4 Ways to Keep Health Costs Down in Retirement

by Greg Daugherty Health Writer

If you’ve ever daydreamed about how you’ll spend your retirement years, activities like travel, hobbies, and home improvements were probably high on your list. Chances are that paying medical bills didn’t figure in your fantasies at all.

But you may want to give the matter some thought. While the federal Medicare program picks up a lot of the heath-care tab for Americans over 65, it doesn’t cover everything.

What’s more, only a portion of it — Part A, or hospital coverage — is free for most people. As a result, you’re still likely to face out-of-pocket health care costs, including monthly Medicare premiums.

What’s the bill?

Every year, Fidelity Investments publishes an estimate of people’s likely health care costs in retirement, and every year it seems to go up. Its latest estimate, released in August 2017: $275,000 for a couple retiring at age 65 and living an average life expectancy. That’s up $15,000, or about 6 percent, from last year’s number.

High as that estimate may seem, it could be on the low side for many people. One reason: It doesn’t include dental care, which Medicare covers only in very limited circumstances.

What the estimate does include are the deductibles and coinsurance associated with traditional Medicare Parts A, B, and D. While Part A is usually free if you paid into the Medicare system during your working years, Part B medical coverage currently costs $134 a month or more, per person, depending on your income. Part D prescription drug coverage varies according to the specific plan you choose as well as your income.

What you can do

Fortunately, there are a few things you can do to keep your costs in check. Here are four:

  1. Retire later. If you’re still working at age 65 and have good health and dental insurance from your job, it may be less expensive overall than Medicare. However, not signing up for Medicare at 65 can be risky — you may find yourself without any coverage for a period of time or have to pay penalties for late enrollment. The Medicare.gov website recommends contacting your employer or union benefits administrator “before delaying Part A and Part B to find out how your insurance works with Medicare. Your employer coverage may require that you enroll in Part A and Part B in order to get your full coverage.” This Medicare fact sheet can help you decide when to enroll.

  2. Consider joining a Medicare Advantage plan. These plans, also known as Medicare Part C, are a private-market alternative to traditional Medicare. Opting for one may save you some money — or not. As Fidelity points out, those plans often offer broader coverage than traditional Medicare, but they may also “constrain you to receiving service only in a specific geographic area, or from a limited network of health care providers.” You can do some comparison shopping on the government’s Medicare Plan Finder.

  3. Fund a Health Savings Account. If you’re still working and have a high-deductible insurance plan at your job, you may be eligible to contribute to a Health Savings Account (HSA) and take a tax deduction for your contributions. For 2017 the limits are $3,400 for individuals and $6,750 for families; if you’re over 55 you can kick in an additional $1,000. Any funds you have left in that account after you retire can be withdrawn, tax-free, to pay for qualified medical expenses, including Medicare premiums, deductibles, and co-pays, according to the nonprofit Medicare Rights Center. You can’t, however, add money to your HSA once you’re on Medicare.

  4. Ask about government help. If you have a relatively low income and modest financial assets, you may be eligible for a number of state and federal programs that can help with Medicare premiums and deductibles, prescription drug costs, and other expenses. Your state’s State Health Insurance Assistance Program (SHIP) is a good place to start. You can also find a handy list of resources at Medicare.gov.

Greg Daugherty
Meet Our Writer
Greg Daugherty

Greg Daugherty is an award-winning writer and editor specializing in retirement topics. He has served as editor-in-chief of Reader’s Digest New Choices retirement magazine, executive editor of Consumer Reports, where he wrote a popular column about preparing for retirement, and senior editor at Money. His work has appeared in Money, Smithsonian, Parade, The New York Times, and NextAve.org, among others.