As Americans approach retirement, their healthcare coverage undergoes a significant transformation. Understanding the many options available becomes paramount for a secure and healthy retirement. Below, we delve into the intricacies of U.S. retirement healthcare coverage options.
Medicare: The Cornerstone of U.S. Retirement Health Care
Medicare is a U.S. federal health insurance program primarily designed for individuals aged 65 and older. Spouses can also qualify for Medicare at age 65, based on their spouse’s work earnings record. Eligible persons are automatically enrolled if they are receiving retirement benefits (Social Security) or have been receiving Social Security Disability payments for at least two years. If a person is not yet receiving Social Security benefits at age 65, then they themselves must enroll in Medicare. Medicare offers the following types of coverage:
- Medicare Part A (Hospital Insurance):
- Basic coverage for inpatient hospital stays (eg. semi-private room, meals, operating and recovery rooms, lab tests, x-rays, etc.), skilled nursing care following a covered hospital stay, hospice care, and some kinds of home health care.
- There is a $1,632 (2024) deductible per benefit period, which begins on the first day the insured enters the hospital and ends after you have been out of the hospital for 60 consecutive days. This means that for the first 60 days of treatment, the insured only pays $1,632 (2024). However, from day 61 to day 90, you are charged an additional copay amount.
- Enrollees aged 65 and older who made fewer than 40 quarters of Social Security contributions during their lifetime (approximately 10 years of work), and certain persons with disabilities must pay a monthly premium to voluntarily enroll in Part A. Individuals who had at least 30 quarters of Social Security contributions or were married to someone who made at least 30 quarters of contributions may buy into Part A at a reduced monthly premium rate. Individuals who have less than 30 quarters of Social Security contributions, and certain individuals with disabilities who have exhausted other entitlements, pay the full monthly premium, which is $505 (2024).
- Medicare Part B (Medical Insurance):
- Covers doctor’s visits, lab tests, ambulance services, outpatient care, preventive services, durable medical equipment (wheelchair, hospital bed, walker, oxygen, etc.), mental health treatment, getting a second opinion before surgery, and some home types of health care.
- Does not cover dental care, dentures, hearing aids, eye exams, or cosmetic surgery.
- The insured is automatically enrolled in Part B unless they opt out. There is a monthly premium associated with Part B coverage. The standard Part B monthly premium is $174.70 (2024) and premiums are often deducted from monthly Social Security payments. There are higher monthly premiums for those who are insured and have greater than $206,000 modified adjusted gross income (“MAGI”) and are married filing jointly, or $103,000 MAGI for those who are single.
- There is a $240 (2024) annual deductible, after which Part B covers 80% of eligible expenses with no limit.
- Medicare Part C (Medicare Advantage):
- An alternative to traditional Medicare, Part C offers regional coverage through private insurance companies.
- Part C often includes additional benefits like vision and dental coverage (not covered under Parts A and B).
- Medicare Part D (Prescription Drug Coverage):
- Provides prescription drug coverage through private plans.
- Enrollees choose a plan that aligns with their medication needs.
- There is a wide variation across the plans, most of which require a premium payment, deductibles, and co-pays.
Medicare does not provide healthcare coverage for services rendered outside of the U.S., subject to three exceptions:
- The insured is in the U.S. when they have a medical emergency, and the foreign hospital is closer than the nearest U.S. hospital.
- The insured is traveling through Canada without unreasonable delay by the most direct route between Alaska and another U.S. state when a medical emergency occurs, and the Canadian hospital is closer than the nearest U.S. hospital.
- The insured lives in the U.S. and the foreign hospital is closer to their home than the nearest U.S. hospital, regardless of whether it is an emergency or not.
The advisors at Cardinal Point commonly discuss with American clients now living outside of the U.S. whether to opt in or out of Medicare. The decision often factors in how much time the client spends in the U.S. each year, the healthcare coverage and availability in the country of their current residence, the current state of their health, and their family’s medical history.
Medigap (Medicare Supplement Insurance)
Medigap is supplemental insurance designed to fill the coverage gaps in traditional Medicare. Medigap is sold by private insurance companies and covers the costs associated with Medicare copayments, coinsurance, and deductibles. Medigap can also provide coverage for services that Medicare does not cover, such as medical care outside of the U.S. Medigap plans are standardized, labeled A through N, and each offers its own unique benefits. That allows individuals to select a plan based on their specific health needs and budget.
Employer-Sponsored Retirement Health Plans
Some employers offer health benefits to retirees, bridging the gap until Medicare eligibility at age 65. The availability and extent of such benefits varies across employers, so each option should be reviewed separately.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows individuals to continue their employer-sponsored health coverage for a limited period beyond retirement, termination (other than for gross misconduct), or death. COBRA applies to the loss of employer-sponsored health coverage for the covered employee, the employee’s spouse, and/or dependent children. COBRA participants typically bear the full cost of premiums. The extent and cost of these benefits varies across employers, so each option should be reviewed separately.
Health Savings Accounts (HSAs)
Individuals can contribute to an HSA until they enroll in Medicare. HSAs provide employees a healthcare tax deduction for amounts contributed to their accounts, tax-free growth while invested in the HSA, plus tax-free use of contributions and earnings withdrawn from the savings account for qualifying medical expenses. That makes the HSA the only triple-tax-advantaged savings account. However, distributions for non-qualified medical expenses taken before age 65 are subject to income tax plus a 20% penalty. Distributions taken for non-qualified medical expenses after age 65 are subject to income tax, but not a penalty.
To be eligible for an HSA, the individual must have medical insurance under a high-deductible health plan. Both employees and employers can make tax-deductible contributions to an HSA. The 2024 HSA limits are as follows:
|2024 minimum deductible
|2024 maximum out-of-pocket
|2024 HSA contribution room
|2024 HSA catch-up contribution room if age 55 or older
Long-Term Care (LTC) Insurance
LTC insurance covers the costs associated with extended care, whether in a nursing home or at home. Private policies vary in coverage and cost, and eligibility is based on medical history and age, so each option should be reviewed separately. There are seven types of coverage:
- Skilled nursing – daily physician-ordered nursing care
- Intermediate nursing – occasional (not daily) physician-ordered nursing care
- Custodial care – assistance with eating, dressing, bathing, transferring from bed to chair, using the toilet, and/or managing continence
- Home healthcare – in-home nursing
- Assisted living – apartment-style living with healthcare services
- Adult day care – daily assistance while a spouse or family member caregiver is away (eg. often while the caregiver is at work)
- Hospice care – at home, a hospital, or a nursing facility care for the terminally ill
Eligibility for benefits under a private LTC policy must meet the definition of chronically ill or substantial cognitive impairment:
- Chronically ill – unable to perform 2 of 6 assisted daily living activities (ADLs) for at least 90 days. ADLs consist of eating, dressing, bathing, transferring from bed to chair, using the toilet, and managing continence.
- Substantial cognitive impairment – behavior threatens the health and safety of one’s self or others (eg. dementia, Alzheimer’s, Parkinson’s).
Medicaid is a free or low-cost option for Americans with minimal assets. Each state has a different Medicaid asset threshold, which is based on a percentage of the Federal Poverty Level ($14,580 for a single-family household in 2024).
Planning for a Healthy Retirement
Estimating health care costs in retirement is crucial for financial planning. Factors such as insurance premiums, out-of-pocket expenses, potential long-term care needs, your net worth, your medical history, and your proximity to health care facilities must all be considered. Seeking guidance from a financial advisor can help individuals tailor their retirement health care strategy to their unique circumstances – in order to maximize benefits and minimize costs.
If you are a Canadian resident hoping to relocate to the United States or a U.S. citizen looking to return to the U.S., Cardinal Point can explain all of your U.S. health care cost estimates and coverage options. If you are a U.S. citizen resident in Canada who intends to remain in Canada, we are also happy to discuss your viability and potential eligibility for receiving U.S. Medicare coverage.