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The majority of Americans age 65 and older have health insurance through Medicare, the federal government’s retirement health insurance program.
However, as we’ve already discussed, Medicare doesn’t cover all medical costs in old age. Some retirees are surprised at the co-payments they’ve accumulated despite being enrolled in Medicare.
As the Employee Benefit Research Institute points out, “retirement health care costs can be substantial.” And according to his recent EBRI analysis, such costs can be especially high if you sign up for Original Medicare rather than Medicare Advantage.
All retirees must choose from two primary options when signing up for Medicare coverage: Original Medicare and Medicare Advantage.
- Original Medicare is traditional fee-based medical insurance provided directly by the federal government. Many Original Medicare participants also purchase supplemental coverage, also called a Medigap policy, to cover what Original Medicare doesn’t cover.
- A Medicare Advantage Plan is an all-in-one coverage offered by a private insurance company approved by the Federal Medicare Program.
EBRI has built its own simulation model to help people enroll in Medicare Advantage Usually no need to save Set aside as much cash to cover out-of-pocket medical needs in retirement as people who sign up for Original Medicare and Medigap policies.
For example, a man with average Medigap coverage would need to save $166,000 to cover his medical needs 90% of the time in retirement, EBRI says. For a woman, that amount would be her $197,000.
However, there are fewer if you are enrolled in Medicare Advantage. A man with median spending on prescription drugs and average access to health care needs to save $96,000 to cover his retirement medical bills 90% of the time. For women, the amount is $113,000 for her.
The scenario is similar for couples. A couple enrolled in Original Medicare on his Medigap plan for average premiums would need to save $318,000 to cover his retirement medical bills 90% of the time.
By contrast, those enrolled in the Medicare Advantage Plan will need to save just $184,000 to cover their retirement medical costs 90% of the time.
An EBRI estimate doesn’t necessarily mean you should rush to sign up for Medicare Advantage or switch. EBRI said in a summary of its findings:
“Of course, there are other factors to consider when choosing a Medicare Advantage Plan over traditional Medicare. Approval may be required before the
However, if you’re on a tight budget, you might want to reconsider Medicare Advantage.
Before deciding which Medicare option is right for you, make sure you understand the 4 pitfalls for new Medicare enrollees.