a Part D plan (DH's is covered by his former employer so I am not sure of that cost -- I am not on Medicare yet).

Then there are the things that aren't covered by Medicare which I detailed in my previous post.

 

[Jerry1]

I would listen to your FA. If that means you have to work a couple more years then you’re probably cutting things a little to tight anyway. Health and healthcare expenses are one of the big unknowns in retirement. Better safe (to a point) than sorry.

 

[MBSC]

$13k/yr over 22 years (ages 65-87) totals $286k. That is close to the $280k, which excludes dental work, in this article.

The average couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement, according to an annual estimate by Fidelity.

Fidelity’s estimate assumes that both members of the couple are 65 and on Original Medicare, not a private Medicare Advantage plan. The $280,000 includes premiums for Part B doctor coverage and Part D drug coverage, out-of-pocket costs such as deductibles, as well as cost-sharing requirements for drugs. It also includes certain services and devices that Medicare doesn’t cover, such as hearing aids.

Fidelity assumes lifespans of 87 for a man and 89 for a woman. Notably, the $280,000 estimate excludes the cost of long-term care, such as home health aides or assisted living. The estimate also excludes most dental work, which Medicare does not cover.

Article: Retirement: How Much Will Health Care Cost? | Money

It appears the Fidelity estimate does not use a Medicare Supplement to help offset Part A/B cost sharing. OTOH, the supplement hopes you spend more on premiums than they pay out.

The Fidelity Retiree Health Care Costs Estimate assumes individuals qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

Source: https://www.fidelity.com/about-fide...-retiring-in-2018-would-need-estimated-280000

 

[ncbill]

I have a relative who retired in their early 50s via a COLA-adjusted pension, also receiving essentially free retiree health insurance/drug plan.

Then one they turned 65 complained to me about they & their spouse having to pay the Part B premium (their free early retiree health insurance converting to a free Medicare supplement/drug plan) while I'm paying several times that for employer-subsidized health insurance for my family.

 

[ivinsfan]

$13k/yr over 22 years (ages 65-87) totals $286k. That is close to the $280k, which excludes dental work, in this article.
It appears the Fidelity estimate does not use a Medicare Supplement to help offset Part A/B cost sharing. OTOH, the supplement hopes you spend more on premiums than they pay out.

In normal situations the insurance company comes out ahead. My DH recent medical misadventure included a 8 hour cardiac surgery, 4 days in the ICU and a total of 8 days in the hospital. Hospital bills are summarized under part A coverage and the total hospital bill including use of the OR was knocked down to 60K, our share would have been the Part A charge of around 1340.

So Medicare A and B definitely give a decent ceiling on most serious issues...when picking a supplement it's pay me now or pay me later, coupled with the fear of knowing if you get a chronic long term problem you can't buy or change regular Medigap plans.

 

[audreyh1]

In normal situations the insurance company comes out ahead. My DH recent medical misadventure included a 8 hour cardiac surgery, 4 days in the ICU and a total of 8 days in the hospital. Hospital bills are summarized under part A coverage and the total hospital bill including use of the OR was knocked down to 60K, our share would have been the Part A charge of around 1340.

So Medicare A and B definitely give a decent ceiling on most serious issues...when picking a supplement it's pay me now or pay me later, coupled with the fear of knowing if you get a chronic long term problem you can't buy or change regular Medigap plans.

Cancer treatment is super expensive. You don’t want to be saddled with 20% of those costs. Single chemo treatments can run $20-30K or more. Chemo is generally covered under part B.

My in laws dropped their Medigap coverage after many years because it was expensive for their annual budget and they ultimately decided they really weren’t going to use it. Well, a couple of years later and MIL is diagnosed with advanced colon cancer, and cancer treatment is super expensive, and the 20% copays were going to be something like $6k a treatment! They were able to get themselves on a special “grant” program since they were low income, but for a while there we thought we might be covering that coinsurance like at $36K a year.

Her husband (DH stepdad) got lucky and somehow was able to get back on a gap plan when Part D was created. He also later went through some cancer treatment and had no additional costs.

 

[ivinsfan]

Cancer treatment is super expensive. You don’t want to be saddled with 20% of those costs. Single chemo treatments can run $20-30K or more. Chemo is generally covered under part B.

My in laws dropped their Medigap coverage after many years because it was expensive for their annual budget and they ultimately decided they really weren’t going to use it. Well, a couple of years later and MIL is diagnosed with advanced colon cancer, and cancer treatment is super expensive, and the 20% copays were going to be something like $6k a treatment! They were able to get themselves on a special “grant” program since they were low income, but for a while there we thought we might be covering that coinsurance like at $36K a year.

Her husband (DH stepdad) got lucky and somehow was able to get back on a gap plan when Part D was created. He also later went through some cancer treatment and had no additional costs.

I agree completely and in both my DH and my cases we choose to go with the pay us now option. DH has already rung up a ton of bills which the supplement did cover in full. In my case we a both hoping that my supplement is a waste of money or a sunk cost. Believe me I'd be more then happy not to come out "ahead" on my Medigap plan...