Health insurance in retirement: Making sure you stay covered

Saving for retirement is a big focus for most families, but planning for health insurance in retirement sometimes gets overlooked. It's not uncommon for your health needs to increase as you get older, so it's essential to plan for healthcare once you're no longer covered by an employer. Understanding the health coverage options you'll have during retirement empowers you to make thoughtful decisions that fit your budget and your circumstances.

Medical expenses quickly can add up and throw a wrench in your financial plan and quality of life, especially in retirement. Americans 65 and older spent over 80% more than the national average on medical expenses, according to the 2021 Peterson-KFF Health System Tracker. Without health coverage, you could be responsible for the full cost of routine visits, prescription drugs, hospital stays and more.

But you don't have to bear the full burden. There are several options for medical insurance depending on factors like your health needs and when you retire. The option you choose can serve as a safety net, allowing you and your loved ones to enjoy this next chapter.

Retiring early (before age 65) comes with many perks, but it can impact the health coverage possibilities you have available to you. Medicare, for example, doesn't become available until after you turn 65. Fortunately, there are still several early retirement health insurance options that offer affordable coverage, even if getting Medicare isn't possible yet. These include:

• Your employer. You may be able to keep employer health insurance when retiring. Some employers offer retiree benefits that may or may not be subsidized. You also can choose to get a part-time job in retirement for health insurance.
• Continuation of coverage assistance. COBRA helps employees who are in transition get continued health coverage for up to 18 months. However, it can be more expensive than other options.
• Short-term insurance. Short-term insurance plans can be an affordable option while you wait for Medicare to kick in. Most contracts provide coverage for one to three years and cost significantly less than COBRA. However, it's important to pay attention to the details and ensure you're getting adequate coverage.

Once you're eligible for Medicare, you can choose between enrolling in original Medicare, which includes Parts A and B, or Medicare Advantage, which also is called Part C. Take a look at the different parts to better understand what you need.

Medicare Part A is hospital insurance that covers inpatient care, outpatient home healthcare, nursing facilities and hospice.

• Premium. There's no premium for retirees who worked at least 10 years and paid Medicare taxes. Those who didn't work long enough could pay a $278 or $505 monthly premium (for 2024), depending on how long they or their spouse worked.
• Deductible. The Part A deductible is $1,632 each time you're admitted for inpatient care per benefit period. Your benefit period begins when you're admitted and ends when you've had 60 consecutive days without inpatient care.
• Co-payments. You'll pay out-of-pocket costs for your time in the hospital. The first 60 days are $0 after you meet your deductible. You'll then pay $408 daily for days 61–90 and $816 daily for days 91–150. After 150 days, you'll cover all costs.

Medicare Part B covers doctor visits, certain preventive care services, medical equipment like wheelchairs and walkers, outpatient care and home healthcare.

• Premium. The Part B premium is based on your income and tax filing status. For 2024, the minimum monthly premium is $174.70. It can go as high as $594 per month for single filers earning $500,000 or more and joint filers earning $750,000 or more.
• Deductible. Expect to pay a $240 annual deductible for 2024.
• Co-payments. You'll pay 20% of the cost of Medicare-approved care after meeting your deductible.

When enrolling in Medicare, you have the option of Medicare Advantage, known as Part C—an alternative to original Medicare offered by private insurance companies. Medicare Advantage bundles Parts A and B and may include supplemental insurance. Part C may also cover vision, hearing and dental insurance. You have to enroll in Parts A and B before signing up for Part C.

• Costs. Part C premiums, deductibles and co-pays vary by provider. You have to pay your Part B premium to stay in your Part C plan.
• Out-of-pocket limit. Medicare Advantage has an annual out-of-pocket limit. Once you hit the limit, 100% of your services are covered for the rest of the year.

Once you turn 65, you can sign up for the premium-free Part A plan. To sign up for Parts B or C, or if you're required to pay for Part A based on your work history, you'll want to adhere to a specific enrollment window to avoid penalties.

Your first chance to sign up for Medicare is during the initial enrollment period, which starts three months before you turn 65 and lasts for seven months. If you sign up before turning 65, your coverage begins once you turn 65. If you sign up after you turn 65, your coverage starts the following month.

If you miss your initial enrollment period, you can sign up for Medicare during general enrollment from January 1 through March 31 each year. However, you may face a late enrollment penalty.

• Part B has a monthly late fee that increases the longer you wait to sign up. You'll pay an extra 10% for each year you could have signed up for Part B but didn't.
• If you have to pay for Part A but didn't sign up during initial enrollment, your premium will increase by 10%. To figure out how long you'll pay the penalty, take the number of years you were eligible but didn't sign up and multiply that by two.

In certain situations, you can sign up for Medicare outside of initial enrollment without paying a penalty. For example, if you lost Medicaid coverage, had employer or spousal insurance that recently ended or were impacted by a federal or state emergency or natural disaster. In many cases, you have up to six months from the event to enroll in Medicare without paying a late enrollment penalty.

Certain circumstances might make it possible for you to use Medicare while you're still working and/or are covered by a health insurance plan other than Medicare. How it works depends on the type of insurance you have, your employment status and the coordination of benefits (the primary insurance responsible for payment). Here's what to consider.

Because Medicare Part A has a $0 premium if you worked long enough, it's usually a good idea to sign up for it regardless of what other insurance you have or whether you're still working or retired. The exception would be if you are enrolled in a high deductible health plan (HDHP) and are contributing to an HSA. Medicare Part A could potentially cover hospital costs your primary insurance does not cover.

Certain types of insurance will be considered your primary coverage even when you turn 65 and qualify for Medicare. For example:

• You (or your spouse) are still working and enrolled in a group health plan with an employer with more than 20 employees.
• You (or your spouse) are a current or retired federal employee with Federal Employee Health Benefits.

If the coverage is similar, consider delaying Part B and enrolling once your employer plan ends. On the other hand, if Part B covers services your primary insurance does not, it could make sense to keep both if your budget allows.

Some insurance types treat Medicare Part B as your primary insurance once you turn 65, regardless of whether you sign up for Medicare. When Medicare is your primary coverage, your other insurance may not pay claims until Medicare has been billed. And if you never signed up for Part B, you could be on the hook for costs it would have covered.

Here are a few insurance types that you need to supplement with Medicare Part B:

• Group health plan that's not through a private employer or through an employer that has fewer than 20 employees
• Employer retirement coverage
• COBRA
• Medicaid

Head into retirement with clarity and confidence

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See the common retirement "blind spots" 

Original Medicare may not cover all of your healthcare costs in retirement, but there are insurance types that can complement Medicare to give you the coverage you need.

• Medicare Part C or Medicare Advantage is the Medicare bundle offered by private insurers.
• Medicare Part D covers certain prescription drugs. You'll pay a monthly premium and additional costs when you get your prescriptions.
• Medigap can help cover out-of-pocket costs associated with original Medicare, like co-payments and deductibles.

There's no shortage of health insurance options in retirement. To decide which is best for you, consider these factors:

• Understand your access to care. With Medicare Advantage, you could have access to fewer providers than if you stick with Medicare Parts A and B.
• Assess your health. Look at your current health and how you're aging to see if adding supplemental coverage like Part D or long-term care make sense for your situation.
• Know what other insurance you have. If you have an employer plan or federal benefits, like Federal Employee Health Benefits or VA health coverage, know how Medicare works with your insurance and how the coverage compares to decide if it makes sense to keep both.
• Understand how premiums fit into your budget. More coverage may be better, but it has to make sense for your financial situation. Consider enlisting the help of a financial advisor to weigh your options.

Planning for health insurance in retirement can be confusing. With different Medicare plans and supplemental insurance available, knowing which coverage is right for you and how much you need can be challenging. Speaking with a Thrivent financial advisor can help simplify your options and guide you through the process.