Comparison of Medical Plans for Retirement

Understanding your options before you retire can help you plan for future healthcare costs.

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Understanding the medical plans available to retirees is an important factor in retirement planning. Common healthcare plans include Medicare, Medicaid and supplemental insurance. Specific coverage and eligibility requirements vary per plan. Understanding how each plan works is imperative to managing healthcare costs and preserving your nest egg throughout retirement.

Medicare

Medicare is a federally funded insurance program that offers medical coverage to seniors. You typically qualify for Medicare if you worked at least 10 years and are age 65 or older. The Medicare program consists of four parts. In most cases, you do not pay for Part A, but you may need to pay a premium for the other parts. Part A is hospital insurance and Part B is medical insurance. Part C, often referred to as a Medical Advantage Plan, offers additional hospital and medical benefits and is run by private insurance companies. Part D is prescription drug coverage.

Health Savings Account

Individuals who desire to retire before reaching the age to qualify for Medicare can contribute to a health savings account. To qualify for an HSA, you must enroll in a high-deductible healthcare plan and cannot receive Medicare coverage. The contributions you make are used to pay for qualified healthcare expenses. A primary benefit of an HSA is that your funds remain in your account until they are exhausted. You can also take a tax deduction for your HSA contributions. Contributions grow on a tax-free basis, and you do not pay income tax on qualified withdrawals.

Medigap

Medigap is Medicare’s supplemental insurance coverage offered by private insurance companies. Premiums are paid to the insurance company providing coverage. Medigap insurance pays for expenses not covered by Medicare. For example, coinsurance, deductibles and co-payments are typically covered under Medigap policies. You must receive Medicare Part A and Part B coverage to qualify for a Medigap plan. If you are covered under a Medical Advantaged Plan, you must end coverage before your Medigap policy goes into effect.

Other Options

Some employers offer medical insurance even after you retiree. In this case, Medicare pays your medical bills first and any uncovered expenses are paid by your employer-sponsored healthcare insurance plan. Other options exist if your employer does not offer healthcare benefits to retirees. According to AARP, you can receive medical coverage under COBRA for up to 18 months after retiring. This gives you additional time to look for suitable healthcare coverage if you do not qualify for Medicare or Medicaid.

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