planning for medicare. don't know where to start

[missj]

Hey, so I know this is a long ways off into the future But I'm trying to estimate my income needs in retirement and healthcare costs are a huge unknown to me.

I've looked on the healthcare.gov exchange and I think I've got a handle on what our costs will be under the affordable care act until we reach medicare age; (plan is to retire at age 51 for me and pay health premiums thru age 65  via the ACA exchange)

Where I get confused is I don't really know what happens to our costs once we reach medicare age?  My husband will reach medicare a full 7 years before I will, and then once I reach medicare age I'm assuming our healthcare costs will plummet.   Isn't medicare free?  Or are there premiums based on your income?  All of the folks I know who are 65+ have purchased 3rd party medicare advantage plans.  But this is not something you really NEED to buy is it?  Can't you just get free health insurance from the government and just pay any extra costs as you go?  I'm very confused.

[wenchsenior]

There will be much more detailed info coming, but you might be confusing Medicaid and Medicare. Medicaid means essentially free health care, but you have to be extremely poor (like, less than 1000 income per month poor) to qualify, and qualifications vary by state.

Medicare is the retiree program, but it isn't exactly free either. Part A is free, but I believe it only covers hospitalization related expenses and a month or so of rehab after a hospital stay.

You pay for parts B-D, part B I think covers or offsets SOME common routine expenses. That costs maybe 150 or 200/month, I think, and I believe you have to buy it when you enroll. (ETA: I think part B might be cheaper....the 200 dollar figure I think might include part C in the situation I'm thinking of).

The other 2 parts are related to supplemental 'gap' coverage and drug coverage. Those are, I believe, optional.

Medicare never covers long term care/nursing home, except for aforementioned post hospital stay temporary rehab/nursing home stint. That is where most people run up the insane bills.

Someone who deals directly with this will undoubtedly give you more info.

ETA: The Wikipedia page seems to give a good overview of what the different parts are, what they cover, and how much you pay for them.

[Gin1984]

What the "experts" recommend is $250,000 for a couple age 65 now.  I then took health care inflation and applied that to the 35 years till I will be getting medicare.  It means saving more than a mill.  One reason I want more income than most around here.

[wenchsenior]

What the "experts" recommend is $250,000 for a couple age 65 now.  I then took health care inflation and applied that to the 35 years till I will be getting medicare.  It means saving more than a mill.  One reason I want more income than most around here.

Yup. I feel that a lot of the under-40 people on this board are severely underestimating the possibility of illness/injury creating a ton of bills later in life.

[missj]

What the "experts" recommend is $250,000 for a couple age 65 now.  I then took health care inflation and applied that to the 35 years till I will be getting medicare.  It means saving more than a mill.  One reason I want more income than most around here.

Yup. I feel that a lot of the under-40 people on this board are severely underestimating the possibility of illness/injury creating a ton of bills later in life.

I tend to agree.   There seems to be this general sentiment that "I'm active and healthy.  I'll just continue to do all the right things and I'll stay active and healthy"  the problem with that logic is that all of our bodies are a ticking time bomb.  SOMETHING is going to take each and every one of us out eventually; and very few of them are cheap.  It's quite unusual to die peacefully in your sleep without some sort of medical episode leading up to that.  It's very possible to live your whole life in a state of health with very few medical needs and then to rack up several hundred thousand dollars in medical bills in your final few months. 

My question/concern is whether medicare will cover most of that, or if it is wise to buy the "advantage" or "gap" plans?  and if so, how much do they cost?

[wenchsenior]

Well, the 250K figure currently recommended for couples assumes both people ARE covered under Medicare A, B, and potentially gap coverage. This figure includes the average costs above and beyond those covered by Medicare. I think it's a good starting point for planning. It is an average, so it's driven up by the fact that a good chunk of people end up with really expensive care (usually Long Term Care). The problems is it is hard to know just how long any given person is likely to need Long Term Care.  I tend to err on the side of planning for a LOT because one grandparent died young, and the other 3 all needed long term care for 3+ years (10+ in one case). Medicare doesn't cover that, and it's really hard to plan for.  Assets over about 1.5 million and you might be able to self insure. Assets of the typical American? They burn them up until they are destitute and go on Medicaid. It's those of us expecting to end up in between that are in a bind.

[missj]

Yes, I can draw on my own family's experiences for some insight as well.  Due to remarriages, I have 8 grandparents of which 1 is still alive and lives on her own.  The other 7 all faced between 1-5 years of severe medical problems prior to their eventual death. 

Mostly, my grandparents planned and saved well and were able to afford it...but things have changed A LOT about end of life care in the last 30 years or so.  Life is prolonged, which is wonderful, but it is done so at great cost.  Gone are the days when a person dies suddenly of a heart attack (I mean it still happens but it's just not as common as it used to be.  Nowadays, we are saving these folks and rehabilitating them and getting them another few years of life).  And I'm not complaining about that, I think it's great.  I just want to be realistic about what that costs.

[CircuitousRoute]

Let me start by pointing out that medicare.gov is a very useful resource when trying to understand medicare. It is after all the government website for medicare. The government agency that administers medicare is the Center for Medicare and Medicaid Services, which for some reason is abbreviated as CMS.

In terms of costs, go to the cost at at glance section:
https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

The quick run down:

Part A: Hospital Insurance (you'll get this automatically at age 65 is you paid into social security)
- Generally, premiums were covered by paying FICA taxes while working, so no additional premium is required
- Covers care at a hospital and skilled nursing facilities (think short term post hospitalization rehab)
- Deductible is per hospitalization (coverage period), current is $1228
- Additional co-pays (currently $322 per day)  kick in after 60 days of care.
- All deductibles and co-pays are set annually by CMS

Part B: Medical Insurance (you have to sign up for this and generally become eligible at age 65)
- Current base premium is $104.90 per month (this is automatically deducted from social security payments)
- Premiums are income dependent, but don't increase much with income (~50% increase at the top)
- Covers doctors visits, tests, some preventive care, and durable medical equipment (think beds and oxygen tanks)
- Current annual deductible of $166
- Co-insurance of 20% of medicare dictated prices for eligible services (it's a little more complicated than this, but that's the gist of it)
-Deductibles and premiums are set annually by CMS, co-insurance rate is fixed at 20%

Part C: Medicare Advantage (privately administered replacement for medicare, think Humana)
- Cost structures can be completely different, but must be at a minimum "actuarily equivalent" to parts A and B
- May have additional premiums
- Still have to pay normal medicare premiums

Part D: Prescription Drug Insurance
- CMS sets minimum standards and rates plans as different levels of coverage
- Plans are privately administered and change annually even if the name of the plan is the same
- Best advice is to use the plan finder tool for your zip code and drug list at https://www.medicare.gov/part-d/

Medigap aka Medicare Supplement Insurance:
- Letter codes (A to K I think) dictate plan coverage details as set out by CMS
- Privately administered plans that add additional coverage on top (instead of replacing) regular medicare parts A and B
- Have additional premiums
- Cover medicare costs such as co-pays, deductibles, and co-insurance
- The only part of coverage than can change after issue is the monthly premium
- Require underwriting (i.e. are you healthy enough) unless issued when you become eligible for medicare (i.e. the first three months after you turn 65) (or a few select other circumstances)
- great resource: https://www.medicare.gov/supplement-other-insurance/index.html