The Medicare Mistake That Can Wreck a Fixed Income
Medicare acts as a financial safety net for various medical expenses, but paying those monthly premiums doesn’t mean all your health care costs will be covered.
Total Medicare costs extend well beyond monthly payments, which catches many retirees by surprise. Understanding how Medicare helps and what other health care spending you may incur can make you financially prepared for extra expenses in retirement.
Must Read
Don’t only budget for the premium
The Medicare standard Part B premium is a monthly cost associated with your Medicare plan, but if you only budget for this line item, you can leave yourself financially vulnerable.
There are other costs to consider. You must pay a deductible before Medicare starts to cover your expenses for a health-related issue that is in your plan. Then, you will also have to pay co-pay and co-insurance. The co-pay is a fixed dollar amount you pay for covered products and services, such as a primary care visit or prescription drugs. Coinsurance is a cost you pay based on a percentage of a service’s value.
Even Medicare premiums can change over time due to inflation and other factors. Insurance premiums are not fixed monthly costs, and it’s a good idea to free up some space in your budget to anticipate small hikes each year.
Must Read
The costs people forget
Part B isn’t the only expense you pay. There are also Part D drug premiums, which represent the fee you must pay each month to maintain your prescription drug coverage. Medicare also typically doesn’t cover routine dental, vision and hearing costs.
Some people buy Medigap coverage to help cover the out-of-pocket costs such as co-pays, co-insurance and deductibles. If you choose to go this route, it’s important to factor that supplemental insurance into your budget as well.
How to avoid the fixed-income shock
Many retirees lean on Social Security and portfolio withdrawals to cover expenses, which gives them a fixed income. Medicare is a key line item, and it’s a good idea to include premiums plus a monthly cushion for non-premium costs when calculating your expenses.
Reviewing your plan each year can also help you assess new coverage and premiums. You can even end up with different provider networks and covered drugs. Make sure you enroll on time, since you can end up with a 10% penalty on top of your Part B premium if you enroll late. This penalty fee compounds for each full 12-month period you could have had Part B but did not sign up. Part D carries similar penalties.
Anticipating total health care costs will leave you more prepared for retirement. It can be wise to treat Medicare as a full household expense category instead of a single premium deducted from Social Security.